The Bollinger indicator, also known as Bollinger Bands, was developed by John Bollinger. It is included in the subgroup of trend indicators, which by themselves do not give clear recommendations for selling or buying a currency, but are widely used as confirming signals.

In case of coincidence with other signals from alternative indicators, there is a high probability of a successful result from an open transaction.

Description of the indicator Bollinger bands - (Bollinger Bands)

Bollinger Bands represent a system of three different lines:

There is a band in the center that determines the value of the simple moving average indicator, which has a given period.

The other two "ribbons" are located on both sides of the main center line at a given distance, which is calculated according to the proportional standard deviation taken from the moving average for the analyzed time period.

The entire operation of the Bollinger bands indicator is based on the fact that the width of its bands is not static, but is just proportional to the standard deviation of the current price from .

This means that when the market is calm, it will tend to its center line, which defines the moving average. After all, the value of the standard deviation will decrease and, accordingly, the indicator bands will narrow. The market seems to be shutting down. It can be said that when it is gaining strength for the subsequent explosion, and at any given time a new trend can start. Most of the time, approximately 95% of the entire trading time, the price chart will always be within the channel defined by its upper and lower bands.

An important signal to start active trading it will be considered that the price goes beyond the borders of the extreme bands on the indicator chart.

Installing the Bollinger bands indicator

To install the indicator, there is no need to search for it on the net. It is included in the package of basic indicators that .

The very installation of the Bollinger bands indicator is extremely simple. In the MT4 interface, you need to click on the “Indicators” icon located on the “Charts” panel. A new window will open, in which you need to select the “Trend” group and click on “Bollinger bands” in another window.

When installing the indicator, the “Parameters” window will open, which will allow you to immediately set the values ​​that the trader needs within its framework.

Video: Bollinger bands indicator - (Bollinger bands)

Setting up the Bollinger bands indicator

Bollinger Bands show their greatest effectiveness when properly tuned.

- "Period" - 20;
— “Shift” – 0;
- "Deviation" - 2.

In the option “ apply to” it is recommended to set the value “ close". Next, you should choose the appropriate color and thickness of the graphic lines. To save the settings, you need to click “ OK". The setup window will close and three Bollinger Bands will appear on the price chart.

The recommended settings, which are set by default, were determined by the author of the indicator, John Bollinger. However, he installed them for the implementation day trading shares, and a trader may need completely different values.

Effective signals to open or close a position can be called.

A “double top” (M) signals a sell opportunity:

• the price reaches or crosses the upper limit;
• a new “High” is formed, located below the top line and does not touch it;
• a close signal occurs when the price crosses the middle band of the indicator.

“Double Bottom” (W) signals a buy opportunity:

• the price reaches or passes the lower limit;
• after that, she tends to the middle line and makes a U-turn;
• a new “Low” is formed, located above the bottom line and does not touch it;
• an open signal occurs when the price crosses the middle band of the indicator.

Bolliger Bands - the indicator in detail

This article continues a series of publications on the topic "Technical indicators", started by materials on the moving average. On these pages you are invited to get acquainted with the settings and methods of using another very popular and widely used technical indicator "Bollinger Bands".

What are Bollinger Bands?

The Bollinger Bands (BB) indicator consists of three simple moving averages (SMA), two of which form a channel that limits the price movement of a currency pair from above and below, while the third is located between the first two SMAs and is at an equal distance from the latter. During 95% of the entire market time, the price chart is within the channel, limited by the upper and lower bands. Bollinger Bands have the following standard settings:

• The middle band is SMA with a period of 20 by default;
• Lower band - SMA minus 2 standard deviations;
• The upper band is the SMA plus 2 standard deviations.

The standard deviation is determined statistically and indicates how far the values ​​are from the mean.

For varieties trading terminal MetaTrader Bollinger band settings are standard, however, using the indicator in real trading, the trader can change them at his own discretion.

