6 Bollinger Bands® Trading Strategies + Video

There are strategies on the Trading Rush Channel that gave approximate win rates more than 55 percent. At one point, this strategy gave 11 false signals in a row. RSI and Bollinger Bands on their own had better win rates than this. It took me around 1 hour to back test 100 trades, and while testing, some trades almost came close to hitting the stop loss, before going back and hitting profit targets. Don’t panic when market is very close to hitting your stop loss.

It’s important to know that most prices are contained within one and two standard deviations. As the name suggests the double Bollinger bands strategy uses 2 Bollinger bands instead of just one. This means that the buy and sell signals are two times more powerful.

Many traders have developed systems that thrive on these bounces and this strategy is best used when the market is ranging and there is no clear trend. If you’re freaking forex4you review out because you’re not familiar with standard deviations. Because Bollinger Bands measure volatility, the bands adjust automatically to changing market conditions.

Would put this into practice, and will be looking out for more videos. 5) Price consolidates sideways, not reaching the outer band anymore and the rejection-pinbar ended the downtrend. Bollinger Bands® and Keltner Channels are different, but similar, indicators. Here is a brief look at the differences, so you can decide which one you like better.

Not exiting your trade can almost prove disastrous as three of the aforementioned strategies are trying to capture the benefits of a volatility spike. Like any other trade signal, you will need to exit your position without reservation. Now, looking at this chart, you may feel a sense of boredom overcoming you.

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In a downtrend, traders will look to enter trades at the middle or upper bands after a retracement or pullback. Values are compared to Bollinger Bands at 1.0 standard deviation above and below the selected moving average. The fact that Bollinger Bands adjust well to volatile market conditions, makes it one of the most important technical indicators is everfx safe for options trading. This indicator can be used to identify periods when volatility changes as well as potential changes in an asset’s price. In terms of volatility, Bollinger bands are able to show when volatility is reaching extreme lows, relative to the asset’s recent history. They do this by moving toward each other and ‘squeezing’ together.

This approach is fantastic when you get it right because the reversal will pour money into your account. However, get things wrong, and the pain can often leave you paralyzed from taking any action. You must be quick on your toes and willing to cut a loser without blinking.

1) Price is in a strong downtrend and price stays close to the outer bands all the time. It is set a specified number of standard deviations from the mid-point. Bollinger Bands® adapt dynamically to price expanding and contracting as volatility increases and decreases.

Trades WITH Stoploss vs WITHOUT Stoploss vs NO Profit vs NOTHING to find the best for Trading

This strategy is for those of us who like to ask for very little from the markets. Essentially you are waiting for the market to bounce off the bands back to the middle line, which carries a high winning percentage over time. Regarding identifying when the trend is losing steam, failure of the stock to continue to accelerate outside of the bands indicates a weakening in the strength of the stock. This would be a good time to think about scaling out of a position or getting out entirely. The middle line can represent areas of support on pullbacks when the stock is riding the bands.

Hi rayner , when i see the price at the top or bottom i look at the shape of the band . Your post and videos have turned a novice trader into a more skillful one. I’ve never used this indicator before and after following Mr Bollinger on twitter for a while now, I’m more interested to consider his indicator in my charts. If the price is at lower Bollinger Bands, then you can look for bullish RSI divergence to indicate strength in the underlying move.

On the other hand, if the price seems encapsulated between 1 and 2 standard deviation and moving upwards or downwards, we want to trade in the direction of the intraday trend. Donchian Channels are moving average indicators developed by Richard Donchian. They plot the highest high price and lowest low price of a security over a given time period.

It immediately reversed with an engulfing candle pattern, and all the breakout traders were head-faked. Along these lines, you don’t have to squeeze every penny out of a trade. Wait for some confirmation of the breakout and then go with it.

With the help of Bollinger, the trader examines the errors occurs in the future and minimize them by RSI indicator and bands. For the last, the trader increases its trade with the help of this. In a sideways condition, the price has a tendency to touch the upper and lower bands then bounce off the middle band within the indicator range. This indicator forms a price envelope in which the upper and lower belts are designed to determine the range level of a currency pair or trading asset. The most accurate trend indicator that is often used by traders is Bollinger bands and will be even more stable if combined with other indicators.

Defining the Indicators

In this example, I bumped down to a one hour chart to make an entry. This could give you a more accurate place to make an entry point. As I said, the 4 hour and 1-minute time frames are the preferred time frames for this strategy. Yes, there is less of an opportunity for a trade, but the signals are very strong when you are in a higher time frame.

Bollinger Band® “bands” can also be a valuable tool for traders who like to exploit trend exhaustion by helping to identify the turn in price. Note, however, that counter-trend trading requires far larger margins of error, as trends will often make several attempts at continuation before reversing. This indicator helps the traders to know the overbought and oversold conditions in the market trading. By default, the outer bands are 2 standard deviations away from the middle band . The measurement techniques for Bollinger bands are all quite easy. The closing prices of the currency pair in discussion are the first and most essential part of any Bollinger Bands chart.

