The Bollinger Bands is a technical analysis indicator that was introduced by Mr. John Bollinger in the early 80s.
This indicator is part of the trend indicators, which is composed of three bands :
- the Upper line
- the Middle line : represents the simple moving average (MM 20)
- the lower line:
These bands are representing the support and resistance lines , that is why 95% of the closing are between Bollinger Bands lines and more precisely between the upper band and lower band .
The Bollinger Bands indicator can indicate the buy signals
for example: we can open buy positions when prices touch the lower band as we anticipate a price increase to at least the midline and when prices bounce toward the middle , we have two choices:
- The first one is more safe: is to close position and take the profits.
- The second choice is risky, is to wait until prices reach the upper band and then close the buy position, in order to initiate a selling position while anticipating that prices will decline.
We can also notice that a tightening of the three bands or in other words a formation of a Pressure Zone, then we expect a reversal of trend.
However we recommend to combine Bollinger Bands with other technical indicators such as Elliot wave, Fibonacci, or combination of indicators to confirm the decision to sell or to buy.
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