If you’re looking for that one tool that can make your trading life a lot easier, you should consider Bollinger bands. These three lines can help you out a lot with sorting out the stuff you see on your trading chart, which is why we decided to write an article that will introduce you to them. The concept is fairly simple, so even beginners should have no problems grasping it. As a matter of fact, using it can be a great transition towards more serious trading levels. Simply, it’s all about market statistics. Therefore, if you’re looking to up your trading game a little, all you have to do is read on.
Bollinger Bands | Three main lines
Now then, the three lines you get on your screen show you in which range you can expect the price to move. The middle line represents the so-called moving average, while the lines above and below it show how much the price moves away from the average. Therefore, these three lines show you what to expect from a price, i.e. how much it’s supposed to move from its average. This helps avoid Overtrading. Naturally, these lines can be broken, but because Bollinger bands are based on a huge amount of statistical data, the chances for that are very slim (some say they are lower than 5%). Because of that, with this tool, you can predict with a fair amount of certainty the limits an asset can reach. However, you still need to be careful. Why? We’ll explain below.
Bollinger Bands | Market conditions
You see, the gap between top and bottom Bollinger bands won’t always be the same. When a market is pretty sure about an asset, the gap will be significant because there won’t be many price changes and thus the price’s upper and lower limits will be firmly established. The thing is that this gap can narrow down significantly if something happens that will disrupt the market’s stability. Maybe a new GDP report comes out or some important piece of political news is issued, but the less the market is sure about something, the narrower the gap and it becomes easier for the price to break the two lines. So try to analyze the situation on the market first – if there’s nothing out of the ordinary, Bollinger bands will be of great help to you.
Bollinger Bands | Conclusion
If you want to predict where the limits of a price’s movements are, this is the tool for you. Bollinger bands help you acquire this important information by analyzing statistical data and making predictions with a very high degree of accuracy. However, do keep an eye on it because in hectic market conditions this tool is not so efficient. Still, they are a great addition to any trading strategy which you can build with the help of our other educational article on this website. Take a look around and immerse yourself in the exciting world of binary options.