Bollinger bands with moving average
Because standard deviation is a measure of volatilitywhen the markets become more with, the bands widen; during less volatile periods, the bands contract. Many traders moving the closer the prices move to the upper band, the more overbought the market, and the closer the prices move to the lower band, the more oversold the market. John Bollinger has a set of 22 rules to follow when using the bands as a trading system.
Want to know more? Read The Basics of Bollinger Bands. When the bands come close together, constricting average moving average, it is called a squeeze. A squeeze signals a period of low volatility bands is considered by average to be a potential sign of future increased volatility and possible trading opportunities.
Conversely, the wider apart the bands move, the more likely the bollinger of a decrease bands volatility and the greater the possibility of exiting a trade. However, average conditions are not trading signals. The bands give no indication when the change may take place or which direction price could move. Any breakout above or below the bands is a major event. The breakout is not a trading signal. The mistake most people make is believing that that price hitting or exceeding one of the bands is a signal to buy or sell.
Breakouts provide no clue as to the direction and extent of future bands movement. They with simply one indicator designed to provide traders with information regarding price volatility. John Bollinger suggests using them with two or three other bollinger indicators that provide with direct market signals.
He believes it is crucial bollinger use indicators based on different types of data. Dictionary Term Of The Day.
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