Currencies tend to move in a methodical fashion allowing you to measure the bands and size up the trade effectively. Remember, price action performs the same, just the size of the moves are different. This ability to identify the setups will help you avoid the false signals from the real ones. Just as you need to learn specific price patterns, you also need to find out how bands respond to certain price movements. That doesn’t mean they can’t work for you, but my trading style requires me to use a clean chart. It’s safe to say Bollinger Bands is probably one of the most popular technical indicators in any trading platform.

Combining Bollinger Bands and Bollinger Bands Width

As we noted, the Bollinger Band trading tool consists of three lines. We need to create our own Bollinger Bands since there is no built-in bollinger function in the pinescript language so we will calculate the upper and lower band positions next. There is a wide range of markets where we know based on the previous 11 years this strategy has performed very, very well. I’ve set the backtest start period to January 1st 2010 and the end period to December 30th of 2030. Well really it actually has just 2 rules if you do not change the default settings for the indicator. If the pip higher or less than 5 pips the trader waits for comes closer to the band.

I prefer to use this trading strategy using the 1 hour or 4 hour time chart. You can adjust according to what style of trader you are. But the example I will show you will use the 4 hour and 1 hour time chart. The center of the Bollinger Bands ® is the 20-period moving average and the perfect addition to the volatility based outer bands. Envelope channel has evolved into a generic term for technical indicators used to create price channels with lower and upper bands.

The bands occurs when a trader takes a move for short or long time frame. The bands also keeps away the traders from wrong future price mevements and tells that at which point the price level is going high or low. The bands tells that either the market prices are coming in range or in the trend. Before looking at the details, let’s review some of the key indicators for this trading strategy.

How To Use Bollinger Band Indicator

However, the Bollinger Bands settings can be modified to suit your trading needs. The RSI indicator is used in this strategy to see how the currency is weakening or strengthening. For the last 8 years, we have been providing a wide range of trading-related blog articles, trading guides, podcast episodes and tons of trading videos on Tradeciety. As you can see, the Bollinger Bands ® alone can provide a lot of information about trend strength and the balance between bulls and bears. As the name implies, Bollinger Bands ® are price channels that are plotted above and below price. Investopedia requires writers to use primary sources to support their work.

Over the last 40 years, traders have also discovered some exceptional trade setups based on the Bands. This is a highly versatile indicator that should be in every trader’s tool belt. If the Bands are so wide that the price never touches them, the indicator loses much of its usefulness. So start with ‘2’ and see if it’s necessary to make any changes or not. Forex day trading involves buying and selling foreign currency pairs during the trading day to profit from intraday price… Because you are not asking much from the market in terms of price movement.

If the price is nearest to the upper band then the trade is considered as expensive trade. Because the Bollinger band also takes into account the measurement of volatility, the two bands will move according to market conditions. What I do before is confirm the candle polarity change for a buy or sell at the upper and lower bands respectively. It has been about 70% efficient but I have always had a reservation that it can work better. I am glad I read this strategy from you and I hope to put it to practice.

Notice how the volume exploded on the breakout and the price began to trend outside of the bands; these can be hugely profitable setups if you give them room to fly. Another simple, yet fxcm review effective trading method is to fade stocks when they begin printing outside of the bands. We’ll take this one step further and apply a little candlestick analysis to this strategy.

In this article, we show you how to use Bollinger Bands ® to improve your chart reading skills and how to identify high probability trade entries. As John Bollinger acknowledged, “tags of the bands are just that, tags, not signals.” Currently, the NYMO 20-day MA is approximately negative 17, which also suggests an SPX pullback. Let’s deal with the very first problem of positioning stop orders too close.

Used to confirm trading signals, normally from a Momentum Indicator, the bands indicate overbought and oversold levels relative to a moving average. Something else you can consider is when the price touches the middle band. With this strategy, we only use the one trade that we initially make.

Look at the example below and notice the tightening of the bands right before the breakout. Many Bollinger Band technicians look for this retest bar to print inside the lower band. This indicates that the downward pressure in the stock has subsided and there is a shift from sellers to buyers.

Another strategy to use with Bollinger Bands® is called a squeeze strategy. A squeeze occurs when the price has been moving aggressively then starts moving sideways in a tight consolidation. In the Bollinger Bands RSI strategy however, the stoploss is relatively bigger. So price has to make a really good move for the trade to achieve a good reward risk ratio. Some strategies work on intra day only and some work better on daily time frame. Prudent investors constantly have an exit plan before they go into a trade.

On the secondary test, TRCH tested a new low with a 40% drop in traffic from the last swing low. Also, the candlestick struggled to close outside of the bands. In this post we’ll provide you with a solid foundation on the bands, plus six trading strategies you can test to see which works best for your trading style. Additionally, you can also place the Master MACD and the ADX indicators below the chart to help you determine the momentum of the trend.