Trends found with Bollinger Bands
Trends found with Bollinger Bands
Technical Analysis and Bollinger Bands really belong together. A classic example of a technical analysis in Forex is a forex chart with candlesticks and Bollinger band channel that runs along the course. Many forex strategy makes extensive use of this technical indicator. Even when entered on the online currency market, they are widely used, because Bollinger Bands provide many useful forex information.
For a successful trader is nothing more beautiful than freeloading with a trend movement. A position as the trend was not so long busy and then enjoy the next trend price movement you with every pip richer and richer. Range trading is also exactly the same, but the 'trends' much shorter.
But when is there a trend? And how do you find him? That's where technical analysis can help with, and where Bollinger Bands can play a role. Bollinger Bands are based on the simple but fundamental idea that prices are between 70 and 80% of the time moving in a certain bandwidth. When located outside this bandwidth rates begin to move, there may be from the beginning of a trend.
Bands which Bollinger to do is to measure the standard deviation (SD) of the price, in relation to the moving average over 20 periods of time.
In Example I above the Bollinger Bands are close together. This indicates a low volatility is in the market, because the difference between the two extremes-SD SD on the top and at the bottom-small.
In the following example, the Bollinger Bands II are rather far apart. The price movement is just so very volatile, making it harder to predict what the market will do.
Bollinger Bands use it to take positions and to leave
For the successful use of Bolinger Bands in Forex are three important questions:
1) Trend dectectie: when is there a trend?
2) Entry Point: When position to take?
3) Exit Point: When the trend is over?
Of these questions is the third-surprisingly-perhaps the most important. The value of exit points is considered by many traders often greatly underestimated. Most traders want to know especially when they have steps. What part should I buy? Which currency will go down? Of course it is important to choose a good time to step in, but most traders lose because they run on balance: a) not able to limit their losses, b) not maximize their profits. Both a and b are determined by finding exit points. (Here we go away, in the strategy section, deeper in)
Trend detection: when is there a trend?
When using the Bolinger Bands, we assume a trend like the candlestick above the upper Bollinger Band or below the lower band closes (the buy / sell zone). The Band touching or crossing is not enough. The close above / below the belt means that there may be a 'final' (if there is ever final in financial trading, Smile) breakthrough is made.
Entry point: When cursor position
Even closing the candle in the buy / sell zone, yet we do not take an immediate position. Why not? Because we are searching for low-risk probabilities. The difference between winning and losing traders have far less to do with the choice of a 'winner' and more to do with minimizing the risk and the maximization of profits for the times you're right. Therefore it is better to wait until prices retracen before boarding.
Price retracement will almost always take place. Even in a huge bull market because people take profits and are traders who think the top / bottom in sight and therefore opposite positions. Boarding after retracement is what successful traders do. They try not to make trends (if you like you better in the fashion industry to work) but trends. If you get in retracement after you reduce the financial risk of your position properly. If the price will continue moving away from the top / bottom than in the first place, there was no trend al. The difference with people who occupied their position immediately as soon as the candle closed above / below the belt is that your loss is much smaller. Was there really a question of retracement and returns the price back above / below the belt then your profit also increased.
Position is what we do as the price for a moment back in (in case of uptrend) The Band (and vice versa for downtrend). If the price is well above / below the belt then we closed position when the price gets to the Band retracement. In both cases, so watch your step in if prices temporarily fell / rose, so you catch the retracement and thus reduces your losses if the trend does not continue (retracement retracement but was not put through) and increase your profits if you do cables (because you're at a better price boarded).
In exceptional cases you have bad luck and there is hardly any price retracement but pops through and through. That is a pity, but in the long term you will earn much more / less or lose by waiting for the retracement.
Exit point: when the trend is over?
As said this is the most important question because it both reduces your losses and not every position is simply a winner-if you will maximize profits.
Many novice traders know soon the old traders adage: cut your losses short and let your profits run. This adage is seen as the golden rule of trading. Why are there so many losing traders if everyone knows this adage? Because many people find it difficult to stick to that rule to hold.
What is the biggest temptation when you are in a casino or at the table much money you have lost? Exactly, more bets. Many people thus enhance their true losses (on the financial markets there is often a trader in that he argues that the signals really well understood, and so really just 'right', even though deficits pile up). At the same time it is quite natural to secure profits, because nothing is more annoying than to see profits evaporate to zero or worse, to try to save loss. Many traders do is exactly the opposite of the golden rule, namely, run Their losses Their profits and cut short.
Consider and determine exit points can prevent this, provided you stick to your own exit points, of course. Smile
The exit point for loss take when working with Bollinger Bands is to hit the opposite band, so in the case of the uptrend is hitting the lower Bollinger Band the time to get out. Why no crossing of the Band or closing the Candle in the Band? Again, this has everything to do with avoiding risk. A trend movement is not strong enough to rise above the opposite band is no trend to continue movement (or at most a very weak) and is therefore not a risk worth taking. Poker residents, could also be reminded of the adage: know when to release a shitty hand
The exit point to take profits may be the same as for loss shall, with the variation that you can also decide to use a portion of the profits to secure the exit point not on the opposite strap to make but in the middle of the two Tires. Profit maximization is not optimal, but for some traders it is more important to the pleasure of tasting a nice (but not great) profit.
The correct use of Bollinger Bands not only increases the chances of trend detection and thus the successful follow-but it compels you to think about exit points (both loss and take profit maximization). The latter ensures that you're more aware of occurred and paves the way for developing a winning trading strategy.
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