However, a counter-trend trader has to be very careful, and exercising proper risk management is a good way of achieving this. Remember, in any range-bound market, eventually, prices will break out. Here's the key point - you need to shut down a losing position quickly if there is any sign of a proper breakout. In the chart above, an RSI has been added as a filter to try and improve the effectiveness of the signals generated by this Bollinger Bands strategy. This will reduce the number of overall trades, but should hopefully increase the ratio of winners.

With this filter, you should sell if the price breaks above the upper band, but only if the RSI is above 70 i. indicating an overbought market. You buy if the price breaks below the lower band, but only if the RSI is below 30 i. indicating an oversold market. The CCI or Stochastic Oscillator indicators could also be used to create a similar Bollinger Bands trading strategy to the above.

Generally speaking, it is a good idea to use a secondary indicator like this, not just with Bollinger Bands, to confirm what the primary indicator is saying and to, therefore, help ensure trading signals are more reliable. We hope you enjoyed our Bollinger Bands strategy guide and now have a better understanding of how to use Bollinger Bands to trade Forex as well as learning a few Bollinger Bands strategies.

If you feel inspired to start trading using a Bollinger Bands strategy, a Trade. MT5 account may be the right place for you.

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Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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The Bollinger Bands Strategy Guide Admirals Oct 31, 27 Min read. Table of Contents Bollinger Bands Explained How do Bollinger Bands Work? The Bollinger Bands Formula Double Bollinger Band Strategy The Bollinger Bands Scalping Strategy The Bollinger Band Squeeze Strategy Bollinger Band Breakout Strategy Counter-Trend Bollinger Band Trading Strategy Final Thoughts.

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Harmonic Trading Patterns From Scott M. The use of Bollinger Bands varies widely among traders. Some traders buy when price touches the lower Bollinger Band and exit when price touches the moving average in the center of the bands. Other traders buy when price breaks above the upper Bollinger Band or sell when price falls below the lower Bollinger Band. Moreover, the use of Bollinger Bands is not confined to stock traders; options traders, most notably implied volatility traders, often sell options when Bollinger Bands are historically far apart or buy options when the Bollinger Bands are historically close together, in both instances, expecting volatility to revert back towards the average historical volatility level for the stock.

When the bands lie close together a period of low volatility in stock price is indicated. When they are far apart a period of high volatility in price is indicated. When the bands have only a slight slope and lie approximately parallel for an extended time the price of a stock will be found to oscillate up and down between the bands as though in a channel.

Traders are often inclined to use Bollinger Bands with other indicators to see if there is confirmation. In particular, the use of an oscillator like Bollinger Bands will often be coupled with a non-oscillator indicator likechart pattern or a trendline; if these indicators confirm the recommendation of the Bollinger Bands, the trader will have greater evidence that what the bands forecast is correct.

The Bollinger Bands act as excellent trading tools to measure volatility. They simplify the browsing experience by setting certain trading guidelines. They indicate levels of outer boundaries, where the price is considered relatively high or low compared to its recent moving average.

At the same time, the central line represents the simple moving average prices. The price generally ranges between the upper and lower extremes. This means when a Bollinger band contracts, there is less volatility in the market, and when there is an expansion of bands, the market becomes more volatile.

At these times, traders may buy at the support trendline or sell at the resistance trendline for a given stock or option. The standard rule of thumb that can be followed is, prices are said to be overbought on the upside when they hit the upper band and oversold on the downside when they hit the lower band.

Bollinger Bands are generally based upon a period simple moving average. The period SMA acts as a guideline for setting the outer boundaries or bands based on standard deviation.

However, the 20 period SMA is dynamic, and trading can be experimented with the values. M Tops Chart. The M tops are similar to a double top with a slight difference in the reaction highs. The highs are not always equal as the first high can be higher or lower than the second high, and the non-confirmation happens in three steps: Firstly, the instrument copies a reaction high above the upper line. The second step is to pull back to the middle line, and the third step is where the price moves higher but does not reach the upper band representing the trend reversal or support break.

W bottom is where the second low is lower than the first but holds above the lower band. It involves four steps: Firstly, forming a reaction low forms, which are low but not necessarily below the lower Bollinger Band.

The second step is to bounce toward the middle band, and the third step is setting a new price low on the instrument. Finally, place a confirmed pattern with a strong move off the second low and the resistance break, forming a downtrend that involves two lows. W-Bottom Chart. Walking the Bands Chart. Walking the Bands means forming moves that may reach or exceed the bands, such as moving to the upper band shows strength, while a decline to the lower band shows weakness.

The prices can walk the band, hitting various bands during a strong uptrend, which requires greater price action in trading, the strong uptrend comprises numerous upper line tags, and during the uptrend, the price actions never hit a lower band. Reversal in Bollinger Bands Chart.

The other characteristics of the trading tools are the instruments used tend to blur when they are not range-bound. For example, in candlestick analysis, instead of trading at the upper limit, wait to see if there is scope for betterment in the performance. If the instrument tends to give in space and close near a low, the trading tends to improve sooner. Though there is a reversal of the upside trend, the price will always hit the lower limit declining to a strong downtrend.

