What is Bollinger Band, Parabolic SAR and Fibonacci Retracement?
What is the Bollinger Band?
Bollinger Band is a volatility band that is based on the standard deviation. The band expands or deflate with the increases and decreases in volatility. Price is wrapped with 3 SMA (Simple Moving Averages), usually known as Upper Band, Lower Band, and Middle Band. Traders use their own trade style to trade with this. Default BB (Bollinger Band) value of an indicator in 20.
Calculation
Assuming, the default value is 20
Upper Band = 20 Period SMA (Simple Moving Average) + (Previous 20 Standard Deviation * 2)
Lower Band = 20 Period SMA (Simple Moving Average) – (Previous 20 Standard Deviation * 2)
Middle Band = 20 Period SMA (Simple Moving Average)
What is Parabolic SAR?
Traders use parabolic SAR to find the change in the direction of price. The SAR in Word Parabolic SAR is known as “Stop and Reversal”. It’s a non-repaint and lagging indicator.
Calculation
Example
Use this at support and resistance to confirm reversals.
What is Fibonacci Retracement?
Fibonacci Retracement is a popular tool among Technical Traders. Traders use this tool to find potential reversal points. These Retracements are based on ratios of real Fibonacci Series i.e. 0.236 (23.6%), 0.382 (38.2%), 0.618 (61.8%) etc. Some traders often use 0.5 (50%) retracement also. 0.618 or 61.8% is also called the golden ratio. A golden ratio is to be called when diving one number to another preceding number gives a ratio of 0.618 or 61.8% and doing vice-versa gives 0.382 or 38.2% like diving 21 by 34 gives 0.6176 (0.618 round off) or diving 55 by 144 0.3819 (0.382 round off).
How to draw Fibonacci Levels
On 1st you have to find a strong trend to be biased in a particular direction. Now analyze the same trend in lower TF (Time Frame) in such case our trend is down so we will draw from Lower High to low and mark up the potential continuation zones matching with Fibonacci lines.
You can see the market retraced back to 0.618 (61.8%) and a beautiful fall from there, meanwhile there is also a resistance level that tested multiple times.
Note: Always Trade indicators signals wisely with proper risk management and strategy else your trading funds will always at high risk.
