Contrary to the general belief, the Forex market spends most of the time in consolidation. Over seventy percent of the time, prices are moving in a range. As a definition, a breakout is when a candlestick closes above the UBB or below the LBB lines. Using the same EURUSD daily chart as previously, we can see that a breakout occurred on October 11, A sound Bollinger Bands strategy would be to stay short on the EURUSD pair until a bullish breakout appears above the UBB.

Doing that would result in being on the right side of the market for over six months and avoid the noise caused by the fundamental news. There are two ways to deal with an underlying trend with Bollinger Bands strategies. Both are the result of knowing how to use Bollinger Bands.

One is to use the MBB line as entries in the direction of the trend. The other one is to use the UBB in a bearish trend and the LBB in a bullish trend to trade aggressively. If a Bollinger Bands squeeze occurs, and the price breaks above or below one of the bands, the initial position should be reversed. The red arrows in the chart below show bearish Bollinger Bands signals given by the Bollinger Bands settings mentioned earlier. The big red candle caused by the U. Presidential election and the Trump effect is nothing but another opportunity that shows how to read Bollinger Bands indicator.

As for the take profit, a classical one would be when the price is reaching the opposite Bollinger Band. In this example, as the underlying trend is bearish, the opposite band would be the LBB. For the trades illustrated so far, the target area or the exit point are highlighted in the picture above. If you use a disciplined approach when trading the Forex market there is little or no room for error. The key to this Bollinger Bands technical analysis approach is to wait for the candle to close.

Of course, the examples above use the daily time frame, but the same principle can be successfully used on lower time frames too. Therefore, the drawdown, in case the Bollinger Bands parameters are set on a lower time frame, is not that big like on the daily chart. However, the idea regarding how to interpret Bollinger Bands indicator is the same, no matter the time frame used. So far, we saw the Bollinger Bands interpretation on a breakout strategy.

It is based on how to calculate Bollinger Bands and interpret the standard deviations that indicate how volatile a market is. However, does a Bollinger Bands reversal strategy exists? The answer is yes, and for this, we need to look for reversal pattern that forms when the price is reaching the extremes UBB and LBB. The perfect reversal patterns are the Japanese candlestick techniques.

A great way to learn how does Bollinger Bands work is to look for reversal patterns given by Japanese candlestick techniques. Such reversal patterns are Doji candles, bullish or bearish engulfing, morning and evening stars, dark-cloud cover and piercing, hammer reversal and hanging man , and so on.

These are the most representatives and are forming all the time. Like anything related to trading, there is a trick here too. The best Bollinger Band strategy with Japanese candlestick techniques is to look for the reversal pattern to reach the UBB or the LBB lines. You should ignore all other reversal patterns that are not touching the two volatility lines. The example above shows a dark-cloud cover forming at the end of a bullish trend, with both candles that are part of the reversal pattern touching the UBB volatility line.

This is enough to take a short trade. As a take profit and finding your risk-reward ration, you can use the length of the dark-cloud cover To calculate it, simply measure the highest and the lowest point in the dark-cloud cover pattern.

Then multiply it by 2. The stop loss should be the highest point of the reversal pattern. You can use a bigger risk-reward ratio, but that would not be a realistic approach. In the example above, you seethat the dark-cloud cover acted as a Bollinger Band squeeze indicator as the price action that followed reached the take profit and some more. The same is valid for the hammer reversal pattern that follows. By definition, a hammer is a bullish reversal pattern, meaning a bearish trend must be in place.

The idea is to use the hammer and other reversal patterns with clear rules, to develop a Bollinger Bands tutorial. Such a tutorial is like a trading plan that has both entry and exit levels. And it is a must have for every trader interested in mastering the Bollinger Bands width indicator. Another great way to use Bollinger Bands is to integrate the indicator with the Elliott Waves theory. This is one of the most popular trading theories that exists. After all, what is Bollinger Bands indicator if not one that looks for reversals or continuation patterns when crowds are on the other side of the market?

This is exactly what the Elliott Waves theory is for. The basic definition of Elliot Waves theory states that the market is advancing or declining in a five-wave structure that corrects with a three-wave counter move.

A bullish trend, therefore, will have five waves to the upside, corrected with three waves to the downside. The key to understanding how Elliott Waves works is to know that even within the five-waves that are defining a bullish move, there are two waves that move in the opposite direction. Bollinger Bands trading works in both the five-wave structure and the three-wave structure that corrects it.

