Bollinger bands represent another mathematical tool in technical analysis. Bollinger bands consist of a middle simple moving average (typically a 20-day one) band and two bands plotted at two standard deviations above and below...
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Bollinger bands represent another mathematical tool in technical analysis. Bollinger bands consist of a middle simple moving average (typically a 20-day one) band and two bands plotted at two standard deviations above and below the middle band. Those standard deviations are mathematical formulas which measure volatility and show how the currency price can be extended around its "true value". The bands resemble an envelope model that is expanding and contracting. The moments of considerable contractions are viewed as a signal that the volatility is low. On the other hand, when the bands are far apart, this is viewed as a signal of high volatility in price. Additionally, the sequence of two top formations, one being outside the band and the other inside it, is also considered a signal. Forex traders tend to sell a position when the signal appears above the band. On the other hand, forex traders buy a position when it appears below the band.
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