5.1 Bollinger Bands trading instructions Video Lecture | Forex: Learn and Master Trading (English) - Business Basics

welcome back to gup-x forex trading calm
in this video we're going to discuss
Bollinger Bands and we're going to focus
on how they're used when we trade trends
and how they're used when we trade
reversals but firstly in terms of their
construction Bollinger Bands are made up
of three lines the first line is the
center line that you see here the other
two lines are in each side of the center
line now the center line is a simple
moving average and the distance between
itself and the outside band is measured
in standard deviations now if you're not
sure what standard deviations are or how
they measure that don't worry you don't
realistically need to know that but what
you do need to know is that they are
used to measure the distance between the
simple moving average and the outside
bands so for example if I go into the
setting for standard deviations which is
currently at 2 and I change that to 5
you can see that the outside bands have
moved further away so obviously if I
take that back to to the outside bands
come back to their normal position so
let's see how we can use Bollinger Bands
to get into trends so firstly when we
get into trend we're looking to get into
and when the trend has already began so
sometimes that may be halfway through so
every trend has to have a beginning a
middle and an end and this is where we
use Bollinger Bands and the reason why
is because Bollinger Bands measure
volatility so remember in forex we have
no access to volume because there is no
central exchange so volatility is
absolutely crucial to our trading
obviously the higher the volatility the
more players are in the market and the
lower the volatility the less players
there are in the market and this is
exactly what we're looking for when
we're trading bollinger bands and the
Bollinger Bands squeeze identifies for
us that there is less volatility in the
market so that means that this uptrend
that you can see here is slowing down
because there is less players in the
market and the Bollinger Bands squeeze
is exactly the tool that identifies that
for us so what we can see here is a new
downtrend
formed after the Bollinger Band squeeze
so that means that after the period of
low volatility at the squeeze we now
have a period of high volatility so a
new trend has begun and it is after this
point that we're looking to get into a
trend so what we're looking for is the
bounce of the simple moving average
which is exactly what we get here and
for a target we're looking for the
previous low so that's this price area
here so if I take a horizontal line and
Mark that price level you can see that
it's been taken out by this big long
black candle here now we can also use
Bollinger Bands to trade reversals
but for that you cannot use Bollinger
Bands by themselves they're simply not
strong enough so what we need to do is
use another indicator and in this
example we're using the RSI indicator
which stands for relative strength index
now we're not going to go into what RSI
is in this video because we have another
video dedicated to that so if you're not
sure what RSI is then please watch that
video first but if you're familiar with
our aside then please stay in this
lesson so what we're looking for in
terms of the relationship between the
Bollinger Band and the RSI indicator is
divergence so I'll explain a little bit
better so what we have here is a touch
of the ball atop Bollinger Band here and
the touch of the top Bollinger Band here
as well so remember when we're trading
top reversals we're looking for touches
of the top Bollinger Bands when we're
trading bottom reversals we're looking
for touches of the bottom Bollinger
Bands so in this example we have two
touches of the top Bollinger Band we
have touch number one and touch number
two now in this instance prices are
still going upwards despite the fact
that the Bollinger Bands have touched
but the RSI indicator is showing us
something different completely is
showing us a weakness and is continuing
to fall so despite the fact that the
prices are going up in that price chart
the RSI indicator is showing weakness so
that is the divergence that we're
looking for so all we really mean is
movement in the opposite direction in
the Bollinger Band indicator
and the RSI indicator so you can see
that from this point the Bollinger Band
the price level rather has touched the
top Bollinger Band and the price fell so
that's how you would use Bollinger Bands
to trade reversals so if you have any
questions or comments do let us know
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