bollinger bands strategy forex: How to Use Bollinger Bands

There are several other specific strategies used in currency trading with Bollinger Bands, such as the Inside Day Bollinger Band Turn Trade and the Pure Fade Trade. In theory, these are all profitable trades, but traders must develop and follow the methods exactly in order for them to pan out. Whereas in this article you said when BB is squeezed / tight then breakout is heppened in the direction of trend ( Some times BB is squeezed after the decline / advance market). I have yet to come across a lesson taught by you that wasn’t informative. You know the middle line of the Bollinger Bands is simply a 20-period moving average . Because in trending markets, the market can remain “cheap” or “expensive” for a long period of time.

Am a better trader now in just 1week, by studing your materials. I was much against using indicators, but this is really useful and explained lucidly. But strictly speaking without using stop loss and risk reward…TRADERS WILL ALWAYS LOOSE AND BLOW THEIR ACCOUNTS AND CONFIDENCE EVENTUALLY. Sir can you elaborate RSI divergence cant understand well….

So, the more tools you have, the better you can ADAPT to the ever-changing market environment. In our crypto guides, we explore bitcoin and other popular coins and tokens to help you better navigate the crypto jungle. Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner. I have learned another improved way of using the Bollinger Band indicator. In another article you said that after accumulation market will moves to advance/ up ward direction .

A bearish signal emerges when the price moves below the middle line of the bands. Simply described, volatility is the degree by which the price of the item varies over time. In addition, volatility increases sharply when a reversal is nearing. Bollinger bands show quite a bit of volatility through the width of the bands. Steps “2” and “3” represent prudent risk and money management principles to ensure that your downside risk potential is controlled and that a severe loss will not destroy your account balance. This simple trading system would have yielded a profit of roughly 300 pips but do remember that not all trades will behave as expected.

What can Forex traders learn from Bollinger Bands?

This makes some analysts think that Bollinger Bands are a more reliable indicator. When price action trades between the lower bands of both Bollinger Bands deviations, the potential of an extended downtrend is dominant. The most efficient method is to use a multiple Bollinger Bands Forex trading strategy with two Bollinger Bands, one with 2.0 standard deviations and a second one with 1.0 standard deviation.

Traders and long-term investors use technical, fundamental, and sentimental analysis to identify entry and exit positions. They do this with a view of entering and exiting the trades at the right time. A simple Bollinger Bands strategy takes advantage of the “hug and bounce” nature of the indicator. Your entry point is best determined with the aid of another indicator, but your closing point will be after prices bounce off a boundary and then approach or close above or below the midline.

Example of a Bollinger Bands strategy trade

Bollinger Bands cannot create 100% accuracy or automatic trading signals. Trading based only on signals generated by the various Bollinger Bands Forex strategies usually fails to provide sustainable profits. However, if these strategies are used together with other indicators or methods of analysis, they can work as the core of a profitable trading strategy. Bollinger Bands and Keltner Channels are very similar technical indicators, as both are based upon volatility and average prices. Envelope channel has evolved into a generic term for technical indicators used to create price channels with lower and upper bands. Another strategy of using Bollinger Bands is in trend following.

And in strong trending markets, the 20-period moving average can act as an “area of value”. Today, they have become some of the most common indicators in the industry. Traders use them to identify a trend by checking overbought and oversold positions. The Bollinger Bands indicator explained above has become one of the most popular indicator systems ever invented, and for good reason. Bollinger Bands are displayed directly with the chart pricing data, and its messages are easy to comprehend.

Unfortunately, there is no definitive system that can accurately tell a trader when to enter or leave a trade. This is simply because the market is controlled by people who have different ways of reacting to their emotions. Determine your exit point when candlesticks bounce from the lower boundary and close above the centreline.

Traders can use them to judge market conditions, for example, trending or ranging price behaviour. Bollinger bands can also indicate dynamic support and resistance. For generally steady ranges of a security, such as many currency pairs, Bollinger Bands act as relatively clear signals for buying and selling. This can result in stop-outs and frustrating losses, though, so traders consider other factors when placing trades in relation to the Bollinger Bands. The first step in calculating Bollinger Bands is to find the simple moving average of the asset in a certain period. John Bollinger, a professional trader and financial analyst, began his trading career in the options market.

Bollinger Bands in Forex Trend and Fading Strategies

I’m still not understand how RSI work as indicator for entries or exit. Or you can also use it to trade market reversals after the Bollinger Bands expand, which shows the increase in volatility of the market. If the price comes to a key market structure like support resistance and then forms a price rejection, that’s a possible opportunity for you to take a reversal trade.

We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. If the upper and lower bands are 2 standard deviations, this means that about 95% of price moves that have occurred recently are CONTAINED within these bands.

Bollinger Bands trading strategies

Bollinger Bands are a form of technical analysis that traders use to plot trend lines that are two standard deviations away from the simple moving average price of a security. The goal is to help a trader know when to enter or exit a position by identifying when an asset has been overbought or oversold. First, a trader must understand how Bollinger Bands are set up.

Bollinger Bands measure volatility based upon standard deviations of the price over a defined previous period. Bollinger Bands, a technical indicator developed by John Bollinger, are used to measure a market’s volatilityand identify “overbought” or “oversold” conditions. I prefer use Bollinger Bands and RSI divergence to find high probability reversal trades.

The critical points of reference are band bounces and squeeze reactions. The “Bollinger Bands Accordion” reflects how volatility varies with price behaviour. When the candlesticks hug one boundary limit, they tend to bounce back to the centreline. When the bands squeeze, they also tend to expand quickly after that as a price breakout follows a consolidation. Traders must understand that Bollinger Bands are a tool assisting with technical analysis and not an indicator that offers 100% reliable or automated trading signals. Bollinger Bands provide traders with valuable information about volatility, average price levels, and how far a price is likely to move up or down under current market conditions.

When the bands are squeezed, it is often a sign that a breakout will happen. As such, one needs not to understand the background but the concept behind it. In fact, only a very few traders have the knowledge about the mathematical background of the Bands.