Bollinger tool consists: The central line is the simple moving average over a period of 20 days, while the upper and lower lines measure the volatility of the market. If the forex market is currently very volatile, the bands move away from each other. If the market is rather stable instead, the bands move towards each other. Once the price reaches the outer Bollinger Bands, these serve as a trigger mechanism for the market to return to the middle 20 day period.
Forex traders can identify potential support or resistance when the price moves outside the Bollinger Band. If this is the case, the market either breaks out of its previous range or the development was short-term and the price is back in the starting range. The tapes help forex traders find entry and exit points for their trades and also serve as a guide for placing stops and limits.