“INDICATOR OF THE DAY” - BOLLINGER BANDS
The cross has been confined to a well defined range trade since March with the market loosely trading between the 1.5000-1.5200 range. The way to play this type of price action is generally to look to buy on dips towards the range lows and sell on 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.
Eur/Chf: Bollinger Bands use a set moving average (20-Day SMA) 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 failing by the upper Bollinger band. Previous moves towards the upper Bollinger had produced good sell entry signals and with the market recently breaching the upper Bollinger last week, we could once again be poised for a more significant drop back into the defined range. Tuesday’s break below 1.5160 confirms.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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