Whether you are looking to catch momentum before the price actually rises, or are seeking to safeguard your money and exit positions before the market falls, technical indicators play a decisive role. Technical indicators can be helpful in identifying outcomes to make informed decisions.
Many analysts and traders combine technical indicators along with candlestick patterns to get their trades right. Markets are volatile, and to identify opportunities correctly, you need to use indicators like Bollinger bands. Let's learn what Bollinger bands are, how they work, and what are the pros and cons of including them are in your trading strategy.
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Bollinger bands are named after their inventor John Bollinger, who was a technical options trader in the 1980s. This indicator helps traders to understand market volatility and decide the right time to enter into a trade.
Bollinger bands are made up of three lines that move on the chart. One of them is the simple moving average. The other two are standard deviation lines, which are traced above and below the SMA line.
While there were other indicators involving bands, John Bollinger selected standard deviation to create this indicator. He did this to identify market volatility and was able to do it successfully. Hence, this indicator became widely accepted.
This indicator has three bands, where
The width between the upper band and the lower band of a Bollinger band is used to identify market volatility.
Protecting yourself against volatility is the best way to ensure a longer and more profitable trading career. After understanding Bollinger bands, you can save yourself from volatile market conditions and make consistent profits by identifying the correct opportunities.