According to Elliott, a 5-wave structure is impulsive and is labeled with numbers. 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. If you feel inspired to start trading using a Bollinger Bands strategy, a Trade. MT5 account may be the right place for you. Trade Contracts for Difference CFDs on a range of different Forex currency pairs 24 hours a day, 5 days a week!

Click the banner below to find out more and open an account today:. Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8, financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today! This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.

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. Help center Contact us. Start Trading. Trading Tools MetaTrader Supreme Edition StereoTrader Top! Virtual Private Server Parallels for MAC. Markets Forex Commodities Indices Stocks ETFs Bonds.

Best conditions All trading offers Promo Contract Specifications Margin Requirements Volatility Protection Cashback Welcome Bonus New Premium Program New. Personal Finance New Admirals Wallet. Forex Calendar Trading News Global Market Updates New Premium Analytics Weekly Trading Podcast Fundamental Analysis Market Heat Map Market Sentiment Trading Central.

Affiliate Program Introducing Business Partner White Label partnership Refer a friend New. About Admirals. Why Admirals? Regulation Financial Security Secure your trading account Contact Admirals Company News. Read more about me. Skip to content Forex Brokers Forex Courses Forex Robots Forex Signals Forex Systems Forex Tools Forex Trading.

Forex Brokers Forex Courses Forex Robots Forex Signals Forex Systems Forex Tools Forex Trading. Search for:. Home Forex Trading Double Bollinger Bands Strategy. Table of Contents. The Forex Geek. Previous Previous post: Moving Average Strategy. Next Next post: Does Copy Trading Work. This site uses cookies to improve your user experience. ACCEPT Read More. Close Privacy Overview This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website.

We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.

Necessary Necessary. Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information. Non-necessary Non-necessary. Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies.

Bollinger Bands, developed by John Bollinger, are easily adaptable, practically applied tools available for technical analysts and traders in all markets, including forex. As traders in the market need to estimate the price action, the Bollinger Band helps provide the market insights, which allows the traders to assess the market conditions through technical analysis of volatility and trend changes.

These act as guidelines for traders to reposition themselves in the market, making gradational price moves for net profits. Here, the trader is given two options that are to buy and sell. The first currency in the pair Base is always sold according to its estimated worth in the second currency Counter.

This allows a trader to make transactions by buying and selling different currencies at a beneficial price point, making a financial gain. The same trading strategy is applied for trading any asset. If a trader expects the price of a currency to go up, they will buy the currency. Bollinger Bands help in understanding the market environment through expansion and contraction in the bands in the chart overlay, which act as a technical analysis indicator to a trader in measuring market volatility.

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. Helping the traders position themselves according to the analysis and eliminate the high level of risk by calculating the market conditions, which predict whether a price may reverse after it has become relatively high or low compared to its recent average. This could help the individual to fully understand the risks before deciding to buy or sell an asset.

To give this information, Bollinger Bands uses various technical analysis tools and volatility indicators or channels, where the band follows a standard deviation as a statistical measure, which helps in understanding the resistance and support levels. The Bollinger bands or trading bands act as a tool to measure risk and may involve statistical analysis based on Simple Moving Average or SMA. The upper and lower band are set at a distance of two standard deviations, above and below the simple 20 day moving average.

The price is mostly held within the Upper band SMA plus two standard deviations and Lower band SMA minus two standard deviations. Hence, the bands depict the market volatility based on the average, and generally, the price breaks happen between three lines, where the middle line is used as a reference.

The standard interpretation to measure highs and lows are as follows. The upper band includes overbought investments, while the lower band constitutes oversold investments based on the simple moving average of prices. The Bollinger Bands, when used in combination with other analytic tools, provide a better picture of the current state of a market or security.

And they help spot a safe range of prices in trade, ensuring security, and many marketers use Bollinger Bands to study the currency pairs in the range of two bands while trading forex. 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. Here, the lines are contracted, indicating less volatility. The Bollinger squeeze represents the breakouts above or below the band depending upon the trend and gives safe entry points to make investments.

The Bollinger Band squeeze means a contraction in the band, signaling the trading breakout like fluctuations in price levels, increase and decrease, and deviation from moving average. The Bollinger Band squeeze is one of the most reliable signals. They signal low volatility or contraction in bands, closing prices or trading when it hits moving average, and indicating the breakout based on the trend.

