Forex Trade – Intelligent Forex

Bollinger Bands Can Give You a Huge Trading Edge Here’s Why

Posted in Forex Education by intelligentforex on January 7, 2010
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One of the critical pieces of forex education for any Forex trader is to understand the concept of standard deviation of price and how to use volatility to their advantage.

If you understand the concept you can easily apply it with Bollinger bands which are an essential tool for all forex traders.

Let’s look at why Bollinger Bands are so useful and profitable, when incorporated in your Forex Strategy.

If you don’t know what standard deviation is simply check our article on the concept – right, let’s take a look at Bollinger bands.

Bollinger Bands Defined

Bollinger bands are simply volatility bands drawn either side of a moving average.

You calculate Bollinger bands using the standard deviation of price over the same period as moving averages the mean price, then the volatility bands are plotted above and below the moving average.

Moving averages are used to identify the underlying trend of currencies and Bollinger bands take this one step further by:

Combining the moving average of the currency with the volatility of the individual market (or the standard deviation) – this then creates a trading envelope – with a middle mean price (moving average and 2 x bands (expanding or contracting) either side that reflect volatility or standard deviation.

As prices move away from the longer-term average, the standard deviation rises – and thus the bands will fluctuate in varying amounts, away from the average.

Why they work

In any market, the value of a currency traded tends to rise slowly over the longer term.

Prices can and do spike quickly in the short term, but will normally return to the longer term moving average – which represents fair value.

The standard deviation of the outer bands (how far they are from the mean) shows how far prices are from longer-term value.

Most price spikes are caused by trader psychology with greed and fear to the fore and this can be graphically seen with Bollinger bands.

So how should you use Bollinger bands?

There are 3 main ways to use them.

1. Spotting price spikes

When the bands are a long way from the mean you can use Bollinger bands as profit taking signal on existing trades or use them to spot contrary trades.

2. Enter exisiting trends

If you have a good trend in the forex markets then you can use dips to the middle band to buy at fair value.

3. Entering new trends

When prices are trading in tight range and start to breakout with a change in volatility a great new trend could be emerging.

Bollinger bands can certainly give you a new dimension to your forex trading strategy and any currency trading system can benefit from the extra insight that they can give you.

A word of warning

Like all technical indicators you should not use Bollinger bands in isolation to enter trades, however combined with timing indicators such as, the stochastic or RSI, then you have a powerful combination for greater FX profits.

With regard to forex education, knowing what standard deviation is and how to apply the concept through Bollinger Bands, will give you a huge trading edge, so make sure you use them.


Get Free Forex Education From Trading Legends!

Posted in Forex Education by intelligentforex on January 5, 2010
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Forex EducationIf you look online, you can find plenty of Forex education from some great traders and you can get it for free. Here we will look at some free info from great traders which can help lead you to currency trading success…

Let’s look at a few true market masters and see how they can help you become a better and more profitable trader.

Dow Theory – How and Why Markets Really Move

Dow Theory is essential education for anyone wanting to know how and why markets move. Charles

Henry Dow (1851-1902), was a founder and former editor of The Wall Street Journal and his theories were later refined by William Hamilton and Robert Rhea to give traders a theory that shows you how and why the markets really work and how you can profit from price trends.

Dow compared the movement of markets with the behaviour of the sea, the primary trend in the market corresponds with the direction of the tide, the secondary reactions within the primary trend are waves, and the movements within the trend are the ripples on the waves.

Dow knew that markets could not be predicted and they can’t, despite what many so called experts may tell you. The good news is you can see repetitive patterns which are a reflection of human psychology and they can be traded for profit.

Forget all the predictive theories such as Gann, Elliot and Fibonacci and study Dow theory; if you do you will understand how to win with technical analysis, how to catch trends and how to trade the odds.

Richard Donchian – The Grandfather of Modern Trend

If you haven’t heard of Richard Donchian you are missing out on great insight from a true market master!

Donchian’s 4 Week Rule is one of the best free Forex trading systems you can get and will beat all the heavily hyped Forex Robots you see sold online. If you use this system you can enjoy currency trading success, with a fully automated system which has made savvy traders, huge gains for over 25 years.

His general rules for trading and his rules for using technical analysis are also essential Forex education.

Richard Donchian didn’t begin trading his automated trading systems until the age of 65 and he then carried on into his 90s, showing you’re never too old to be trading! He was a true innovator in terms of technical analysis and the fact that his trading methods form the basis of so many trading methods still used today, shows the value of his work.

Theories the Pros Take Seriously and so should You!

The theories above are the ones other trading legends take seriously and include such great traders as, Vic Sperandeo, Richard Dennis and many more. If these great traders take them seriously so should you.

You can find more information about the above theories free online and you should study it and learn from it.