The author of the indicator, John Bollinger, recommended the following settings for the moving average located between the bands: 10 SMA for short-term time frames, 20 SMA for medium-term and 50-period simple moving average for long ones. In addition, on his advice, the value of the standard deviation also needs to be varied.

The use of Bollinger Bands varies widely among traders. Some of them buy when the price touches the lower Bollinger band and exit the position as soon as the price touches the moving average in the center of the band. Others buy when the price breaks above the upper Bollinger band or sell when the price chart falls below the lower Bollinger band.

When the bands have only a slight slope and move roughly parallel for a long time, then the price currency pair will move up and down between lanes as if in a channel. In this case, the market is said to be in a horizontal movement, or flat (range market).

Double bottom models (W) and “double top” (M)

Good signals to buy or sell are the formation of the “Double Bottom” and “Double Top” patterns on the price chart, respectively.

pattern "Double bottom” or abbreviated as “W” indicates a purchase under the following conditions:

• the price touches or breaks the lower band;
• a new “low” is formed, which is above the lower band and does not touch it;
• a buy signal will be generated when the price crosses the middle Bollinger band.

pattern "Double Top" or abbreviated - “M” indicates a sale under the following conditions:

• the price touches or breaks the upper band;
• then moves to the center line and turns around;
• a new “high” is formed, which is below the upper band and does not touch it;
• a sell signal will be generated when the price crosses the middle Bollinger band.

For clarity, the chart above shows the formation of the “Double Top” pattern at the upper line, and the “Double Bottom” pattern at the bottom.

Traders usually use Bollinger Bands with other indicators to find confirmation of received signals. Bollinger Bands are often used in conjunction with candlestick patterns, for example, and if their signals confirm the recommendation of the BB, then it will be easier for the trader to make the right decision. Bollinger bands are used in various trading strategies.

Some traders use Bollinger Bands as support and resistance levels. The upper band acts as a resistance line while the lower band is seen as a support line. To confirm BB signals, Japanese candlestick reversal patterns are often used. If bullish engulfing or hammer patterns form outside the band, then a buy or sell signal is much stronger.

Characteristics of Bollinger Bands

• breaking the price chart of the upper or lower bands of the indicator, may signal the continuation of the current direction of movement;
• if the sawtooth movement of the price chart outside the band is followed by the same movements inside the bands, then a trend reversal is possible;
• the movement of the price chart, which began from one of the bands, as a rule, reaches the opposite band;
• sharp changes in the direction of price movement often occur after a long narrowing of the bands, which is preceded by a corresponding decrease in volatility;
• usually, the Bollinger band is broken by no more than four candles in a row, after which the price movement chart is corrected.

The continuation of this topic is the article "Signals of the Bollinger Bands indicator", which we recommend that you also read.

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The invention of the Bollinger Bands indicator belongs to the American analyst John Bollinger, who in 1984 set out to create his own system for analyzing and calculating investments. After spending about seven years on this, in the early 90s, Bollinger introduced his system to the investment and trading community. Quite quickly, his indicator gained popularity among market participants, was adopted by many traders and is still used today. Currently, John Bollinger is the owner of the financial company Bollinger Capital Management inc, which uses the methods he developed in his work.

The idea behind Bollinger Bands is to combine trend indicator, volatility indicator and oscillator. The bands indicate on the chart the direction and range of price fluctuations, taking into account the trend and volatility characteristic of the current phase of the market. Graphically, the indicator consists of three lines: a moving average in the middle, characterizing the main direction of movement, and two lines that limit the price chart on both sides and characterize its volatility.

The upper and lower lines are the same moving average, but shifted by a few standard (root mean square) deviations. Since the size of the standard deviation depends on volatility, the bands adjust their width by themselves: it increases when the market is unstable, for example, during news releases, and decreases during more stable periods. Thus, the indicator implements the functions of an oscillator in a more convenient form, when you can immediately assess on the chart, taking into account the amplitude of fluctuations, whether the instrument is in a state of overbought or oversold.

