How To Use Bollinger Bands? (Part II)
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Bollinger Bands are based on the standard deviation. A standard deviation is the measure of the spread of a set of number. The higher the difference between the closing prices of a currency pair and the average price, the larger the standard deviation and the volatility of the currency pair. 95% of the recent closing prices are expected to be within the two standard deviations of the currency pair when the markets are range bound. In a range bound market, in other words, if the price pops above or below the Bollinger Bands, it does not belong there.
The formula used to calculate the Bollinger Bands (BB) is: Upper BB= 20SMA + 2(Standard Deviation) and Lower BB= 20 SMA-2(Standard Deviation. There are three different ways you can setup trades with Bollinger Bands.
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