Bollinger Banks Definition – Bollinger Bands are a technical analysis tool invented by John Bollinger in the 1980s. It is a method that combines a moving average with the underlying instrument’s volatility. The bands were designed to gauge whether the prices are high or low on a relative basis. They are plotted two standard deviations above and below a simple moving average. The bands look like an expanding and contracting pipe. Prices will often meet resistance at the upper band and support at the lower band. Tips for forex traders: 1) when the bands contract drastically, the signal is that volatility will expand sharply in the near future; 2) an additional signal is a succession of two top formations, one outside the band followed by one inside. If it occurs above the band, it is a forex selling signal. Conversely, when it occurs below the band, it is a forex buying signal.
Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.