Bollinger Bands. How does it work?

How Bollinger Bands indicator is constructed?

Bollinger Bands is an indicator that sets the range of asset price movement. It is built on the basis of three moving averages one in the middle and two others located the same distance from the first one. Range width is calculated by the mathematical formula of standard deviation.

Bollinger Bands
Bollinger Bands

Its coefficient may be set in the indicator settings. The higher the coefficient the wider the range and the more infrequently the chart reaches borders.

The higher the coefficient the wider the range
The higher the coefficient the wider the range

Period is a number of candlesticks used in the calculation of indicator parameters. Increasing period smooth the corridor but does not guarantee an increase in indicator performance accuracy.

Increasing period smooth the corridor
Increasing period smooth the corridor

Price behavior and Bollinger bands

When the price approaches or touches one of the lines, the probability of its movement shifts to the opposite direction.

Price behaviour on the corridors barrier
Price behavior on the corridors barrier

The breakdown of one of the lines signals probable trend movement towards the breakdown.

Trend movement
Trend movement

The higher the volatility on the market the higher the corridor.

Volatility affects corridors range
Volatility affects corridors range

Long term location of the indicator is in a narrow range. Usually preceding upheaval in the market.

It's good to use additional tools with Bollinger Bands
It's good to use additional tools with Bollinger Bands

The Bollinger Bands indicator is best used in combination with other indicators. As by the time a strong trend takes place. This indicator alone becomes ineffective.

We highly encourage you to read our guides on how to trade using Bolliger Bands and pin bars and how to combine Bollinger Bands with RSI oscillator.

We wish you successful trading on the IQ Option platform.

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Bart Bregman

Fulltime Day trading, and help Iq option wiki in my spare time to build an awesome platform to help beginners out there. #digital nomad, traveling all over the world.

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