Forex Technical Analysis Articles - Volatility Indicators - Squeezes and Bulges

Technical Analysis

1. Introduction

2. Construction

3. Interpretation of Bands

4. Squeezes and Bulges

5. Price Action in a Trending Market

6. Price Targets in Ranging Markets

7. Double Bottom

8. Double Top

9. Conclusion

When the Bollinger Bands exhibit narrow standard deviation it is usually a time of consolidation, and can be a signal that a breakout might be coming as people are adjusting their positions for a new move. Also, the longer the prices stay within narrow bands the greater is the chance of a breakout.

Figure 3 – Narrowing Bollinger Bands is a sign of consolidation.

Bollinger Bands that are unusually far apart can serve as a signal that a reverse in trend may be approaching. Notice how in mid-November on figure 4, the bands get very wide as a result of high volatility on the down swing. The trend reverses as prices reach an extreme level according to statistics and the theory of normal distribution.

Figure 4 – In mid-February there is another “bulge” that predicts the coming uptrend.

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