Bollinger Bands And Simple Moving Average
This time I will discuss two simple indicators that are mutually brothers. So, why are siblings anyway? Yes, because these two indicators are usually installed in one “package” and are complementary. Then, why are Bollinger Bands and Simple Moving Average?
This time I will discuss two simple indicators that are mutually brothers. So, why are siblings anyway? Yes, because these two indicators are usually installed in one “package” and are complementary. Then why Bollinger Bands and Simple Moving Average? Well, actually the reason is simple. This indicator is available on all trading platforms. The appearance is also simple, not complicated and relatively easy to understand. It doesn’t hurt us to try the simplest indicators first, before trying to figure out which indicators are more complicated, right?
Okay … now, the basic question is: how to use information from Bollinger Bands and Simple Moving Average? Here I will use Bollinger Bands as a benchmark to predict the limit of price movements, as a complement of the information provided by the Simple Moving Average . Mm, I will not discuss the details about the calculation and the Bollinger Bands formula here, after all you will find it easy on many sites, if you are interested in a bit of fun.
Basically, Bollinger Bands calculates the Standard Deviation from Simple Moving Average with a certain period. So, we will use BB to determine movement limits because of its nature as a barrier. According to this understanding, when the price touches the BB Upper line or BB Lower line level, it indicates that the price movement is likely to reverse.
Let’s look at the following chart:
I use Hourly Time Frame in GBP / USD pair with 48 SMA period Bollingger Bands. Pay attention to the price movements playing around in the Bollinger Bands area. It’s just that, I need to remind you, the limitations of Bollinger Bands will be effective if the high school used shows a flat trend. Bollinger Bands limits will tend to be violated if high school tends to be trending.
One more thing, the use of this Bollinger Bands indicator should be combined with other indicators for the current determinants of Open Position. We can use the intersection between two high schools as a benchmark for entry, and use information from these Bollinger Bands as a complement to knowing the picture of price movements. Or, we can also use a high school reference Bollinger Bands and BB Upper line or Lower line as a determinant of SL and TP.
With the benchmark intersection of SMA and Bollinger Bands as a price barrier, if the price touches the Upper line BB and the lower period high school starts to fall and cut the SMA with a higher period, we can do an Open Position Sell. Similarly, if the price touches the lower line BB and SMA with a lower period start up and cut the SMA with a higher period, we can do Open Position Buy.
Okay, what I said above is just an example of the use of information that we can use from Bollinger Bands and Simple Moving Average . Each trader may have their own way to utilize information from an indicator. Please try yourself to find a “concoction” indicator that fits your trading style.