There are several different techniques of using Bollinger Bands to trade the forex markets. The most popular are:. Buying Opportunities in Chart. Usually, when using a Bollinger band as an indicator, the lower band is referred to as a gauge of support while the upper band is called resistance. The given strategy is used in defining the uptrends and downtrends in the forex. When the price hits the lower band, traders open a trading account or long buy, and the profit or losses depend on the upper and lower bands changing according to the trend.

Entry Points in Chart.

In this article, we will teach you how to use Bollinger Bands to trade Forex, before providing several of our favourite Bollinger Bands strategies, complete with examples.

So, if you are interested in learning more about Bollinger Bands, or looking for a Bollinger Bands strategy for the Forex markets, keep reading! Bollinger Bands are a popular technical indicator which use standard deviation to establish where a band of likely support and resistance levels might be found. This is a specific utilisation of a broader concept known as a volatility channel. A volatility channel plots lines above and below a central measure of price.

These lines, also known as envelopes or bands, widen or contract according to how volatile or non-volatile a market is. Bollinger Bands measure market volatility and provide lots of useful information, including:. Bollinger Bands consist of three lines, the middle of which is a Simple Moving Average SMA with the default value of The upper and lower band are found two standard deviations either side of the SMA. The most basic interpretation of Bollinger Bands is that the channels represent a measure of 'highness' and 'lowness'.

Let's sum up three key points about Bollinger bands:. The Bollinger Bands contain a default setting in Forex trading as 20,2 - where 20 is the value for the SMA and 2 refers to the number of standard deviations the upper and lower band are either side of the SMA. When using trading bands, it is the price action as it nears the edges of the band that should be of particular interest to us. For a technical analyst, trading near the outer bands provides an element of confidence that there is resistance upper boundary or support bottom boundary , however, this alone does not provide relevant buy or sell signals; all that it determines is whether the prices are high or low, on a relative basis.

Bollinger Bands can be applied to virtually any market or security. For beginners, the default Bollinger Band settings are a good starting point. As you lengthen the number of periods involved, you need to increase the number of standard deviations employed.

At 50 periods, two and a half standard deviations are a good selection, whilst at 10 periods; one and a half perform the job quite well. Interested in trading with a Bollinger Bands strategy? Why not practise first? With a demo trading account from Admirals, you can practise trading in real-market conditions using virtual currency! Click the banner below to open a demo trading account today:.

Now we understand this technical indicator better, it is time to look at our first Bollinger Bands strategy. The Double Bollinger Band Strategy is a Forex trading strategy popularised by Kathy Lien , a well-known Forex analyst and trader, who wrote in her book - 'The Little Book of Currency Trading' — that this was her favourite trading method. The Double Bollinger Band Strategy is simple to learn and can be used for any actively traded asset on big liquid markets, such as Forex, stocks and commodities.

As the name suggest, it requires adding two sets of Bollinger Bands to a single price chart. In the chart above, the Bollinger Bands in blue have settings of 20,2 and its outer bands are marked A1 and A2. The red Bollinger Bands have settings of 20,1 and its outer bands are marked as B1 and B2. Their shared SMA is labelled X. When the price is within the buy zone, it tells us that the uptrend is strong, and that there is a higher chance that the price will continue upward.

As long as the price candles continue to close in the buy zone, the odds favour maintaining current long positions or even opening new ones. When the price is in the sell zone, a downtrend will probably continue. That tells us that as long as the candles close in the lowest zone, a trader should maintain current short positions or open new ones. When the price gets within the area defined by B1 and B2, the neutral zone, there is no strong trend, and the price is likely to fluctuate within a trading range because momentum is no longer strong enough for traders to continue the trend.

The day simple moving average X that serves as the baseline for both Bollinger Bands is in the centre of the zone. According to the rules, whichever zone the price is in will signal whether you should be trading in the direction of the trend, long or short. Basically, if the price is in the buy zone, you go long, if it's in the sell zone, you go short.

If the price is in the two middle quarters the neutral zone , you should restrain from trading if you are a pure trend trader, or trade shorter-term trends within the prevailing trading range. Usually, with the Double Bollinger Bands Strategy, traders trade higher time frames such as H4 or daily.

Next up is a Bollinger Bands scalping strategy, for those who prefer trading on the shortest timeframes. Five indicators are applied to the price chart:. The time frame for trading this Bollinger Bands scalping strategy can be either 1 minute, 5 minutes, or 15 minutes. Targets are Admiral Pivot points, which are set on an H1 time frame.

A stop loss is placed below the interim Admiral Pivot support for long trades or above the interim Admiral Pivot resistance for short trades. This Bollinger Band scalping strategy should ideally be traded with major Forex currency pairs. A buy trade is entered when the black 4-EMA crosses up above the middle Bollinger Band, at the same time, the Awesome Oscillator should be crossing its zero lines, going up, and the RSI should be coming up and crossing its 50 line.

For sell positions, you are essentially looking for the opposite conditions of buy trades. The 4 EMA needs to be crossing below the middle Bollinger band, at the same time as the Awesome Oscillator is crossing below the zero line and the RSI is crossing below the 50 line.

