IJMLand Review - Jan 2011

Popular Bollinger Band Strategies for Forex 

Considering that most prices will fluctuate within Bollinger bands, many Forex traders buy when prices are near the lower range band and reverse their position when prices subsequently move to the moving average or higher.   

Bollinger bands can effectively be used especially in conjunction with other indicators to determine trend reversals, as well as entry and exit points. 

One indicator that becomes extremely beneficial for trading foreign exchange with the use of Bollinger bands is the Relative Strength Indicator or RSI.   

Using Bollinger bands with RSI confirmation, one would short the currency if penetration of the upper Bollinger band occurs, while the Relative Strength Indicator is simultaneously showing weakness. 

Under this circumstance, an investor would anticipate the price to fall and would exit upon reaching the lower Bollinger band or before.   

One would do the opposite, if the currency price went through the lower band, and yet the Relative Strength Indicator showed strength. 

At this point, an investor would undertake a long position in the currency in anticipation of a minimum movement of back up to the moving average level. 

There is no absolute certainty in foreign exchange trading, but with the prudent use of tools such as Bollinger bands and the Relative Strength Indicator, any individual can greatly improve performance.