Bollinger Bands Basics

Mean reversion is when an asset’s mean is identified in order to determine whether the asset’s price is moving back to that point. Analysts will use various technical indicators to measure mean reversion. One such technical indicator is the use of Bollinger Bands. Bollinger Bands utilise a number of statistical factors to produce a set of bands to contain the price action. They allow traders to see the asset’s price on a chart relative to its volatility mean over a given time period. Volatility is the rate of price increase or decrease for a currency pair in the market. High volatility results in a widening of the upper and lower Bollinger bands and decreased volatility presents as a contraction of the Bollinger bands. The price will usually bounce off the range when it reaches the upper or lower band.

See the video below for an explanation and trading using the Bollinger Band Indicator

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