The most important signal that reflects the direction of a trend is the general direction of an MA movement. With a rising moving average, a chartist would take a bullish approach, attempting to profit from a rise. Buy when prices edge down to the MA, placing a stop order below the previous low and moving it as soon as the price closes below the earlier level. A falling MA means that prices are heading lower in a bearish market. In this case, open short positions whenever prices rise to the MA or anywhere higher. Place a stop order slightly above the previous peak and move it dynamically if the downward trend remains in place. The second signal to take into account is the crossover of a moving average and the price. This is the strongest signal indicating that a new bullish trend is emerging if an MA crosses the price chart from top to bottom with an upward slope, and the price chart also has a large upward slope. Another type of crossover occurs when a moving average with a downward slope crosses through the price sloping downwards or upwards. Such a crossover gives a weaker signal for an upcoming bullish trend. In this case, you need an additional signal to confirm further market dynamics. Similar signals with opposite slopes should be interpreted as signs of an upcoming bearish market.
The third signal is a reversal of an MA at the highest or lowest price. If a moving average is located below the price chart and has an intraday low while the price chart has an upward slope, it sends a moderate buy signal indicating the presence of a bullish trend. If the price chart does not have an upward slope, a moving average sends a very weak signal. It takes three additional signals to confirm it.
These rules can be applied to trending markets. In a trendless market, such lines will be curved. A trader’s attempts to smooth out these curves manually usually lead to a loss of a useful signal.
You can see three types of moving averages on the chart. The crossover of the market price and the indicator at the bottom gives a buy signal.signal.
Bollinger bands are similar to moving average envelopes. The difference between them is that the borders of envelopes are drawn above and below the moving average curve at a fixed distance expressed as a percentage, whereas the boundaries of Bollinger bands are plotted at levels equal to a certain amount of standard deviations. Since the standard deviation value depends on volatility, Bollinger bands are self-adjusting: widening when the market is volatile and narrowing during more stable periods.
As a rule, these patterns are built on a price chart but can also be displayed on an indicator chart. Below we will focus on the bands that are plotted on price charts. Similar to the case with moving average envelopes, the interpretation of Bollinger bands is based on the fact that prices tend to stay within the upper and lower boundaries of a band.
The distinctive feature of Bollinger bands is their varying width that depends on shifts in price volatility.
During the periods of considerable price changes, the bands widen to let prices fluctuate more freely. During the periods of stagnation, the bands narrow thus curbing price volatility and containing prices within their boundaries.
As a rule, sharp price swings occur after the bands narrow due to decreased volatility.
When prices move outside the bands, a trader should expect a continuation of the existing trend.
Peaks and bottoms outside of Bollinger bands followed by peaks and bottoms inside them indicate a potential trend reversal.
Price movement that originated near one of the bands normally reaches the opposite boundary.
This observation is useful for predicting price targets.
Bollinger bands are similar to moving average envelopes. The difference between them is that the borders of envelopes are drawn above and below the moving average curve at a fixed distance expressed as a percentage, whereas the boundaries of Bollinger bands are plotted at levels equal to a certain amount of standard deviations.
Since the standard deviation value depends on volatility, Bollinger bands are self-adjusting: widening when the market is volatile and narrowing during more stable periods.
As a rule, these patterns are built on a price chart but can also be displayed on an indicator chart. Below we will focus on the bands that are plotted on price charts. Similar to the case with moving average envelopes, the interpretation of Bollinger bands is based on the fact that prices tend to stay within the upper and lower boundaries of a band.
The distinctive feature of Bollinger bands is their varying width that depends on shifts in price volatility.
During the periods of considerable price changes, the bands widen to let prices fluctuate more freely. During the periods of stagnation, the bands narrow thus curbing price volatility and containing prices within their boundaries.
The third signal is a reversal of an MA at the highest or lowest price. If a moving average is located below the price chart and has an intraday low while the price chart has an upward slope, it sends a moderate buy signal indicating the presence of a bullish trend. If the price chart does not have an upward slope, a moving average sends a very weak signal. It takes three additional signals to confirm it.
These rules can be applied to trending markets. In a trendless market, such lines will be curved. A trader’s attempts to smooth out these curves manually usually lead to a loss of a useful signal.
You can see three types of moving averages on the chart. The crossover of the market price and the indicator at the bottom gives a buy signal.signal.
Bollinger bands are similar to moving average envelopes. The difference between them is that the borders of envelopes are drawn above and below the moving average curve at a fixed distance expressed as a percentage, whereas the boundaries of Bollinger bands are plotted at levels equal to a certain amount of standard deviations. Since the standard deviation value depends on volatility, Bollinger bands are self-adjusting: widening when the market is volatile and narrowing during more stable periods.
As a rule, these patterns are built on a price chart but can also be displayed on an indicator chart. Below we will focus on the bands that are plotted on price charts. Similar to the case with moving average envelopes, the interpretation of Bollinger bands is based on the fact that prices tend to stay within the upper and lower boundaries of a band.
The distinctive feature of Bollinger bands is their varying width that depends on shifts in price volatility.
During the periods of considerable price changes, the bands widen to let prices fluctuate more freely. During the periods of stagnation, the bands narrow thus curbing price volatility and containing prices within their boundaries.
As a rule, sharp price swings occur after the bands narrow due to decreased volatility.
When prices move outside the bands, a trader should expect a continuation of the existing trend.
Peaks and bottoms outside of Bollinger bands followed by peaks and bottoms inside them indicate a potential trend reversal.
Price movement that originated near one of the bands normally reaches the opposite boundary.
This observation is useful for predicting price targets.
Bollinger bands are similar to moving average envelopes. The difference between them is that the borders of envelopes are drawn above and below the moving average curve at a fixed distance expressed as a percentage, whereas the boundaries of Bollinger bands are plotted at levels equal to a certain amount of standard deviations.
Since the standard deviation value depends on volatility, Bollinger bands are self-adjusting: widening when the market is volatile and narrowing during more stable periods.
As a rule, these patterns are built on a price chart but can also be displayed on an indicator chart. Below we will focus on the bands that are plotted on price charts. Similar to the case with moving average envelopes, the interpretation of Bollinger bands is based on the fact that prices tend to stay within the upper and lower boundaries of a band.
The distinctive feature of Bollinger bands is their varying width that depends on shifts in price volatility.
During the periods of considerable price changes, the bands widen to let prices fluctuate more freely. During the periods of stagnation, the bands narrow thus curbing price volatility and containing prices within their boundaries.
- As a rule, sharp price swings occur after the bands narrow due to decreased volatility.
- When prices move outside the bands, a trader should expect a continuation of the existing trend.
- Peaks and bottoms outside of Bollinger bands followed by peaks and bottoms inside them indicate a potential trend reversal.
- Price movement that originated near one of the bands normally reaches the opposite boundary.
- This observation is useful for predicting price targets.
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