This is the second part of this topic of trading indicators for beginners and I would like to share three more Trading indicators with examples so that the beginner traders can get primary idea about the indicators of trading. ## **4. Bollinger Bands** --- Bollinger Bands are a technical analysis tool used primarily in stock market trading to gauge market volatility. Created by John Bollinger, they consist of three lines: a middle line representing the simple moving average (SMA) of the asset's price over a specified period, and upper and lower bands that are calculated based on standard deviations from the SMA. The bands dynamically adjust to market conditions, expanding during periods of high volatility and contracting during low volatility. Traders use Bollinger Bands to identify potential buy or sell signals, such as when the price touches or crosses the bands, indicating overbought or oversold conditions.
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**How it works:** Bollinger Bands expand and contract based on market volatility. When the price moves outside the bands, it may indicate that the market is overbought or oversold. This is the indicator for traders of the potential trading opportunities. The middle band is typically a simple moving average, while the upper and lower bands are set at a certain number of standard deviations away from the middle band. When the price moves towards the upper band, it suggests overbought conditions, and when it moves towards the lower band, it indicates oversold conditions. Traders often look for price action near the bands, such as a breakout or a bounce, to make trading decisions. Bollinger Bands adjust dynamically to market conditions, expanding and contracting with changes in volatility. **Example:** Consider a stock with Bollinger Bands set at a 20-day period and two standard deviations away from the 20-day moving average. If the stock price consistently touches or exceeds the upper band, it suggests the asset is overbought, potentially signaling a sell opportunity. Conversely, if the price consistently touches or falls below the lower band, it indicates oversold conditions, possibly signaling a buy opportunity. Traders might also watch for squeezes, where the bands contract due to decreased volatility, often preceding significant price movements. Bollinger Bands provide traders with valuable insights into market volatility and potential reversal points. If the price of Bitcoin Cash (BCH) touches the upper Bollinger Band, it may indicate that BCH is overbought, and a price correction may occur. But if the price touches the lower Bollinger Band, it may suggest that BCH is oversold, and a price bounce may occur. To be continued.
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