Bollinger Bands: Four Basic Trading Strategies

The price level briefly touches the lower Bollinger band at this point, indicating an oversold state. Firstly I am new to and and have recently came across your page in the last few days. They look for a squeezing of the Bollinger bands, together with other signals such as breaching of range boundaries. This would act as a trailing stop, which means that you would constantly adjust the stop in the bearish direction. As I explained above, this trading system is good in catching the trends.

The Bollinger Bands strategies are popular when analyzing Forex pairs. Read about the Bolinger Band indicator for volatility trading and trend spotting.


The purpose of these bands is to give you a relative definition of high and low. So in theory, the prices are high at the upper band and then are low at the lower band.

Bollinger bands include three different lines. The upper, middle, and lower band. The middle band basically serves as a base for both the upper and lower. They are mainly used when determining when there are overbought or oversold levels. Selling when the price touches the upper band and buying when the price touches the lower band. The spacing in between the lower, upper, and the middle band is determined by volatility. The middle band consists of a 20 period moving average, while the upper and lower are two standard deviations below and above the moving average in the middle.

All standard deviation means is that it is a statistical measure that offers a great reflection of the price volatility. When you see the band widen that simply means that there is volatility at that time.

When the price moves very little, the band will narrow which means that there is little volatility. I prefer to use this trading strategy using the 1 hour or 4 hour time chart. After examining the picture, it may seem wise to buy every time the price hits the lower band or sell every time the price hits the upper band.

This can technically work, but is a risky way of trading using the Bollinger Bands. Sometimes strong trends will ride these bands and end up stopping out many unfortunate traders who used that method.

Also read the way bankers trade in forex market. The RSI indicator is used in this strategy to see how the currency is weakening or strengthening. Tap here for another RSI trading strategy article. These indicators should come standard on your trading platform. There is no need to adjust these, as we will use the default settings. Here You can learn on How to fade the momentum in Forex Trading.

The only element would suggest performing before you start, is to draw a horizontal line on the You will find out exactly why soon. The rules are the same concept only the exact opposite for a SELL trade. I would prefer to use the Doji reversal followed by the two bearish candles as an exit point. Even if you think the signal is not persuasive enough it comes 8 hours before the weekly market close.

Therefore, this looks like the better option to exit this trade. This way you are protected against weekend risk and big gaps with the Monday opening. In this example, if you decided to wait, you would have fell victim to a 30 pips bearish gap. In this trading strategy we will approach situations when the price goes beyond the upper or the lower Bollinger Band. At the same time, the bands should be expanding, which indicates higher volatility.

Furthermore, we will include the Volume Indicator in order to enter trades only if volumes are high, or currently increasing with the direction of the trend. If all these requirements are met, you can open a trade in the direction of the breakout.

This tactic allows you to take advantage of rapid price moves caused by high trading volumes and high volatility. You should stay in these types of trades until the price breaks the period Bollinger Bands Moving Average in the opposite direction.

Let me now show you how this Bollinger Band trading system works. The image illustrates a short trade opportunity based on signals from the Bollinger Bands indicator and the Volume Indicator. However, the two Bollinger Bands are very tight and the volumes are relatively low. Therefore, we would stay out of the market for the time being. Suddenly, the two bands start expanding which is shown by the pink lines on the image. For this reason, we consider this as a nice opportunity for a short position in the Yen.

You should always use a stop loss on this trade, and it should be located above the period Simple Moving Average. This would act as a trailing stop, which means that you would constantly adjust the stop in the bearish direction. According to our strategy, we should stay in the trade as long as the price is below the period SMA. The range continues towards the period Simple Moving Average, which gets broken upwards on April Based on the rules of the strategy, this would be the exit signal and the trade should be closed out at this point.

In my opinion, the better Bollinger Bands trading strategy is the second setup I showed you. The reason for this is that Volatility and Volumes are mutually connected. Therefore, their importance to each other is essential, which in turn, creates reliable signals for trading.

When the price is moving strongly beyond one of the bands during high volatility and high trading volumes, then we are likely to see a big price move on the horizon.

In addition, the rules for entering and exiting a trade and clear and straight forward, which makes this Bollinger Bands strategy easy to implement. The Bollinger Bands with candlestick patterns is a well-regarded strategy as well.

However, it is less likely to produce a big price move. Some traders prefer this type of trade setup, which is quite fine, so long as the trader understands that this is more of a mean reversion strategy and requires stricter risk management controls. We have learned quite a bit about Bollinger Bands in this lesson. Below you will find an Infographic listing 15 Important Things that you should know about Bollinger Bands.

Download the short printable PDF version summarizing the key points of this lesson…. Looking at the activity in the ellipse again, the price breaks the upper level as it moves upwards after the crossover event. At the shorter time frame, the market becomes temporarily over extended on the upside overbought. It then corrects downwards as some traders sell in order to capitalize on the sharp upward push. The price level briefly touches the lower Bollinger band at this point, indicating an oversold state.

A volatility breakout is when a low volatility market rapidly changes to high volatility. Typically this happens along with a strong directional price movement. You frequently see these events happening before important data releases. You also sometimes see squeezes just before London comes into play after the relatively light Asian sessions. They often indicate a lower volume with traders sitting on the sidelines waiting for a news release or some other information to trade on.

Those who trade these events are essentially breakout traders. They look for a squeezing of the Bollinger bands, together with other signals such as breaching of range boundaries. This is usually observed across several timeframes. Volatility Squeeze Figure 4: As with most trading indicators, some will trade against rather than with them. To the contrarian, ideal entry is the one that is counter-intuitive, rather than the trade that is obvious. Therefore the contrarian trades against signals such as crossover and breakouts of the upper or lower band.

You need deep pockets and strong nerves for these kinds of strategies because they require positioning against the market until the correction occurs. Leave this field empty. Want to stay up to date? Just add your email address below and get updates to your inbox. Catching the Pullback Trade Pullback trading is a strategy favored by swing traders and trend traders alike. This is for the simple How to use Pyramid Trading to Build on Winners Pyramiding is a trading system that drip feeds money into the market, gradually as a trend develops Harmonic Chart Trading Bats are five point chart patterns that can signify either a bullish or bearish breakout is building Fading the Fakeout — How to Trade Against False Breakouts A fading strategy bets against any move that takes the price out of a normal range.

Another way of putting How to Profit from Price Bounces Price bounces can be triggered by contact with any kind of support and resistance area.

What Is Double Bollinger Bands Trading Strategy?

Bollinger Bands Forex Strategies, List of Bollinger Bands Trading System. I created this post to help people learn six highly effective Bollinger Bands trading strategies they could start using immediately. Look at the below screenshot using both the Bollinger Bands and Bollinger Band width. Third Time's the Charm - Bollinger Band Width the best market for Bollinger Bands is Forex. Double Bollinger Bands Strategy To Trade Forex October 29th, by LuckScout Team in Trading and Investment Double Bollinger Bands Strategy is a mechanical trading strategy.