Bollinger band is very popular indicator for range trader and channel trader. Price usually oscillates and proceeds forwards between the upper and lower band of the indicators. The Bollinger band indicators is based on a moving average which acts as the “dynamic support and resistance level” of the currency pair.
Most of the time market respects the Bollinger band allowing the trader to take the high quality trade. Forex market has only two directions .The trending market and the ranging market. Professional traders trade the trending and ranging markets with a high level of accuracy by the help of Bollinger band indicators.
Let’s have a look at the Bollinger Band Indicator.
Figure: Bollinger Band Indicator
The 20 day moving average of the lower band and upper band acts as strong support and resistance area. The middle line is the average line of the upper band and the lower band. A trader takes sell entry at the upper band and buys entry at the lower band.
Trading with the Bollinger band indicator is very much similar to the simple moving average trading system. Trader uses the dynamic support and resistance level of the Bollinger band. Professional trader trade with price action confirmation when the price reaches the “upper or lower band” of the indicator. In the above figure a sell entry was triggered at the upper Bollinger band with bearish engulfing price action pattern.
The professional trader uses a number of the parameter before trading the Bollinger band. On the indicator shows sell or buy signal in the chart they look for previous support and resistance level. The professional trader uses tight stop loss while trading with indicator and set their take profit into the next upper band or lower band. “Remember no indicators is 100% perfect.” Make sure you use proper money management before using this extremely powerful indicator.