How to Trade Using Bollinger Bands

Bollinger bands are designed to give traders a feel for what the volatility is in the market and how high or low prices are relative to the recent past. The basic premise of Bollinger bands is that price should normally fall within two standard deviations (represented by the upper and lower band) of the mean which is the center line moving average. As this is the case trend reversals often occur near the upper and lower bands. As the center line is a moving average which represents the trend in the market, it will also frequently act as support or resistance.

The first way that traders use the indicator is to identify potential overbought and oversold places in the market. Although some traders will take a close outside the upper or lower bands as buy and sell signals, John Bollinger who developed the indicator recommends that this method should only be traded with the confirmation of other indicators. Outside of the fact that most traders would recommend confirming signals with more than one method, with Bollinger bands prices which stay outside or remain close to the upper or lower band can indicate a strong trend, a situation that you do not want to be trading reversals in. For this reason selling at the upper band and buying at the lower is a technique that is best served in range bound markets.

Buying and Selling at the Upper and Lower Bands

A Chart Showing the Strategy of Buying and Selling at the Bollinger Band Upper and Lower Bands

Large breakouts often occur after periods of low volatility when the bands contract. As this is the case traders will often position for a trend trade on a break of the upper or lower Bollinger band after a period of contraction or low volatility. Be careful when using this strategy as the first move is often a fake out.

Bollinger Band Contractions

As Bollinger bands paint a good picture directly on the price chart of how high or low price is relative to historical prices, this is a good indicator to use in conjunction with other methods such as some of the chart patterns that we have learned so far and some of the candlestick patterns which we will learn in future lessons.

Below is One Such Example

A Chart Showing Bollinger Bands with Multiple Confirmations

Beginner's Paradise

If you're a forex newbie, the following sites will help you get a grip on the similarities and differences between forex trading and stock exchange trading. Take advantage of free resources before you dedicate any serious cha-ching to training.

Tip'd: Investing and Finance Social Media / News — Get the latest forex, commodities, and market news from the largest investing social media site.
Currency College — Currency College delivers a variety of course offerings with classes that are held at the student’s convenience. Each class is followed by homework and tests; each course lasts about six weeks; and each class contains about ten students. Emphasis is given to risk management. This is not free education, but if you bring referrals to Currency College you could earn a scholarship toward your tuition. This site has plenty of free resources, however, like a comparative chart for various trading platforms so you can make an educated choice about trading platforms.
CyberTrading University — This site offers free forex training through a two-hour video that includes a brief history, PIP spreads, majors and crosses, economic indicators, fundamental analysis, technical analysis, short-term long-term fundamentals, trading rules, leverage and margin, trading psychology, Fibonacci Retracement Levels, moving averages, oscillators, Candlestick Charts, Bollinger Bands, and more.
Forex Charting 101 — A brief and basic overview of forex charts from Pip Trader. You'll discover that the charts are very similar to those that you might use for securities trading. But, some of the charts may seem more complicated if you're not a seasoned trader.
Forex Realm — Possibly the most comprehensive and thorough forex education online. Learn about everything from currency codes to exotic trading strategies through articles, graphics, and concise examples.
Forex-Training.com — Fairly comprehensive training with a free demo account. The highlight to this site is their explanations about various charts.
FX Home Trader — Focus on the information about technical analysis, where you can learn more about Fibonacci Trading, Pivot Points, and more. Their Forex Facts also contain some valuable information.
FX Power Trading Course — Offered by FXCM, this paid course is one step up from free at the current price. Learn how to time the market, recognize trends, and basics in fundamental and technical analysis through this eight-day course.
Investopedia on Forex — An extensive 10-part article on forex investing, from an introduction to a recap that covers everything from benefits and risks to technical analysis. If you can't get enough of Investopedia's information, head to a list of their Forex articles, where you can learn more and download their free e-Book entitled, "High Probability Trading Setups for the Currency Market."
Law of Charts — Joe Ross offers advice for traders across the board, but the information contained in his "Law of Charts" offer speaks to forex as well as any other trading strategy. He identifies chart patterns that result from human behaviors and points to entry and exit targets on those charts. You can take advantage of Ross's other tools as well, including the forum.
Learn4X — This is an interesting site simply because it contains several tests that help you determine if you have the 'guts' and knowledge to be a trader. They also offer a free online seminar.
Market Traders Institute (MTI) — You don't need to spend a lot of money to train in forex markets. MTI offers many free resources such as videos and lesson plans that will help you get off the ground. If you like what you hear and see, you can invest in materials for the advanced trader down the road.
My Forex Trading Tools — A site that contains overviews on everything from fundamentals to options.
Online Training Academy — Free basics on FX trading via video, offered by Mike McMahon. You need to register, but you can opt out of contact lists with a click of a box.
School of Pipsology — A lighthearted forex education from Kindergarten to College so the beginner knows exactly where he stands in an attempt to grasp the forex market.

