The Bollinger Bands indicator – A Full Guide to Understanding How it Works


There are many technical indicators available on the Binomo platform. Their purpose is to simplify trading process for you. Some of  these indicators generate signals to open a trading position. This article explains how the Bollinger Bands indicator works.

The Bollinger Bands indicator basics

The Bollinger Bands indicator consists of three lines which are based on a simple moving average for a defined period. The bands represent a movement range of a price. The underlying mathematical calculations for the range expanse are made using the formula of standard deviation.

Bollinger Bands on Binomo platform
The Bollinger Bands on the Binomo platform

You have the possibility of changing the indicator’s parameters. When you choose a higher coefficient, the space between the bands of the indicator will widen. At the same time the price bars are less likely to reach the borders.

Bollinger Bands with different deviations' parameter
The Bollinger Bands with different deviations’ parameter

The number of candles that are used for the Bollinger Bands calculations is defined by its period. When you decide to set a higher value for the indicator’s period, the corridor will be smoother. Nevertheless, a higher period does not improve the Bollinger Bands efficiency.

Bollinger Bands with different periods
The Bollinger Bands with different periods

Using Bollinger Bands in trading on Binomo

You need to look out for the moments when price bars reach the borders of the indicator. Such a situation would be a signal of a change in the direction of the price.

Market often changes its direction on upper and lower bands
The market often changes its direction on upper and lower bands

When the price breaks through the lower or upper band, you may expect the trend to continue its direction for some time more.

Expect trend continuation when price broke upper or lower band
Expect a trend continuation when price breaks the upper or lower band

The width of the channel gives information about market volatility. The corridor expands together with increasing volatilityOpens in a new tab..

Channel witdh is connected to market volatility
Channel width is connected to market volatility

Trading signals based on the Bollinger Bands indicator itself are less accurate when the trend grows in strength. That is why it might be a good idea to combine the Bollinger Bands with other technical analysis tools. It works well with the Relative Strength Index, for instance.

You can easily combine Bollinger Bands with other indicators
You can easily combine Bollinger Bands with other indicators

Summary

Bollinger Bands is a popular indicator offered on the Binomo platform. It is capable of giving signals to open trading positions. It works perfectly in combination with other indicators.

You may want to read more about Bollinger Bands. Check out the following article about the basics of Bollinger Bands indicator.

Practice using Bollinger Bands in trading on the free Binomo demo account. This is an excellent place for you to train and learn how to incorporate financial indicators into your trading. Once you get hold of the B-Bands, move on to the live account and take the opportunity to make a monetary return.

Wish you a pleasant experience with Binomo!

 

 

Bart Bregman

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

Recent Posts

Try for free!

Holler Box
GET STARTED FOR FREE
This is default text for notification bar