Setting the indicator

The main rule when building Bollinger lines is the following statement - about 5% of prices should be outside these lines, and 95% inside. At the same time, the price should periodically touch the boundaries of the channel, and in case of sharp movements, a short-term exit of the chart beyond the boundaries is acceptable.

Period and standard deviation

Bollinger himself recommended using a 20-period simple moving average as the middle line and 2 standard deviations to calculate the band boundaries. As a rule, the period is set from 13 to 24, and the deviation is from 2 to 5. Also, round values ​​of 50, 100, 200 or Fibonacci numbers can be used as periods. It should be taken into account that the higher the period, the lower the sensitivity of the indicator and the greater the delay. On instruments with low volatility, such settings will render the indicator useless.

Method for constructing an average

The method of constructing a moving average is to choose the one in which the bands will most clearly win back price movements on history. The following types of averages are available in quik: simple (simple), smoothed (smoothed), exponential (exponential) and vol. Adjusted (adjusted for volume).

Moving averages can be calculated using close (close), open (open), high (high), low (low), median = (high+low)/2 and typical = (high+low+close)/3. It is recommended to use close or typical.

Using Bollinger Bands

John Bollinger explains in his book Bollindger on Bollindger Bands that his indicator is not intended for continuous price movement analysis. It is impossible to look at the indicator at any time and draw a conclusion about the further behavior of the instrument. But at certain points in time, the indicator gives signals that, by themselves or in conjunction with other methods of analysis, allow you to use good trading opportunities with high profit potential.

Bollinger Bands are characterized by the following features:

If the boundaries of the channel diverge, then this indicates a continuation of the current trend, and if the outer Bollinger Bands are narrowing, this may indicate a fading trend and a possible reversal.

The movement that started from one of the borders is likely to continue to the other.

The position of the price chart relative to the middle line indicates the direction of the trend. If the chart is above it, then the trend is up and vice versa. In this case, the line itself should also be directed in the appropriate direction.

1. Buying/selling with the trend after pullbacks.

When an instrument is in a stable directional trend, Bollinger Bands help identify the safest entry point after a pullback. As a rule, when there is an uptrend, the price chart is between the middle and upper Bollinger bands. Then you can buy at the moment when the price rolls back and approaches the bottom line. Moreover, a good confirming signal will be if the price at this moment builds not a zigzag, but a horizontal correction. In this case, the probability of a profitable trade is higher and a short stop behind consolidation support can be used. To exit with a profit, you can use the point at which the price crosses the middle line in the opposite direction or other targets.

The same is true for a downtrend.

2. Sharp price changes usually occur after a narrowing of the band (compression), corresponding to a decrease in volatility.

Quite often, before a strong movement, the instrument is characterized by low volatility. At these moments, there is uncertainty that does not allow buyers or sellers to take over and significantly move the price. When certainty strikes (whether it be news, a breakdown of an important level, or the arrival of a major player), those on the wrong side are forced to close their positions in a hurry, giving momentum to the movement.

On the chart, such a situation will correspond to the compression of the Bollinger bands before the movement. Here the indicator does not give direction, but shows the moment when you need to be careful and look for an entry point. As a rule, if the price breaks through one of the extreme lines after compression, then the movement will develop in this direction. However, such a signal may be very late, so it is desirable to use additional signals for entry.

3. Recognition of patterns "double top" and "double bottom"

Bollinger suggests using his bands for more accurate identification of classic technical analysis patterns. For a double bottom pattern, the first low must be below the lower line and the second low at or above the lower line. In this case, an additional signal will be a decrease in volumes at the second minimum. The analysis for the "double top" is carried out in a similar way.

In addition to common applications, there are many trading systems that use combinations of Bollinger Bands with other indicators: RSI, MACD, MFI, Parabolic SAR, etc. Bollinger himself in his book even suggested building bands not for the price chart itself, but for the RSI chart and using the resulting signals. Thus, Bollinger Bands give a lot of scope for building various trading systems and are recommended for development.