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Click the banner below to see the upcoming schedule and register for a webinar today:. This Bollinger Bands strategy, known as the Bollinger Band Squeeze Strategy, uses two indicators:.

The recommended time-frames for this Bollinger bands trading strategy are MD1 charts and it can be applied to any instrument. For the Bollinger Band Squeeze Strategy, the Admiral Keltner indicator should be added to your price chart with the following settings applied:. The chart below shows the Bollinger Bands added in green. In two separate places, the blue arrows are indicating areas where the outer lines of the Bollinger Bands have contracted and are seemingly squeezing the central SMA.

Identifying these areas where there is a Bollinger Band squeeze is integral to this Bollinger Band strategy. But how can we identify a valid Bollinger Band squeeze as far as this strategy is concerned? This is where the Admiral Keltner indicator comes in. Below is the same chart as above, however, this time we have added the Admiral Keltner in black. For the purposes of this Bollinger Band trading strategy, you should only trade a setup when both the upper and lower Bollinger Bands squeeze inside the Keltner channel.

The Bollinger Bands and Keltner Channels notify you when a market is transitioning from a period of lower volatility to a period of higher volatility. Using these two indicators together will provide more strength, compared with using just a single indicator. Above is the same chart, again, this time with the Bollinger Band squeezes highlighted in yellow and the release after the first squeeze marked by a vertical red line note, the second squeeze had not ended at the time the chart was captured.

Once the squeeze has been released, the next stage of this Bollinger Bands strategy is to wait for a trade trigger, but what are these? Buy : When a squeeze is formed, wait for the release, and then wait for the price to break above the upper Bollinger Band for a long entry.

Sell : When a squeeze is formed, wait for the release, and then wait for the price to break below the lower Bollinger Band for a short entry. After both the Bollinger Band squeeze and release have taken place, we simply need to wait for the candle to break above or below the Bollinger Bands and then enter a position. Below are a couple of examples of this Bollinger Bands trading strategy in action with squeezes, releases and trade triggers highlighted. It is important to note when using this Bollinger Bands strategy, that there is not always an entry signal after the release.

This occurs when no breakout candle could trigger the trade. For stop losses and targets, it is recommended to once again use the Admiral Pivot indicator. The stop-loss for buy trades is placed pips below the middle Bollinger Band, or below the closest Admiral Pivot support, while the stop-loss for short trades is placed pips above the middle Bollinger Band, or above the closest Admiral Pivot support.

Target levels are calculated with the Admiral Pivot indicator. For an MH1 chart, we use daily pivots, for H4 and daily charts, we use weekly pivots.

This is a long-term trend-following Bollinger Band trading strategy and the rules are simple:. The image below shows a daily chart of the USDJPY currency pair with Bollinger Bands 2. See how we get a buy signal, marked by the red vertical line, in March ? You will also note that, in the same price chart, there were two false signals in February and March The profitability from this strategy comes from the winning payoff exceeding the number of losing trades.

Psychologically speaking, this can be tough, and many traders find counter-trend Bollinger Bands strategies are less trying. The chart below shows an hourly chart for the EURUSD currency pair with the following indicators:. The currency pair in the chart featured above is for the most part, in a range-bound state. See how the Bollinger Bands do a pretty good job of defining the support and resistance levels?

It's by no means precise, but the upper and lower bands do tend to reflect where the direction reverses. Recognising that this is not an exact science is another key aspect of understanding Bollinger Bands and their use for counter-trend Forex trading. When the market approaches one of the bands, there is a good chance we will see the direction reverse sometime soon thereafter. However, a counter-trend trader has to be very careful, and exercising proper risk management is a good way of achieving this.

Remember, in any range-bound market, eventually, prices will break out. Here's the key point - you need to shut down a losing position quickly if there is any sign of a proper breakout.

In the chart above, an RSI has been added as a filter to try and improve the effectiveness of the signals generated by this Bollinger Bands strategy. This will reduce the number of overall trades, but should hopefully increase the ratio of winners. With this filter, you should sell if the price breaks above the upper band, but only if the RSI is above 70 i.

indicating an overbought market. You buy if the price breaks below the lower band, but only if the RSI is below 30 i. indicating an oversold market. The CCI or Stochastic Oscillator indicators could also be used to create a similar Bollinger Bands trading strategy to the above. Generally speaking, it is a good idea to use a secondary indicator like this, not just with Bollinger Bands, to confirm what the primary indicator is saying and to, therefore, help ensure trading signals are more reliable.

We hope you enjoyed our Bollinger Bands strategy guide and now have a better understanding of how to use Bollinger Bands to trade Forex as well as learning a few Bollinger Bands strategies.

Buying Opportunities in Chart. You can upload: image , audio , video , document , spreadsheet , interactive , text , archive , other. ACCEPT Read More. As they depend on varying trends, which define the direction and the volatility of the market, They provide an insight into a decrease in the demand and changing patterns of the economy. Here, the lines are contracted, indicating less volatility.

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