Introduction to the Bollinger Bands 3b Indicator
The Bollinger Bands indicator is probably one of the most popular technical indicators and this is probably because it provides so much information even just as a single indicator. The Bollinger Bands 3b indicator extracts its information from the classic Bollinger Bands.
What is the Bollinger Bands 3b Indicator?
The Bollinger Bands 3b indicator is a custom technical indicator which is derived from the widely used Bollinger Bands indicator. It plots an oscillator type of line on its own window which closely mimics the movements of price action. However, it should be noted that these oscillations also consider the movements of price in relation to the Bollinger Bands.
How the Bollinger Bands 3b Indicator Works?
The specific formula used within the Bollinger Bands 3b algorithm is quite complex. However, it is clear that it derives its computation from the classic Bollinger Bands indicator within its programming script.
The Bollinger Bands indicator is often used to identify trend direction, momentum, volatility, as well as overbought and oversold price levels. Since this indicator is derived from the Bollinger Bands indicator, it somehow incorporates volatility within its analysis of price fluctuations.
How to use the Bollinger Bands 3b Indicator for MT4
The Bollinger Bands 3b indicator has only two variables that can be modified within its settings, which are both pertaining to its underlying Bollinger Bands indicator.
“BBPeriod” refers to the number of periods its Bollinger Bands indicator will be based on. The higher the number, the smoother its underlying Bollinger Bands middle line would be.
“StdDeviation” refers to the standard deviation used by its underlying Bollinger Bands indicator. The higher the number, the wider the fluctuations of its outer lines would be.
This indicator does not provide trend or momentum direction as an oscillator. However, its oscillations do mimic the movements of price action quite closely.
Since this indicator is also an oscillator and its oscillations do coincide with the peaks and troughs of price action, it can be used as a basis for identifying divergences.
Buy Trade Setup
When to Enter?
Identify and observe a bullish divergence using the Bollinger Bands 3b line. Open a buy order as soon as the Bollinger Bands 3b line slopes up sharply while price action shows signs of a bullish reversal. Set the stop loss on the support below the entry candle.
When to Exit?
Close the trade as soon as the Bollinger Bands 3b line slopes down sharply and price action shows signs of a reversal.
Sell Trade Setup
When to Enter?
Identify and observe a bearish divergence using the Bollinger Bands 3b line. Open a sell order as soon as the Bollinger Bands 3b line slopes down sharply while price action shows signs of a bearish reversal. Set the stop loss on the resistance above the entry candle.
When to Exit?
Close the trade as soon as the Bollinger Bands 3b line slopes up sharply and price action shows signs of a reversal.
Conclusion
The Bollinger Bands 3b might seem to erratic at first glance. However, this does have the advantage of being very responsive to price action movements. It can be a useable tool as a divergence indicator when used in the right context.
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