BCS Express

Hello everyone, the author of the site site, Alexander Norkin, is in touch. Most recently, I touched on a very important topic, volatility in the Forex market (you can read the article). In that article, in addition to the standard things related to questions of what volatility is and how to use it, I listed some indicators that will help determine this very volatility. Bollinger Bands were also on the list.

Due to the fact that the Bollinger Bands indicator is one of the representatives of volatility indicators, it deservedly received worldwide recognition and therefore deserves more detailed consideration.

How Bollinger Bands are built

Bollinger Bands, also called Bollinger Bands, is an indicator that is included in the standard set of indicators of many trading platforms. MetaTrader 4 also did not stand aside and included Bollinger Bands in its arsenal.

In fact, the indicator is declared as a trend indicator and is very similar to the Moving Average, because it is based on a moving average.

How to install the Bollinger Bands indicator

As already mentioned, the indicator is included in the standard set of indicators of the MT4 platform and in order to install it, you need to click on Insert -> Indicators -> trending -> Bollinger Bands.

Bollinger Bands are plotted directly on the chart and look like below:

As you can see, John Bollinger suggests using an indicator in the form of a moving average with a period of 20 and two lines: the upper and lower standard deviation, which create the effect of market volatility.

Standard deviation is a measure of the spread of random variables from the mean, which is equal to the square root of the variance.

Calculated using the formula:

When creating his indicator, John Bollinger was guided by the theory of probability.

If segments with a value with a standard deviation are set aside from the average value in both directions, then at least 68% of the values ​​of the random variable fall into this interval, but if segments of 2 standard deviations are set aside, then at least 95% of the values ​​fall into this interval, if set aside segments of 3 standard deviations, then more than 99% of the values ​​fall into this interval.

See how the indicator behaves with different values ​​of the standard deviation:

• purple line: standard deviation = 3;
• red line: standard deviation = 2;
• black line: standard deviation = 1.

These statements are true for a set of random variables that are similar in nature and normal distribution. Price fluctuations in the Forex market, apparently, can be considered as subject to the law of distribution, close to normal.

The indicator settings include 4 important points:

• Period- set the value for the moving average.
• Shift- sets the number of moving average shift bars.
• Deviation is the same standard deviation.
• Apply to- determines at what prices the calculation will take place.

• Period: 20 ;
• Shift: 0 ;
• Deviations: 2 ;
• Apply to: close.

How the Bollinger Bands Indicator Works

Based on the fact that, according to the theory of probability, most of the prices should fall into the constructed range (from the upper deviation line to the lower deviation line), it is easy to formulate the meaning of using Bollinger Bands and identify several important points.

Prices gravitate toward the moving average

If we believe that John was not mistaken and with a standard deviation with a coefficient of 2 less than 95% of the values ​​should be in the range, it turns out that the touch, and even more so the crossing of the Bolliger deviation line, indicates excessive pressure and requires a corrective movement, at least to the average values.

Narrowing the boundaries - the formation of a "neck"

Too narrow boundaries, just as there can not be. Narrowing the boundaries is also not a normal state of the market and requires an expansion movement, which can be accomplished due to a significant price movement, in other words, an increase in volatility, up or down.

Crossing the borders of the Bollinger bands or breaking through them by the price is usually a good signal for a subsequent rollback, while the goal is at least the average value. The exception is the situation representing the expansion of the narrow neck.

In this situation, prices can rise or fall for a long time, being all the time on the same Bollinger band and expanding the allowable fluctuation band. This is due to the strength of the price movement after the breakout of the consolidation range.

Indeed, the narrowing of the Bollinger bands is possible only when a narrow horizontal price range or flat occurs.

