FOREX THEORY
Bollinger Bands in a Trending Market Part 2
Bollinger bands actually contain the standard deviation
formula. But don’t worry about being a nerd and figuring out what that is.
Here’s how we can use Bollinger bands to determine the
trend! Prepare for the craziness.
Place Bollinger bands with a standard deviation of 1 and
another set of bands with a standard deviation of 2.
You will see three set of
price zones: the sell zone, the buy zone, and the “No-man’s Land.”
The sell zone is the area between the two bottom bands of
the standard deviation 1 (SD 1) and standard deviation 2 (SD 2) bands. Bear in
mind that price has to close within the bands in order to be considered in the
sell zone.
The buy zone is the area between the two top bands of the SD
1 and SD 2 bands. Like the sell zone, price has to close within the two bands
in order to be considered in the buy zone.
The area in between the standard deviation 1 bands is an
area in which the market struggles to find direction.
Price will close within
this area if price is really in “No-Man’s Land”. Price direction is pretty much
up for grabs.
The Bollinger bands make it easier to confirm a trend
visually.
Downtrends can be confirmed when price is in the sell zone.
Uptrends can be confirmed when price is in the buy zone.
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