Blogs & News

The following list provides a variety of news from both professional and single-investor resources.

A Forex Loser — The name of the blog ought to warn you. This blog contains a different perspective on trading, with an emphasis on trading psychology. Some great trading tips.
Currency Secrets — Not updated daily, but plenty of resources in historical entries. The focus is on currency, but you can find plenty of reviews and tips here as well.
DailyFX — Sponsored by Forex Capital Markets (FXCM), this site offers a free weekly trading lesson, a forum, economic calendar, and free quarterly outlook reports.
Forex News — At-a-glance links to news and analyses.
Forex Project — A fascinating blog written by a forex beginner who logs his experiences in a journal, through established goals, and with a full trade history. This blogger currently is under pressure from a fulltime job, and he's considering a transition from day trading to going long on his investments. Should be an interesting read. Be sure to check out this blogger's list of references, including a nice beta risk calculator.
Forex Reader — Daily currency trading news and commentary.
FX Boot Camp — Wayne McDonell offers his boot camp theories for free at his blog on FXStreet (see next).
FXStreet — Breaking news, commentary. Sponsored by Global Forex Trading (GFT).
Peter Bain Forex Trading Commentary — Peter Bain's commentary needs to be good, as it's a tool to push his training course. You can take advantage of his free podcasts as well.
Piptopia — This is Rob Booker's blog on forex. He's a currency trader and trainer and he's been at this blog for two years, so you'll find some interesting history here.
Grace Cheng's Forex Blog — "Not long after my graduation, I was introduced to forex trading, and since then, have never looked back." Outside of her blog, Cheng writes for a number of trading and investment magazines.
Quantitative Trading — Dr. Ernest Chan's take on automated, statistical trading strategies.
Trader Mike — Michael is a trader, and this blog is a trading journal of sorts. Although he considers himself a swing/position trader, he switched to day trading in 2005. Although this blog doesn't focus on forex per se, you can learn plenty about trading strategies here.

Charts

You can't trade without charts, but the chart that you use is a matter of personal preference. The list below provides a nice pool to pick from:

DailyFX Chart — You can manipulate this chart by type, time scale, view, and much more. Java based.
Free Forex Charts — From simple to Premium to System Trading, simply the best choice of charts around.
Forex-Market — This site offers two free, real-time charting applications, one Web-based and the other a stand-alone Java applet.
Live Currency Chart — This chart, offered by FXStreet (see Blogs & News above), is also Java based. A nice feature is the Drag&Drop that allows traders to pull indicators out of the Studies window and up into the Chart window.