Bollinger Bounce is when there are high levels of fluctuations due to dynamic support and resistance levels. The trader waits for the terms to return to the middle of the bands or conditions where they are not expanding or contracting. The Bollinger Bands are recommended to combine with other tools to make safe investments in forex as sometimes though the reactions are not as intense, the traders can still lose the profits. Hence, the Relative Strength Index or RSI helps in confirming the relative trends strength.

The values range between 0 to , and the RSI calculates the number of days when it is closed down and closed up, giving approximate values of overbought and oversold territories. This price chart lays out the investment objectives with the possible outcomes making it easy to follow the forex trade. MACD is another tool that indicates the overbought and oversold indicating a trend reversal. It includes trading divarications and new highs, which means that the higher prices in forex are in decline, and they may soon adjust.

The Bollinger Bands state a comparative definition of volatility. They are generally used to compare the two bands and trend lines before making rigorous buy and sell decisions on trading platforms.

The trading band comparison is based on several factors such as momentum, volume, sentiment, open interest, inter-market data, etc. The Bollinger Bands have already been considered in understanding the trend and changing patterns in trading, so their use for confirmation of price action is not recommended. And the indicator used should not be directly related to one another.

The key to predicting successful volatility breakout systems is understanding the Bollinger Bands closing outside the continuations, not reversal signals. The prices can also be unpredictable as they walk up the upper Bollinger Band and down the lower Bollinger Bands.

M-tops and W-bottoms, momentum shifts, etc. The Bollinger bands are described as flexible tools suitable for all investors, as the traders use Bollinger Bands to gauge the trends, but they cannot use the tool alone to make price predictions. Because one must remember, there are a few limitations that traders should consider before using them.

Though Bollinger Bands are helpful tools for technical traders, kindly remember that they may not be suitable for all as the Bollinger Bands indicator relies on theory, not fact.

One of the limitations states that the Bollinger Bands are primarily reactive, not predictive. The bands will change according to the transition in price movements, either uptrends or downtrends, but this will not help predict the price movements. As with most of the technical indicators, Bollinger Bands are a slow indicator. This is because the tool is based on a simple moving average, which takes the average price of several highs and lows considerations.

John Bollinger, the Bollinger Bands developer, recommends that in order to make the system suitable for all investors, the tool must be used along with two or three non-correlated tools that provide more direct market signals.

While many traders use the bands as a mere technical indicator, others inculcate different indicators or different trading strategies depending upon the desired objective. The use of Bollinger Bands and their effectiveness may vary from one industry to another, as there are different sets of guidelines that define the uptrend and downtrend in every sector. According to which the use of tools is altered. The Bollinger Band like cookie policy that varies on each website caters to different settings like assessing the position, determining the volatility and breakout that may happen, and evaluating the entry and exit positions to make maximum benefits.

What Are Bollinger Bands? Bollinger Bands consist of three bands, which are- An Upper Band Middle Line And Lower Band The Bollinger bands or trading bands act as a tool to measure risk and may involve statistical analysis based on Simple Moving Average or SMA.

How are Bollinger Bands Used in Forex Trading? The other technical indicators used are: M Tops M Tops Chart The M tops are similar to a double top with a slight difference in the reaction highs.

W Bottom W bottom is where the second low is lower than the first but holds above the lower band. W-Bottom Chart Walking the Bands or Riding Bands 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.

Reversals with Bollinger Bands 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. How to Trade Forex with Bollinger Bands?

The most popular are: Using Market Trends : Traders make an analysis to identify entry signals using the bands to measure support and resistance. Bollinger Squeeze : Applying the volatility indications of the bands and studying their performance at the forex market.

Here, the lines are contracted, indicating less volatility. Bollinger bands are one of my favourite technical indicators for trading forex. We make it possible to approach personal finance through an all-in-one solution for investing, spending, and managing money. The use of Bollinger Bands and their effectiveness may vary from one industry to another, as there are different sets of guidelines that define the uptrend and downtrend in every sector. However, a closer look shows that the first bearish breakout appeared way before the start of the c-wave. This formula can therefore be repeated with various points, and we can finally develop a graph that can provide useful information and help in the decision-making of foreign exchange currencies. I share my knowledge with you for free to help you learn more about the crazy world of forex trading!

Categories:

• Binary Options
• Forex Bitcoin
• Forex Brokers
• Forex
• Binary Options online