If you want to learn how to read bollinger bands, this article is for you. Whether you trade penny stocks, higher-priced stocks, or both, there is an indicator that will work for you. This simple indicator has many uses, and can be used by all traders. It’s a simple way to spot overbought and oversold levels in a currency pair. But it’s important to understand that this indicator is different from the Keltner Channels.
First, you need to understand how the bands are calculated. The bands are made up of three lines – a moving average, upper and lower bands, and an offset of 1.9 to 2.1 standard deviations. Generally, the bands are drawn using a 20-day SMA for the middle line, but you can change the upper and lower bands to your liking. But make sure to learn how to read bollinger bands properly before you start trading.
Essentially, Bollinger bands are used to gauge overbought and oversold conditions in a currency pair. When prices move from one band to the other, the band will show an overbought condition. If the band moves below the lower band, the market is overbought, while an upward trend stops at the upper band. This signals traders to sell their assets. You’ll also be able to read these bands by looking at the price of a particular currency pair.
You can use the band to select an asset when the price moves above or below a particular band. You can also configure the bands to send you signals when they reach a certain level. Bollinger bands are also useful for filtering out signals. They are most effective when combined with other technical analysis tools to help you decide whether to trade or stay out. In addition to identifying trends, they help you determine whether a currency is strong or weak.
As with any other indicator, Bollinger Bands are not a one-size-fits-all solution. They are merely one of many tools in a trader’s arsenal. Traders usually use the space between the bands as a safe trading range. That’s because it’s the Goldilocks range – not too hot nor too cold. With this, you can tell when a stock has moved too far.
During a bullish trend, the price is likely to exceed the upper band and fall below the lower band. When prices break below the lower band, they are considered oversold. Traders will typically purchase assets that have reached an oversold phase in order to maximize profits. By reading the two main indicator lines of the moving average, you can better anticipate when a currency pair is about to turn bullish or bearish.
Another popular way to use Bollinger Bands is as a trade indicator. If you are using this indicator to trade the currency pair, you should also watch the RSI indicator. When price touches the lower band, the RSI must be between 30 and 50. If the RSI indicator reaches 80, you would not want to enter the trade. A high-resistance strategy, on the other hand, may be more appropriate for your trading style.