Currency & Converters

Currencies can be confusing, especially when you learn that many lots are purchased in pairs. You can learn about specific currencies when you type the names of that currency into a search engine. For instance, you can learn more about the Euro at that currency's official site. But, if you don't know what to look for, the information found in the following sites will help you out:

ADVFN Forex Symbol Table — Comprehensive list of currencies. When you click on the currency symbol you'll reach a page where that currency is represented through currency exchange rate tables and historical exchange rate charts.
ExchangeRate.com — Try out the "hot" and "currency info" links that provide information about everything you'd want to know about worldwide currencies for 170 countries. Includes calculators, fun facts, serious facts, and more.
Go Currency — Reliable currency converter and money conversion service.
List of Currencies — This is an extensive list provided by Wikipedia that covers everything from ancient coinage to the current Yen. As with most Wikipedia lists, you might run across a link or two that doesn't contain information. But, you can use that information to search elsewhere if needed.
Oanda — Excellent set of currency converter tools from historical currency exchange rates for over 164 currencies to traveler's cheat sheets to customizable products. Visit their detailed currency converter FAQ page if you have questions.
X-Rates — More than a currency list or a converter, this site will bring you up-to-date on every bit of information you'd need to know as a forex trader.
XE.com — A basic currency converter backed up by other tools on this site, such as current and historic rate tables and a free email currency update service.

Directories & Portals

The following resources offer choices beyond the ones listed here. Since forex is a booming individual trader industry, expect to find new sites popping up weekly.

Earn Forex — A limited list, but some great resources broken down by category. This list is just one feature to this site, as you can access calculators, a blog, and information for beginners here.
Forex Bastards — Don't let that empty page or the name put you off. Click on other categories to find some interesting resources. This is a project in the making, brought to you by the Secret Forex Society.
Forex Central — You want it? They have most of it (blogs are missing). Resources aren't rated.
Forex Directory — This site is a little difficult to slug through, but worth it for the resources provided.
Pip Trader — This site contains a forum, live quotes and charts, news, reports, and a "mini-game" that has nothing to do with forex, but that might help you lighten up a bit.
Top 100 Forex Sites — Although these sites are rated by popularity and, therefore, subject to rating scams, you can learn much from the sites that are listed simply from the variety of information that's offered here. Many sites are brokerage firms, but as I mentioned previously you can find free information on many of these sites such as news, calculators, techniques, and more.

Economic Calendars & Indicators

Economic calendars and indicators are vital tools for fundamental research. The sites below will give you simple and detailed options.

Economic Indicators — A government site brought to you by the Economics and Statistics Administration at the US Department of Commerce. Their mission is to provide timely access to the daily releases of key economic indicators from the Bureau of Economic Analysis and the US Census Bureau.
Forex Economic Calendar — What better place to find an excellent economic calendar than a site that focuses on this tool?
Global Forex Trading (GFT) — A detailed look into the next month's international monetary future based on GMT.
InfoForex — Brief overviews on various sectors from Auto and Truck Sales to a Monthly Wholesale Trade report based upon the US Census.

Fibonacci & Candlesticks

Fibonacci and Japanese Candlestick charts may seem difficult, but with the right training you can master both technical strategies.

Fibonacci — This is the home page for Dr. Ron Knott's multimedia Web site on the Fibonacci numbers, the Golden section and the Golden string hosted by the Mathematics Department of the University of Surrey, UK. Simple to use, easy to understand, and filled with illustrations to help you learn why some numbers are so important to nature. These numbers are also of vast interest to many forex investors.
Fibonacci Forex Indicators — Forex Planet will begin to show you how to apply Fibs to forex in this easy-to-understand lesson. But, the lesson is short, so you might try the next resource as well.
Fibonacci Method in Forex charts — This lesson also applies to forex, and it offers a short tutorial on applications along with a downloadable Fib calculator.
Japanese Candlesticks — FX Words offers a simple and succinct explanation for candlesticks, including bullish and bearish patterns.
Japanese Candlesticks (Elliott Gann) — A comprehensive tutorial that covers all the basic terminology and explains each term with appropriate graphics, offered by the ElliottGann site.
Japanese Candlestick Trading Forum — It costs to become a member, but you can access all the candlestick basics for free on this site.

