Bollinger Bands were created by John Bollinger in the early 1980s to help compare volatility and relative price in the period of analysis . Bollinger bands itself actually consists of three lines which form a kind of barrier to the movement of the belt . However, in its application to the midline of the Bollinger Bands are often not shown because it is the center line moving average line is just plain
As has been explained in the above , the Bollinger Bands itself resembles a belt that the limiting price movements . Can you find something in the image above ? Yeah right . If there is an imbalance between demand and supply , it Bollinger Bands will be widened compared to a balanced condition .
As an example of the picture above , a state where more supply than demand so as to make the price fall from 118.05 towards 115.3 , then the belt Bolinger will be widened because the rate prices are on the rise . Compare this with the situation in which the demand and supply tend to be the same as at 25 nov and thereafter . If there is a balance which means the market will move sideways in a state of the Bollinger Bands will be narrowed than usual because it is not as fast as the rate of price uptrend or down trend .
As a volatility indicator , Bollinger Bands actually can not stand alone . This indicator is usually used only as an early indicator to measure the relative price and volatility ( volatile volatile = - = volatility rate of speed in turns ) . Bollinger Bands indicator is not an action , so it is recommended when using this one indicator , also use other indicators before making a decision to buy or sell .
As already explained above , the Bollinger Bands basically consists of three lines . That arise in the course of our minds where these lines originate not ? Well , the following explanation :
Middle band = Simple Moving Average
Lower band = Simple Moving Average - ( multiplier factor x standard deviation )
Multiplier factor = [ 0.6174 x ln ( period Bollinger Bands ) ] + 0.1046
For the multiplier factor , typically used number 2 compared to the use of the formula above .
Standard deviation is a statistical calculation that is commonly used to measure the magnitude of the deviation at each data. The formula is as follows :
by : Xi = the data to i
X = the average
The data that we use in this calculation not only the price closed just as in a regular high school . In the Bollinger Bands , the data used is a combination of high, low and closinng price . There are two types of data collection on the middle band is to wear Typical Price and Weighted Price.
Typical price =
Weighted price =
But usually the most frequently used is the typical price
Character Bollinger Bands
Each indicator certainly has the character of each . Likewise with this one indicator . One thing that is unique is its Bollinger Bands enabling each person to interpret these indicators with their own way . Even John Bollinger himself , the creator of this indicator is to say that the most interesting thing in the analysis using the Bollinger Bands are noticed how everyone used it . Although there are some standard rules in the Bollinger Bands , but it could have been a trader with other traders have different ways and different use in using Bollinger Bands . Here is the general character of the Bollinger Bands :Bollinger Bands are early indicators that can not be used as an indicator of action.Harus telltales along with other indicators . Choose one of the best indicators for you as an indicator of the action , but do not use more than one indicator action . Some of the indicators of a good action is RSI , Stochastic , or momentum . It's up to you .
In general, the price will move in the belt , but may also price moves outside of the belt . This may mean there will be a reversal or even reverse the ongoing trend reinforcement . To see this we can see that you are taking action indicators .
Determination of the period of the Bollinger Bands are also influential here . The smaller the period used the width of the belt will be smaller and vice versa .
If we combine Bollinger Bands with RSI , thus the results :
If the price is outside the upper band or the same , while RSI is below the overbought zone , then this means that there will be a continuation of the trend is going . Conversely, if the RSI are overbought and are leaving diarea overbought area , then this means that there will be a reversal of the trend in the next few candles .
If the price is outside the lower band or the same , while RSI is below the oversold zone , then this means that there will be a continuation of the trend is going . Conversely, if the RSI are oversold and are leaving diarea oversold area , then this means that there will be a reversal of the trend in the next few candles
Well , let's look at the following picture :
Note the circled area and large smoothing RSI . At 1.1932 , large smoothing RSI is 39.9429 and has broken the upper band twice in a row . This indicates that there will be forwarding the trend has just begun . In price increases , price also recorded several times to penetrate the upper band but the RSI has not been overbought area left . This means that the trend will continue to happen until the RSI overbought area left .
Now compare this with the following picture :
In the circled area is worth 31.7379 and smoothing RSI has broken the lower band three times with a bullish candle . Thus the trend reversal is expected to occur as shown in the next candle . Why I can provide estimates that there will be a reversal of the trend from bearish to bullish ? That's because in addition to the indicator shows the price action I have left oversold area and heading towards the overbought area .
Can be inferred from the use of the example here , the actual integration Bollinger Bands with other indicators can we do if we are to understand the use of other indicators correctly . The use of appropriate indicators will result in decisions that strengthen and support each other in order to obtain various advantages . The more we understand the use of indicators of the action , the greater the chance we utilize as volatilitiy Bollinger Bands indicator .
The use of Bollinger Bands
Although Bollinger can not be used alone , but there are some indications of open Buy / Sell which can still be obtained through the Bollinger Bands , especially through the middle band . Remember , basically the middle band is Simple Moving Average indicator . What this means in effect at the high school also applies to the middle band :The middle band is under the price , then this indicates a bullish trend .
The middle band is above harag , Bearish trend indication .
The intersection between the middle band and the price , an indication transitional trend .
Double bottom buy . This will occur when the price penetrates the lower band twice in a row . The existence of the double bottom is an indication of an increase in price . But to be sure , confirm pricing required to penetrate the middle band . If it has penetrated the middle band , then the uptrend could be expected to occur where we have to open a buy position .
The opposite of a double bottom is a double top buy sell are circumstances where price penetrates the upper band and validated with the middle band penetration as well . This will mean a reduction in the price at which we have to open short positions in advance in order to make a profit .
Src:belajarforex
