Bollinger bands looks like 3 lines that runs above and below the moving averages. When the price changes a trend or direction, the bands either converge or diverge as their distances also changes leading to changes in market sentiments.
The default indicator period is always set at 14 and a standard deviation of 2. You can adjust them depending on the time frame and the instrument you wish to trade.
How To Understand Signals Using The Bollinger Bands
If the bands are approaching the Moving Averages and start to narrow, it means the market is ready for consolidation.
A sharp convergence shows that volatility has increased and a strong trend movement is likely to follow.
When the bands move away from the moving averages, a range signal comes in and a current trend is strengthening or a new trend is forming.
If the bands diverge sharply, it shows that the market is highly volatile and we should expect a trend reversal.
Here price went beyond the line, meaning that a price correction is about to take place within the current trend or a change in trend. Any analysis depends on the Time frame chosen.
To work best with bollinger bands, demo trade this technique for a few days before you trade live. Follow your convergence and divergence on several trades to confirm if it works best for you.
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