Lesson 2: Bollinger Bands

Forex Training Summary and Quiz

Bollinger Bands in Forex

  • Bollinger Bands were introduced in the 1980s by technical analyst John Bollinger.
  • Bollinger Bands make use of a moving average and the statistical concept of standard deviations to create bands or "price channels" that show the strength of a market trend as well as overall trade volatility.
  • Bollinger Bands must be placed over a pricing chart such as an Asking Price, a Minimum / Maximum Price Chart, or a Candlestick Chart. This provides the current market price, as well as a moving average price that "smoothes out" rate fluctuations.
  • The greater the distance between the bands, the greater the overall exchange rate volatility.
  • The region between the average rate and the upper band is the buy channel - the region between the average rate and the lower band is the sell channel.
  • A series of spot rates falling outside either of the bands is said to be breaking the bands and is a strong trend reversal signal.
  • Double Top - a trend reversal signal that the market is resisting further price increases and a sell-off is likely as traders settle their open positions prior to an anticipated pullback in the exchange rate.
  • Double Bottom - a trend reversal signal that the market is supporting the current rate suggesting that rates could increase as buyers enter the market.

  • Putting It All Together
Bollinger Bands provide insight into the level of _________ for a currency pair.
relative strength
Bollinger Bands use the concept of standard deviations to measure the _________ of a data set.
depth of market
dispersal pattern
The area between the moving average line and each band is called a _________.
resistance point
When spot rates fall outside the bands ("breaking the bands"), this indicates a(n) _________ in volatility.
leveling out
As the bands widen, this is an indication of _________ volatility.
a decline in
Volatility tends to _________ following a rate reversal as traders wait for a clear signal as to the market direction.
remain constant
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This is for general information purposes only - Examples shown are for illustrative purposes and may not reflect current prices from OANDA. It is not investment advice or an inducement to trade. Past history is not an indication of future performance.

Trading FX and/or CFDs on margin are high risk and not suitable for everyone. Losses can exceed investment.