Bollinger Bands is a technical indicator that is popularly used by forex traders to read market price movements. This indicator was created by John Bollinger in the 1980s and consists of three lines surrounding the price chart, namely the top line, bottom line and middle line.
The way to read candles using the Bollinger Bands indicator is to pay attention to the interaction between the candlestick and the Bollinger Bands lines.
The upper and lower lines of Bollinger Bands represent dynamic resistance and support levels, while the middle line is the average price level in a certain period.
When the candlestick is above the upper line of the Bollinger Bands, this indicates that the market is overbought and a reversal or price decline is likely to occur.
Conversely, when the candlestick is below the lower line of the Bollinger Bands, it indicates that the market is oversold and prices are likely to rise.
Indicator patterns
Apart from that, traders can also use Bollinger Bands to identify candlestick patterns such as doji, hammer, shooting star, and so on. These patterns can provide useful signals for traders in making transaction decisions.
It is important to remember that Bollinger Bands are not indicators that can be used alone without confirmation from other indicators. Traders are advised to use Bollinger Bands together with other indicators such as RSI, MACD, or stochastic to increase the accuracy of trading signals.
Apart from that, traders also need to pay attention to the time frame used when reading candles using Bollinger Bands. Higher timeframes such as daily or weekly usually provide stronger signals than lower timeframes such as hourly or 15-minute.
In practice, traders can use Bollinger Bands to identify potential entry and exit points, as well as to determine stop loss and take profit levels.
By understanding how to read candles using the Bollinger Bands indicator, traders can improve their technical analysis skills and make smarter trading decisions.
Overall, Bollinger Bands are a very useful indicator in forex technical analysis. By understanding how to read candles using the Bollinger Bands indicator, traders can increase their chances of success in forex trading and generate consistent profits.
