I’m not sure if this is because there aren’t many people interested or if other traders stay out of the bands arena because John is so actively evangelizing his own indicator. This ability to identify the setups will help you avoid the false signals from the real ones. That doesn’t mean they can’t work for you, but my trading style requires me to use a clean chart. It’s safe to say Bollinger Bands is probably one of the most popular technical indicators in any trading platform.

The three lines that make up Bollinger Bands are based on a security’s price moves. The center line is the intermediate-term trend and is typically a 20-day SMA power trend of the closing prices. The upper and lower bands are plotted a distance from the SMA set by a certain number of standard deviations, usually two, above and below the center line.

It represents a failed growth with an amplitude less than the previous one (ideally ends around the peak of the left shoulder) and a subsequent fall in price setting a new low. The right shoulder may be followed by another minor growth, bringing prices back to the vicinity of the lows of the left and right shoulder. Therefore, these formations are often used to predict trend reversals and open positions.

This will increase your trading discipline and help you avoid unnecessary mistakes at the very beginning. The Bollinger Bounce strategy involves trading on developing trends. In an uptrend, we will look for the moment when the price action rolls back down, touches or almost touches the lower band.

First, let’s add Bollinger Bands and RSI to the EURUSD chart of LiteFinance online terminal. To do this, click on the “Indicators” button at the top of the chart. Then, in the menu that opens, click on the “Bollinger Bands (BB)” and “RSI” links.

This One Stock market reversal candlestick Pattern is the only one You Need to know

To check whether it is met, you can use the previously discussed %b indicator, which allows you to accurately measure the position of candles relative to Bollinger bands. Earlier, we have already discussed the main signals of the Bollinger Bands. Their weak point is the need to filter and identify entry and exit points. The simplest solution to the first problem is a Bollinger filter. If you look closely at this formula, you will understand that if the last price is located on the upper Bollinger bands, the calculation result will be 1. If it is located on the moving average, the %b value will be 0.5.

Copy the unarchived BandsBandwidth.mq4 file to this directory. Both examples show that using WMA and EMA instead of a moving average can give very unexpected results. Therefore, these averages are not recommended for Bollinger trading. Let’s compare the indications of moving averages using an example.

Overbought and Oversold Trading Strategy with Bollinger Bands

In the ideal avatrade review version, the left shoulder goes beyond the upper line. The neckline in the right shoulder often stops at the moving average, and the first decline is in the vicinity of the lower Bollinger band. Another feature of W-bottoms is the presence of some smaller formations in their structure. A closer look at smaller timeframes reveals reversal signals. They form the beginning or end of the compound segments of a large figure. The retest price must be greater than or equal to the price of the first low.

How To Trade Bollinger Bands Signals and Trading Strategies

Once we saw that the market broke below an important level of support, we immediately looked at the position of the Kumo cloud. Once we enter the trade, we place our stop-loss order below the Kumo cloud and we aim to catch a large portion of the trend. We had 5 valid long opportunities, all of them being successful. We have a Dow Jones 1-min chart with the indicators plotted on it.

Bollinger Bands Indicator in Forex Strategies

1. So it’s best to avoid chasing tops/bottoms with Bollinger Bands and use the indicator in conjunction with other oscillators.
2. Bollinger trading with the Stochastic indicator is similar to the previous strategy using the RSI.
3. Candles entering the period are marked with a blue rectangle in the chart.
4. In this article, you will learn how to use the Bollinger Bands bounce trading strategy in day trading.
5. I recommend you backtest the results by applying the above settings before using them on a live account.
6. This once again confirms the fact that in real trading you will rarely come across perfect shapes.

The Bollinger Bands Bounce trading strategy is a technique that uses the Bollinger Bands indicator to identify potential trading opportunities. The strategy involves buying when the price of an asset falls below the lower Bollinger Band and selling when it rises above the upper Bollinger Band. After examining the picture, it may seem wise to buy every time the price hits the lower band. Or, on the other hand, sell every time the price hits the upper band. Sometimes strong trends will ride these bands and end up stopping out many unfortunate traders who try to it. A contraction of the bands suggests that the market is experiencing less volatility.

Here line K crosses D, and the Stochastic itself shows oversold below the 20% level. The EURUSD chart shows Bollinger Bands at the time of the trend development. The green rectangle marks the area when the lower line begins to move down during the formation of an upward trend.

A conservative buy opportunity would be to wait for the CCI to cross above the 0-level. As you can see, this setup generated 4 valid short positions. Once we know we are interested in short entries, we are looking for the price to trade near the upper Bollinger Band. We also prefer the Bollinger Bands to be flat, or parallel. If the momentum drives the price near or outside the upper Bollinger band, we could take this trade also. The middle band basically serves as a base for both the upper and lower.

At the top of the terminal, open the “Insert” tab, then go to the “Indicators” item. Click on the “Custom” item and select the name of the newly installed indicator. Set stop losses and take profits similarly as with long positions. This method appeared as a result of the efforts of the exchange analyst Kathy Lien. How to Make Big Profits in the World of Forex, she described an unusual technique involving the use of two Bollinger Bands of the same type in the same chart. When analyzing a figure, I also recommend paying attention to volume.

Developed in the 1980s by financial analyst John Bollinger, the bands appear on stock charts as three lines that move with the price. The center line is the stock price’s 20-day simple moving average (SMA). The upper and lower bands are set at a certain number of standard deviations, usually two, above and below the middle line.