The Bollinger bands are usually found on the tail end of most forex books and courses so it’s a sure giveaway that it is not a topic for beginners.
Luckily I poked around the site and came across an excellent, easy to understand article about it so you may want to start with it first.
Here is the link:
http://www.forextradingsoftwaretraining.com/analysis/currency-trading-charts-bollinger-bandsNow your question was whether you need to know statistics. Yes you do. While the statistics needed is pretty much basic, it does require a bit more than simple arithmetic. Have a look first at the Bollinger band article at the link above before reading on because it gets technical from this point onwards.
The use of Bollinger bands involves superimposing three bands, or lines on top of an OHLC (open, high, low, close) charts of the currency involved.
The band in the center is computed from the simple moving average of the daily closing prices, while the bands on the top and bottom are the standard deviations above and below the central moving average.
Basically since the standard deviation measures volatility, the bands will self-adjust, showing a wider gap (bigger swings) during a volatile phase, while narrowing during times of relative calm.
John Bollinger recommends a certain sample size, depending on your type of trading. For short-term trading its 10 days, then for intermediate it is 20 days while long term trading would involve 50 days. These figures were better suited for stocks and forex traders generally opt to shorten the period a bit.
Bollinger expressed certain characteristics about his bands:
1. If prices move outside the band, the implication is that the current trend will continue.
2. When volatility lessens, or the bands tighten up, abrupt price changes usually occur.
3. Reversals in trend are usually indicated when bottoms and tops are initially made outside the bands, trailed by bottoms and tops inside the bands.
4. When a move starts at one band, the usual behavior is to go all the way to the other band.
By themselves, Bollinger bands generally don’t indicate buying or selling signals. The favored way is to use other indicators like RSI or relative strength index in tandem with Bollinger bands.
Whew…
hope that helps