Forecasts and Signals

The following resources use a mix of fundamental and technical analyses to formulate their prognoses:

AceTrader — True 24 hours real-time analysis for up-to-the-minute recommendations and analysis.
e-Forex — Free trading signals. Dig into their historical records to understand their precision.
Forex Predictions — Currently free daily and weekly high-low signals through the Web site and by email. This site is a division of RDC Bancorp, Inc., a foreign exchange services company.
Forex Signals — FinoTek provides signals and trends with charts. Check out their archived signals to determine credibility.
Investica Ltd. — Online information and free e-newsletters filled with signals and forecasts.
Open Forex — Daily forecasts in real trade and analytical articles on forex basic currency pairs.

Forums and Communities

Forex Factory — You'll find a Forex Beginner Q&A section as well as topics that focus on specific strategies and techniques.
Forex TSD — Go ahead and lurk in this forum until you feel comfortable. Then register for free to access the forum and a calendar. The paid "elite" subscription offers detailed statements of currently more than 20 trading systems.
Global View Forums — Another free forum that's been around since 1996.
MoneyTec — With over 33,000 members, this traders' forum offers a format to discuss trading ideas, share, learn, and build new trading techniques and strategies.

Fundamental Research

The following list contains comprehensive information about economic fundamentals for your research:

Bureau of Economic Analysis (BEA) — Get the straight stuff from the US Department of Commerce like the pros. Everyone from the White House staff to US Trade Commission employees to trade policy officials who want to negotiate international trade agreements use the measurements contained on the BEA Web site.
Consumer Price Index (CPI) — The US Department of Labor offers a ton of information just on this page alone through their links.
Forex Daily Fundamentals — XpressTrade offers a daily focus on forex fundamentals.
The Bank for International Settlements (BIS) - An international organization which fosters international monetary and financial cooperation and serves as a bank for central banks. As such, this organization offers valuable information through their publications and research as well as through many other resources offered on this site. They also maintain a list of Central Bank Web sites.
The Fundamentals of Forex — Forex TV brings you the lowdown on what type of news would affect forex from a fundamental standpoint. You can use the information on this list to conduct further research.

Glossaries

Forex Glossary — The only drawback to this glossary is that the "A-Z" tab doesn't include a total listing of all the terms under the single-letter tabs. Comprehensive.
Forex.com Glossary — An at-a-glance glossary contained on one page.
Glossary of Forex Terms [PDF] — This printable file, offered by FX International Group, contains all the basics.

Government Regulation

Australian Securities and Investments Commission (ASIC) — The ASIC's regulatory coverage includes the forex market. Use their search box to learn more about their reach and responsibility.
Commodities Futures Trading Commission (CFTC) — The CFTC operates along the same lines as the SEC (Securities and Exchange Commission), except this government organization focuses on protecting market users and the public from fraud in the futures and option markets. So keep this site handy to stay on top of any forex scams through their Consumer Advisory on Forex Fraud. You can learn quickly what to avoid in your learning curve through a detailed forex advisory that offers information about other resources as well.
Financial Services Authority (FSA) — An independent non-governmental body located in the UK, given statutory powers by the Financial Services and Markets Act 2000. Use their search box to locate information about the UK forex market and regulations.
National Futures Association (NFA) — The NFA is "the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets," which basically means that this organization regulates any market that depends upon future cash flows. The "investor information" section contains materials about how to find a broker and basic lessons in forex trading. Plus, they publish forex warnings, news, and they offer a place for investor disputes and complaints.

Market Reports

KBC [PDF] — A Comprehensive "Morning Report" from this Belgian foreign exchange bank (in English).
Mellon — FX Daily report from Mellon Financial Corporation, with links to American and European editions and past issues.
SaxoBank — Daily market update from this foreign exchange service in London.
Scotia Capital [PDF] — Daily report with corresponding links for further reading from this Canadian foreign exchange bank.
UBS — Daily summary for forex markets sponsored by this Swiss foreign exchange bank.

Nonprofit Associations

Australian Technical Analysts Association (ATAA) — A non-profit association of both professional technical analysts and anyone who uses technical analysis for private investing, trading or advising.
International Compliance Association (ICA) — The ICA is a professional organization dedicated to the furtherance of best compliance and anti money laundering practice in the financial services sector.
The Financial Markets Association (ACI) — ACI has the largest membership of any of the international associations in the wholesale financial markets. The Head Office is based in Paris.