This indicator works well on all charts from minute to hour. Bollinger Bands are purely statistical in nature, so they are indifferent to the subject of study and can be applied to various processes like moving averages.

Methods of using Bollinger Bands

I will try to formulate two methods of using Bollinger Bands and consider them on a real chart, but before doing this, you need to remember that they are very similar to the methods of using simple channels used in classical technical analysis.

By their very nature, lines help determine whether the market is relatively overbought or oversold, but their characteristics make this indicator ideal for predicting trend reversals.

Bollinger Bands contain a significant amount of price movements in the market, movement beyond one of the bands is a deviation from price behavior and such an event must be reacted to.

Classic method - based on line breakout

We enter the market, in the direction of the breakout, at the moment of crossing the standard deviation line, which signals a possible start of a trend. We exit the trade at the moment the price crosses the opposite line of the standard deviation.

Corrective method - based on work inside the lines

In this case, the trading rules are extremely simple. Buy as soon as the price touches the lower rejection band and watch the price. If the downward movement continues and the price closes below the lower rejection band, in other words, a breakout occurs, take the loss and exit the trade. In case of movement in your direction, you should be in the transaction to the upper deviation band.

The same rules apply for the reverse position.

This method is considered effective because it combines the tactics of accepting small losses and large gains with a trading strategy of buying bottoms and selling peaks.

Conclusion

That's all I wanted to say about this indicator. The article covered the following points:

• How are Bollinger Bands built?
• Principles of operation of Bollinger bands;
• and methods of application.

Bollinger bands enjoy well-deserved authority among professional traders, so I think it's right not to end the article, but to continue discussing its pros and cons in the comments.

The Bollinger Band trading strategy is a well-known and popular strategy in the financial markets. It is closely related to the indicator technical analysis Bollinger bands, the main principle of which is the price change within the trading range and its tendency to the average value.

by the most simple ways The uses of the Bollinger Bands strategy are:

• buying a currency pair when the price reaches the lower line of the Bollinger Bands indicator
• selling a currency pair when the price reaches the upper line of the Bollinger Bands indicator

However, if you use this technique, it is possible to make losing trades. This is because, in addition to bouncing off the outer Bollinger Bands, the price can also continue the trend. Based on this, it is worth noting that this strategy works best if: the market is calm, a period of consolidation has begun, there are no important fundamental news. And it goes without saying that you should not enter trades if the price has not reached the outer band.

The confirming factors of the Bollinger bands strategy signals are:

• support/resistance levels
• Fibonacci levels
• candlestick patterns
• technical analysis models

3 Effective Ways to Trade Using Bollinger Bands

1. Using candlestick patterns for confirmation

The first way is to use candlestick patterns as confirmation that the price will bounce off the outer band. The chart below shows reversals according to Japanese candlestick patterns.

The doji reversal pattern in all cases confirms a buy signal at the lower line of the Bollinger indicator. The bearish engulfing also confirms the price change towards the middle Bollinger band.

2. Using divergence

Divergence trading is another way to increase the effectiveness of the Bollinger Bands strategy. When the price is trading near the outer bands, it is necessary to compare the price highs/lows with the readings of a stochastic indicator (for example, it can be RSI or MACD) and if a divergence (divergence) is noticeable, it is necessary to enter a trade.

The chart below defines bullish and bearish divergences when the price is trading near the outer bands. Notice how effective it is to use divergences as confirmation instead of blindly buying or selling on the outer lines of the indicator.

3. Using support and resistance

The Bollinger Bands strategy can also be used in conjunction with support/resistance levels, both horizontal and trendy (sloping).

Bollinger Bands - a versatile and flexible strategy

From the above examples, we can say that the strategy based on Bollinger Bands is flexible enough to be combined with other technical analysis tools. It is this flexibility that makes Bollinger Bands a powerful tool that can be based on other trading strategies.

Bollinger Band Strategy: 3 Effective Ways to Trade was last modified: November 17th, 2016 by Forex Advisor