One of the technical tools found on virtually every platform are Bollinger Bands. These bands are plotted based on a moving average that can be adjusted and applied on any timeframe. The bands are the standard deviation from that moving average, and on most if not all platforms, the standard deviation amount can be adjusted as well.
Different traders will have various styles of reading and utilizing these bands – some see them as support and resistance, while some traders use them to show volatility and other traders may use them for targets.
For the purposes of today’s article, we will look at the latter view, and use Bollinger Bands as a tool to help select price targets. The hourly chart of the EUR/USD currency pair below has been plotted with a 20-period moving average with Bollinger Bands at the first, second, and third standard deviations.
When a market is very quiet and sideways, the first and possibly second deviations usually contain a market. You should not consider these deviations as support or resistance in themselves, but rather signs of how extended a market move may be.
However, when a market has a strong trend, it often may maintain that overall trend until price has touched the third deviation. Take for example this chart, which shows arrows pointing to every touch of the outermost band, which is the third deviation.
Read the conclusion to this article at BINARYOPTIONS.NADEX