Practice

Some of the best demonstration tools are owned by forex brokerages. The following were chosen for their reliability and popularity. Be aware that some brokerages will request your permission to be contacted by mail, phone, or email. In some cases you might want this contact, as they will provide support for your training. In all cases you can walk away if their training and trading platforms don't turn you on.

CMS Forex — Customize your practice with unlimited funds on CMS Forex's VT Trader 1.8.5.1, a program that includes an API so that you can customize your solution. This software offers a point-and-click open and close positions directly on the chart. Access over 100 indicators, Reuters Forex related news and market analytics, and an "autopilot" feature. You can reach their customer support team by phone, live chat, or e-mail.
Forex Trading USA — Free 30-day demo with a Mini ($2,000 virtual cash, 200:1 leverage, 10k lot size) or Standard ($25,000 virtual cash, 100:1 leverage, 100k lot size). Their free education is a nice plus.
FXSolutions — Use $10,000 in practice funds with full access to FXSol's new charting solution, FX AccuCharts. Backed by 24/7 customer service.
Global Forex Trading — Download their DealBook 360 to practice forex trading with live, dealable prices, real-time data, and free real-time breaking world and financial news. The software features forex charts, more than 85 technical indicators (for standard size GFT trading accounts) and the ability to build your own indicators. You have a choice about the amount of beginning funds, from $2,500 to $50,000.

Real-Time Quotes

ACM — Pick pairs and watch the quotes. ACM includes a manual [PDF] that explains in detail how to manipulate the chart to your liking. Must have Java plugin.
Forex Trading Charts — Real-time forex quotes. This site also contains real-time forex charting tools with editable indicators.
FXQuote — Scroll down the page, as the real-time quotes are located at bottom left. Based upon ET.
Live Forex Quotes — You might recognize the GFT logo behind the rates, but don't let that distract you from the constantly changing figures. If you're addicted to live feeds, you'll be mesmerized by the constantly changing currency rates on this chart.
SaxoBank — Scroll down the page a bit, as the quotes are located at the bottom left on this page, based upon GMT.

Technical Indicators

The following three resources offer the most succinct information about technical overlays and indicators. You can find many more resources at some of the sites previously listed under the Beginner's section, under many of the Blogs & News resources, and at various brokerages.

Forex-Business Technical Indicators — Where the other two sites offer great technical indicator explanations, this site offers 10 charts that illustrate some of those terms.
IQ Chart — This company offers a list of technical overlays and indicators with short and easy-to-understand explanations. Take a look at their chart patterns while at this site, as this company is a provider of stock charting software to individual investors and technical analysts.
Technical Indicators — Definitions provided by MetaQuotes Software.

X-Tras

IFXTAG — The International Forex Traders Affinity Group provides individual investors access to products and services that are evaluated by top professionals and their members. IFXTAG is committed to harnessing the potential to make electronic trading work for their global community of subscribers. Membership is free, but the resources are not. Members, however, do receive free trials and discounts to various services.
Secret Forex Society — A 'closed' forum and educational site where members ask you to join or you can ask to be placed on a waiting list. Go ahead and trust them. Get on the waiting list so you can access some interesting information.
Traders Press, Inc. — An online bookstore specifically for traders.

Thursday, December 11, 2008

Wednesday, December 10, 2008

How to Trade Using Bollinger Bands

Buying and Selling at the Upper and Lower Bands

Bollinger Band Contractions

Below is One Such Example

Beginner's Paradise

Blogs & News

Charts

Currency & Converters

Directories & Portals

Economic Calendars & Indicators

Fibonacci & Candlesticks

Forecasts and Signals

Forums and Communities

Fundamental Research

Glossaries

Government Regulation

Market Reports

Nonprofit Associations

Practice

Real-Time Quotes

Technical Indicators

X-Tras

Tuesday, December 9, 2008

Monday, December 8, 2008

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Google News

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