Forex trading has become one of the most sought after occupations for many people all over the world. This is due to its great advantages over other capital markets and its high potential profitability; Among these advantages we can find its extremely easy access thanks to the internet and its high liquidity and high leverage.
But in Forex, as in all other speculative activities in the capital markets, there is a big problem that new and experienced traders will face every time they open their forex trading stations. This is how to predict the behavior of the Forex market over time to get the most profit and with the least risk possible.
One of the techniques used to predict the behavior of the Forex market is based on Bollinger Bands.
These Bollinger Bands are what is called a technical trading tool used in the capital markets (including Forex) created by John Bollinger in the early 1980s. This technique was based on the need for adaptive trading bands and the discovery of that market volatility was a dynamic phenomenon, not static as was believed at the time.
The first thing to notice about Bollinger Bands is that they consist of a set of three curves drawn on a forex chart in relation to currency prices. The middle band on the forex chart represents the medium-term trend and is usually a simple moving average, which serves as a reference base for the upper and lower bands. The interval separating the upper and lower bands from the middle band is calculated using market volatility; typically the standard deviation of the same data that was used for the average.
The default parameters used with these technical analyzes are 20 periods for the average and two standard deviations for the gap between the bands. These parameters can be adjusted to suit your particular business purposes.
In a future article, I will talk about how these bands will give you a very good prediction about what the market will do next, based on the parameters and statistics built into Bollinger Bands.