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- Bollinger Bands - Wikipedia
- Bollinger Bands Indicator - The Complete Beginners Guide
- BOLLINGER BANDS RULES
- 5 Bollinger Bands Trading Strategies You Should Know
The blue circles point out crucial breakouts through the period Simple Moving Average. The black arrow points out a Bollinger Bands squeeze. The red arrow shows the price trending while breaking the lower Bollinger Band and the green arrow shows up trends on the upper Bollinger Band. Now that we are familiar with the structure and the signals of the Bollinger Bands, it is now time to shift our focus a bit, and take a look at a couple of trading strategies that can be incorporated using the Bollinger Bands.
One reliable trading methodology utilizing Bollinger Bands, is combining Bollinger Bands and Candlestick analysis. Basically, you could go long after the price touches the low Bollinger Band and then closes with a reversal candlestick pattern.
And on the flip side, you could short the Forex pair when the price hits the upper band and then forms a reversal candle. For this setup, you should place a stop loss order beyond the reversal candlestick.
Bollinger Bands - Wikipedia
I prefer to close half of the trade when the price reaches the Bollinger Bands Moving Average. We can stay in the trade for the other half of the position to take advantage and any prolonged price move. And so in this case, if the price keeps trending in our direction, we can use the Bollinger Bands Moving Average Breakout as an exit signal. Just close the trade right away instead. This chart illustrates a long position initiated by a reversal candlestick chart pattern. The big black arrow on the chart shows a Bollinger Band squeeze. The bands are relatively close to each other squeezing the price action and the indicator.
Afterwards, the price starts to decline. Suddenly, the bands start expanding rapidly during the decrease. Soon we see the price action creating a bullish Tweezers reversal candlestick pattern, which is shown in the green circle on the image. A stop loss order should be placed below the lowest point of the Tweezers chart pattern as shown on the image. The price then starts increasing. The price continues its rally. On the way up we see a few reversal candle patterns. However, they are not confirmed and we disregard them as a potential exit point of the trade.
At the end of the price increase we see a Doji reversal candle pattern, which is followed by two bigger bearish candles. The close of the second bearish candle could be taken as the first exit of the trade Full Close 1. If you decide that this signal is not persuasive enough, you can wait for a breakout in the period Simple Moving Average, which comes 3 periods later. 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.
Bollinger Bands Indicator - The Complete Beginners Guide
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 cuts the lower band of the Bollinger Bands indicator, and at the same time the RSI is falling, this is a signal to enter a sell position. On the other hand, when the price crosses the upper band, and you can notice the rise of the RSI, this would be a good time to buy. The best trading opportunities come when the price is ranging in the narrow B-Bands channel for a long time.
Then, when the market decides about its direction you can expect a strong movement. Now with your indicators set, how do you use them to trade at Olymp Trade? You should look at the areas where the prices start ranging. However, the RSI indicator shows divergence. At this point, enter a long trading position. Look at the below chart.
BOLLINGER BANDS RULES
The price was ranging for some time. Then came the moment when the price has cut the lower band of the Bollinger Bands indicator. Now, look at the RSI. The oscillator is falling in the way that you can imagine drawing a trendline on it. Based on this information, you can assume the downtrend is coming. You should definitely open a short position. I used 1-minute candles here and my trade lasted 10 minutes so it could bring me a profit. Three possible Down trade entry points 10m You can notice two more possibilities to enter the trade on this chart.
The bands of the B-Bands were close to each other for a period of time what meant the price was ranging.
5 Bollinger Bands Trading Strategies You Should Know
Then the RSI oscillator started to rise and eventually, the price has cut the upper band of the Bollinger Bands. You should enter the trade at this moment. Three possible Up trade entry points 10m The RSI is still rising and again, you could draw a trendline on it. So when the price crosses the band once more, you can open another long position. The combination of B-Bands and the RSI shall only be used for trading the positions of long duration. When you choose to trade on 5-minute interval candles, open the trades that last 30 minutes or even more. In the above examples, I used 1-minute candles, and thus, I entered the trades for 10 minutes.
Longer duration of the opened positions will minimize the risk, that the price movements that occur in short periods will affect your trades. You can freely adopt the strategy of using the B-Bands and the RSI indicators pair to any market of your choice.