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Using the Bollinger Bands Indicator.
Bollinger Bands are a technical trading tool created by John Bollinger in the early 1980s.
They arose from the need for adaptive trading bands and the observation that volatility was dynamic, not static as was widely believed at the time.
The purpose of Bollinger Bands is to provide a relative definition of high and low. By definition prices are high at the upper band and low at the lower band.
This definition can aid in rigorous pattern recognition and is useful in comparing price action to the action of indicators to arrive at systematic trading decisions.
Bollinger Bands consist of a set of three curves drawn in relation to securities prices. The middle band is a measure of the intermediate-term trend, usually a simple moving average, that serves as the base for the upper band and lower band.
The interval between the upper and lower bands and the middle band is determined by volatility, typically the standard deviation of the same data that were used for the average.
The default parameters, 20 periods and two standard deviations, may be adjusted to suit your purposes. The Bollinger band you should try and practice quite often.
There are several techniques you can use, for instance; wait for price action to reach the top of the Bollinger band and to reverse towards the middle of the Bollinger band and to bounce back using the previous high as your target.
Other techniques can be used by using candlestick formations i.e. the hammer which appear at the bottom of trends, then take the breakout of its previous close and or a conservative approach to wait for the next candles confirmation.
Candle formations is discussed in module 4. It's an eye opener :-)
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