The Bollinger bands and the stochastic Oscillator
The Bollinger bands consist of an upper band and a lower band; if the price line is outside the upper band is it an indication that the currency is oversold; if the price line is outside the lower band is it an indication that the currency pair is overbought.
The indicator cannot stand alone; as a second indicator is the stochastic Oscillator handy as it provides information about the market condition; is the market in an oversold or overbought condition.
The Bollinger bands
The image illustrates a price line and the Bollinger bands; the volatility in the market rise with the bands; wider bands are a market with more volatility and reverse.
If the price rise and the lower band starts to fall is it an indication that the price will start rise slower or fall; if the lower band starts to rise is it an indication that the price will start to rise faster.
The stochastic Oscillator
The image illustrates also the stochastic Oscillator; in this post is it the second indicator; it confirms the market condition the Bollinger bands provide.
How to use the two indicators
The indicators are used to find the entry and exit point where the market is in an oversold or overbought condition; in my article “Trading Forex Online - How to Use Bolling Bands and Stochastic Oscillator As a Trading Strategy” are described how to trade with the two indicators.
In the image is an overbought and an oversold situation; the two indicators give the traders an indication of which direction the market is moving in by looking at the tops and bottoms of the price line and the tops and bottoms of the Stochastic Oscillator.
In the overbought situation is the two highest price line tops in an uptrend and the two price line tops at the Stochastic Oscillator in a downtrend which indicates an exit point if the items are met in my article “Trading Forex Online - How to Use Bolling Bands and Stochastic Oscillator As a Trading Strategy” .
Reverse in the oversold situation is the two lowest price line tops in a downtrend and the two price line bottoms at the Stochastic Oscillator in an uptrend which indicates an entry point if the items are met in my article “Trading Forex Online - How to Use Bolling Bands and Stochastic Oscillator As a Trading Strategy”.
Please note that the past performance of any trading system or methodology is not necessarily indicative of future results which also is the case using the two described indicators.
