Sep
30
2010
Forex Trading and Bollinger Bands
Bollinger bands are not only useful for understanding the volatility of stocks. The volatility measures are also relevant for the foreign exchange market, and Bollinger bands have become a powerful economic tool in understanding forex. The bands help measure the highness and lowness of the current price of an equity in relation to previous trades. It does this by measuring the standard deviation from the moving average.
It is suggested that Bollinger bands can be used in forex trading by indicating the range at which the price of a currency pair will retrace toward the moving average in the middle of the bands. The upper Bollinger band acts as a resistance level, while the lower Bollinger band acts as a support level.
Photo source AMagill
