Bollinger Bands. - Rob Booker

BollingerBandsBy Rob Booker© 2004 W. R. Booker II. All rights reserved forever and ever. And ever.The information contained in this ebook is designed to teach you methods of watchingforex quotes so that you can make money. Bollinger Bands are my favorite tool.

Bollinger Bands – page 2Bollinger Bands.________________________________________Using Bollinger Bands is quite easy. These Bands predict price movementbased on market volatility. When price is more volatile, the Bands are wider.When the market is quiet, the Bands tighten together. Price tends to moveback to the center of the Bands. As you can expect, if price tends to moveback to the center of the Bands, then what should happen on the far rightedge of the chart above?When price breaks outside a Band, it signals a buy or sell order. In thechart above, you see on the far right edge that the candles jump outside ofthe top Band. Because the candles exceeded the top Band (by quite a bit), we

Bollinger Bands – page 4When a Band widens as price approaches, it’s a good sign that furthermovement in the direction of the Band can be expected. When a Bandflattens as price approaches, it signals that price might bounce off the Band,or violate the Band and then drop back to center. If the Band flattens asprice approaches, but then widens a bit – make sure you’re ready for apossible breakout. More on that in a moment.See the second chart again: what’s happening to the lower Band as theprice approaches the center (following that breakout and reversal)? Thelower Band is dropping through the floor. Any ideas on what’s going tohappen next?The price is bound to drop further. See the chart below, whichrepresents the next few candles:

Bollinger Bands – page 5Use Bollinger Bands in combination with other indicators. For example,in the chart above, as soon as the price approached center, and the lowerBand widened, you could also see the MACD start to produce red bars. Thiswas a great indicator that bears were beginning to take control. We wouldknow the bear move was over when the lower Band began to tighten up –which it’s not doing in the chart above. This would signal further pricedeclines (which in fact is exactly what happened).To summarize, it’s important to track the following when using BollingerBands:1. How wide are the Bands? Wider Bands represent volatile markets.2. Do the Bands expand or flatten as price approaches?3. What does the MACD tell you when you compare it?4. Compare longer time-frame charts with shorter ones – and chart theBollinger Bands on both.5. Remember that eventually, price tends back to center.

Bollinger Bands – page 7That’s the basic setup to watch for. This happens frequently – not for azillion pips every time, but it does happen a few times per week. Here’show to manage the trade:How do you time the breakout?The best breakouts will occur at the opening of the EUR session, or atthe release of some important economic report in the US. The monthlyUS unemployment report, any US interest rate decision, and the CPIreport are just three examples.How do you profit from the breakout?The best way to take advantage of a trade is to simply place entryorders above and below the Bollinger Bands 10 minutes before the releaseof the economic report, or near to the open of the EUR session. Or,alternatively, you might place entry orders above and below the currentprice (which may be at either extreme of the Bollingers) right before therelease of the news.What should you watch out for?Right before a breakout, the candles might actually perform a fakemove – in the opposite direction of the breakout: