; Bollinger Bands strategies in Forex trading
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Bollinger Bands strategies in Forex trading

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                 <p>Bollinger Bands is one indicator which many traders
tend to have on their charts even if they are actually analyzing other
technical analysis indicators and not really Bollinger bands.</p>
<p>Let's see how to use this common indicator to get us more winning
trades, mainly with a combination of other technical indicators like
stochastic oscillator.</p>
<p>Bollinger bands indicate the volatility of market and hence we should
always look for the change in volatility. The change always indicates
some major move and we need to catch that up early. So what we need to
look for is the following:</p>
<p>1) Bands are widening: Volatility is increasing and further move can
be anticipated in the current direction. So we need to ensure that we are
correct about the current direction.</p>
<p>2) Bands are tightening: Volatility is decreasing. It can be like
silence before the storm and a major breakout may be on the way. But
breakout in which direction?</p>
<p>1a) Widening Bollinger Bands (Bullish):</p>
<p>This pattern generally would take place after some band tightening
with low volatility shorter candles with range movement)</p>
<p>- The bands are widening with the upper band moving sharply upside and
the lower and moving sharply downwards. <br>- The price action is moving
upwards.<br>- The recent candle sticks are longer than the previous
candlesticks</p>
<p>Action:<br>- Check if RSI (Relative Strength Index) is in the range of
30 to 50 and rising.<br>- You may also check if ADX is rising towards
25/beyond 25 and +DI crossing -DI.<br>- Check if Slow Stochastic is
crossing the signal line upwards (bullish).<br>- If all above are taking
place then we can expect a further upward move of the price. It will be
safer and hence better to wait for 2 or 3 more candles to confirm the
trend and then take a buy position. It also happens that before a further
upward move there may be some downward correction and the wait for 2/3
candles may help in increasing the gains.</p>
<p>If ADX does not move above 25 then the upward move may be limited and
hence the profit taking will be limited<br>Â <br>1a) Widening <a
rel="nofollow" onclick="javascript:_gaq.push(['_trackPageview',
'/outgoing/article_exit_link/4752592']);"
href="http://www.forexabode.com/technical-analysis/bollinger-bands"
target="_blank" title="Bollinger bands">Bollinger Bands</a>
(Bearish):</p>
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<p>This pattern generally would take place after some band tightening
with low volatility shorter candles with range movement)</p>
<p>- The bands are widening with the upper band moving sharply upside and
the lower and moving sharply downwards. <br>- The price action is moving
downwards.<br>- The recent candle sticks are longer than the previous
candlesticks.</p>
<p>Action:<br>- Check if RSI (Relative Strength Index) is in the range of
55 to 75 and falling.<br>- You may also check if ADX (Average directional
Index)is rising towards 25/beyond 25 and -DI crossing +DI.<br>- Check if
Slow <a rel="nofollow" onclick="javascript:_gaq.push(['_trackPageview',
'/outgoing/article_exit_link/4752592']);"
href="http://www.forexabode.com/technical-
analysis/stochastic">Stochastic</a> is crossing the signal line
downwards.<br>- If all above are taking place then we can expect a
further downward move of the price. It will be safer and hence better to
wait for 2 or 3 more candles to confirm the trend and then take a sell
position. It also happens that before a further downward move there may
be some upward correction and the wait for 2/3 candles may help in
increasing the gains.</p>
<p>If ADX does not move above 25 then the downward move may be limited
and hence the profit taking will be limited.</p>
<p>2a) Tightening Bollinger bands (bullish move):</p>
<p>The pattern happens with a prolonged sideways move with less
volatility (short candlesticks)</p>
<p>- Check if there are minimum 2 continuous bullish candlesticks (green)
which are longer than previous 2 to 3 candlesticks.<br>- Check if RSI
(Relative Strength Index) is in the range of 30 to 50 and rising.<br>-
You may also check if ADX is rising towards 25/beyond 25 and +DI crossing
-DI.<br>- Check if Slow Stochastic is crossing the signal line
upwards.<br>- If all above are taking place then we can expect an upward
breakout. It will be safer and hence better to wait for 2 or 3 more
candles for confirmation before taking a buy position with a red
candle.</p>
<p>If ADX does not move above 25 then the upward move may be limited and
hence the profit taking will be limited</p>
<p>2b) Tightening Bollinger bands (bearish move):</p>
<p>The pattern happens with a prolonged sideways move with less
volatility (short candlesticks)</p>
<p>- Check if there are minimum 2 continuous bearish candlesticks (red)
which are longer than previous 2 to 3 candlesticks. <br>- Check if RSI
(Relative Strength Index) is in the range of 40 to 60 and falling.<br>-
You may also check if ADX is rising towards 25/beyond 25 and -DI crossing
+DI.<br>- Check if Slow Stochastic is crossing the signal line
downwards.<br>- If all above are taking place then we can expect a
downward breakout. It will be safer and hence better to wait for 2 or 3
more candles for confirmation before taking a sell position with a red
candle.</p>
<p>If ADX does not move above 25 then the upward move may be limited and
hence the profit taking will be limited.</p>
<p>3a) Continuation of uptrend after correction</p>
<p>During an ongoing uptrend the price may reverse to the middle band or
even the lower band.<br>- Check if RSI (Relative Strength Index) is in
the range of 30 to 50 and rising.<br>- You may also check if ADX is above
25 and +DI over -DI.<br>- Check if Slow Stochastic is over the signal
(bullish configuration).<br>- With all above we can expect a continuation
of the uptrend. It will be safer and hence better to wait for 2 or 3 more
candles to confirm that the recent move was just a correction and then
take a buy position</p>
<p>3b) Continuation of downtrend after correction</p>
<p>During an ongoing downtrend the price may reverse to the middle band
or even the upper band.</p>
<p>- Check if RSI (Relative Strength Index) is in the range of 55 to 75
and falling.<br>- You may also check if <a rel="nofollow"
onclick="javascript:_gaq.push(['_trackPageview',
'/outgoing/article_exit_link/4752592']);"
href="http://www.forexabode.com/technical-analysis/adx">ADX</a> is above
25 and -DI above +DI.<br>- Check if Slow Stochastic is below the signal
(bearish configuration).<br>- With all above we can expect a continuation
of the downtrend. It will be safer and hence better to wait for 2 or 3
more candles to confirm that the recent move was just a correction and
then take a sell position.</p>                <!--INFOLINKS_OFF-->
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