“INDICATOR OF THE DAY” - BOLLINGER BANDS
The cross has been confined to a well defined range trade since mid-January with the market loosely trading between the 1.4600-1.5200. [I][B]The way to play this type of price action is generally to look to buy on dips towards the range lows and sell rallies back to the range highs. One indicator that often proves to be a good entry signal provider for range bound markets are Bollinger Bands.
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Bollinger Bands use a set moving average with two trading bands above and below the moving average that are a determined standard deviation away from the moving average. The purpose of the bands is to capture the relative definition of the high and low end of the respective range to allow traders to better anticipate when a market may be subject to a reversal back into the prevailing range. In the above example, we can see the defined range in Eur/Chf with the market now testing the lower Bollinger band. Previous moves into the lower Bollinger back on January 14 and February 17 had produced good buy entry signals and with the market once again hitting the lower Bollinger on Friday, we could once again be poised for a bounce back into the defined range. Look for a break back above 1.4700 to confirm.
Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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