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The bollinger bands are adaptive trading bands that indicates changes in volatility and provide a better view of the true extent of the price action. There are 3 components to the bollinger bands indicator. There is the upper band, the lower band and the middle band. First, a 20 period simple moving average of the asset price is computed. This value is represented by the middle band.
The upper and lower bands are then calculated by using two standard deviations from the middle band. When the underlying asset price touches or breaches the upper bollinger band, the asset is said to be overbought.
When this happens, the trader can potentially look into going long or buying a call option. When the asset price touches or breaches the lower bollinger band, the asset is said to be oversold.
When this occurs, the trader can take it as a signal to short sell the underlying or buy a put option. Traders generally avoid going long or buying calls when the asset price hits the upper bollinger band.
Similarly, traders often avoid going short or buying puts whenever the asset price hits the lower bollinger band. The Bollinger Bands are also a great tool to use for determining whether the market volatility is currently high or low. When market volatility is high, the bands expand. When market volatility is low, the bands contract. The RSI or Relative Strength Index indicator is bounded momentum based technical indicator that attempts to predict a change in momentum.
The MACD indicator gives the short to medium term trend of the price action The bollinger bands are adaptive trading bands that reflect changes in volatility and provide a better view of the true extent of the price action The Parabolic SAR indicator or PSAR is designed to calculate the point in time when there emerges a better than average probability of a trend switching directions The ADX, or Average Directional Index measures the strength of a trend and can be useful to determine whether an asset is currently in a trending market or a ranging market Stocks, futures and binary options trading discussed on this website can be considered High-Risk Trading Operations and their execution can be very risky and may result in significant losses or even in a total loss of all funds on your account.
You should not risk more than you afford to lose. Before deciding to trade, you need to ensure that you understand the risks involved taking into account your investment objectives and level of experience. Information on this website is provided strictly for informational and educational purposes only and is not intended as a trading recommendation service. The financial products offered by the company carry a high level of risk and can result in the loss of all your funds.
You should never invest money that you cannot afford to lose.