As currency traders, we rely on foreign exchange markets volatility as a way to make pips and profits. We are able to only make a profit when the currency pair’s price changes and moves up and down. If the price does not change, there are no pips or profits to be made. When the market produces a consistent, repeatable move up or down, we wish to make pips from that change in the price level. The more the price changes, the more pips you make. Bollinger Bands ExplainedVolatility is the relative rate that the price of a currency pair moves up and down in the market. In simple terms, it is the amount of price change measure over time. If the currency pair price moves up and down quickly over a brief period of time, the currency market is showing high volatility. On the other hand, if the price does not move much over a period of time, the markets are showing lower volatility. Markets are usually ranging 70% of the time. Like a long rally in a tennis match, price action is forwards and backwards, back and forth. Neither side is winning the battle. We would like to know where the market will reverse from up or down. When such a break occurs we want to have a{n alert|n early warning| caution that the move above and below the recent range is a major deviation from the norm. Bollinger bands guess the probable low and high price of a currency pair primarily based on market’s fresh level of volatility. The bands are drawn at an equal distance above and below a straightforward moving average. The stronger the bands are, the longer the time frame you are in. These bands act as mini support and resistance levels ( S&R ). Think about Bollinger bands as an envelope indicator that’s projecting top and bottom lines around price . In a range bound market, the bands are virtually parallel. Bollinger Bands expand, open up and move in the other direction when the market becomes more uncertain. The bands respond by contracting and becoming closer together when the market moves into tighter prices. John Bollinger was a famous technician of the markets in his days. Bollinger Bands were first introduced by John Bollinger in 1960s. There are 3 ways you can use Bollinger Bands in your trading. These are : one ) Range Trading. Three ) Tunnel Trading. You need to now read Part II of the Bollinger Band article. When you get into the details regarding Bollinger bands it’s a bit funny as the set-up for the reversal and the continuation are nearly matching. YES it’s true. They say when Bollinger bands closes outside of a 2.0 standard deviation higher or lower band a reversal is likely because price will spend 99% of its time inside the bands, so when we get a close outside a band we have a high probability of a reversal. Let me tell you what I mean. You see in order to read Bollinger bands like a seasoned pro, actually BETTER than a seasoned pro. You must pay attention to what the bands themselves are doing as price shall we say’exits’ the bands. that’s when price closes below the lower band, and you are eagerly anticipating taking a long position, stop for a second and look at how BOTH bands are responding to approaching price action to the lower band. As the bands expand this indicates expanding volatility. If price has closed lower and closed below the lower band and as shown above, both bands are turning and opposing one another ( I sometimes refer to this as heading North and South. be aware that there’s often a’head fake’ that happens in this set-up where price does exactly as described here and then takes off in the other way. Bollinger bands measures volatility which is more predictive than price itself. An awareness of a way to use Bollinger bands is a profitable venture, do not even hesitate!.