In today forex faq, I shall be sharing with you a question by one of our fellow traders asking about the Bollinger Band as well as the moving average.
Below is the question:
Do you use Bollinger Band for trading?
What time frame and what length of MA for the price line do you recommend?
First of all, I do use the bollinger band for trading especially when I am trading breakout. The bollinger band indicator is a good tool to tell whether the market is currently in consolidation or not. When I am trading breakout, I will always look for period where the market is in consolidation as this is sign that the market is consolidating strength to break in a particular direction.
Besides using the bollinger band as a tool to tell consolidation, it can also be used as a tool to tell the current trend of the market. If you see that the price is sticking to the upper band, you are in a up trending market. If you see the price sticking to the lower band, you are in a down trending market.
As for your second question on what time frame to use, I will say that it depends on the type of strategy you are using. In fact, I have answered this question on time frame sometime back. You can read it at best time frame post.
As for the moving average, I like to plot the 200 EMA on all my chart as it is a good form of support and resistance. In fact, the 200 EMA is voted as the most reliable indicator in one forex magazine.
You will notice that the price respect the 200 EMA as support or resistance pretty often and therefore I usually like to use the 200 EMA as an entry tool.
Other than the 200 EMA, I also like to use the 20 EMA. If you plot a 20 EMA on your chart, you will find that the price like to stick to it. If fact, there are some traders who trade simply with the 20 EMA. They sell when the price breaks below the 20 EMA and they buy when the price breaks above the 20 EMA.
I hope that I have answered your question. Do feel free to give your suggestion below if you have anything to share.