Profitable Bollinger Band Trading Strategies for FX Markets


The candlestick close price is important. Don't worry, I'm not about to go on a history lesson on cryptocurrencies with details of where David Chaum went to college. Thank you sir for this new strategy of trading. You just check the daily charts for few minutes per day, if there is any trade setups based on this system, you take the positions, set the stop loss and target orders, and come back the next day.

What Is Double Bollinger Bands Trading Strategy?


The psychological warfare of the highs and the lows become unmanageable. So, it got me thinking, would applying bands to a chart of bitcoin futures have helped with making the right trade? I indicated on the chart where bitcoin closed outside of the bands as a possible turning point for both the rally and the selloff. But let's be honest here, this is a minute chart of a highly volatile security. You must honestly ask yourself will you have the discipline to make split second decisions to time this trade, just right?

The one thing the bands manages to do as promised is contain the price action, even on something as wild as bitcoin. I honestly find it hard to determine when bitcoin is going to take a turn looking at the bands. It's not that the bands are doing anything wrong or not working. Bitcoin is just illustrating the harsh reality when trading volatile cryptocurrencies that there is no room for error.

I personally do not trade bitcoin, but after looking at the most recent price swing using bands a couple of things come to mind:. Pairing the Bollinger Band width indicator with Bollinger Bands is like combining the perfect red wine and meat combo you can find.

In the previous section, we talked about staying away from changing the settings. Well, if you really think about it, your entire reasoning for changing the settings in the first place is in hopes of identifying how a security is likely to move based on its volatility.

A much easier way of doing this is to use the Bollinger Bands width. In short, the BB width indicator measures the spread of the bands to the moving average to gauge the volatility of a stock. Well, now you have an actual reading of the volatility of a security, you can then look back over months or years to see if there are any repeatable patterns of how price reacts when it hits extremes.

Still, don't believe me? Look at the below screenshot using both the Bollinger Bands and Bollinger Band width. Notice how the Bollinger Band width tested the. The other point of note is that on each prior test, the high of the indicator made a new high, which implied the volatility was expanding after each quiet period. As a trader, you need to separate the idea of a low reading with the Bollinger Bands width indicator with the decrease in price.

If you had just looked at the bands, it would be nearly impossible to know that a pending move was coming. You would have no way of knowing that. This is just another example of why it's important to pair Bollinger Bands with other indicators and not use it as a standalone tool. The above chart is of the E-Mini Futures. I want to dig into the E-Mini because the rule of thumb is that the smart money will move the futures market which in turn driveS the cash market.

Looking at the chart of the E-mini futures, the peak candle was completely inside of the bands. Other than the fact the E-mini was riding the bands for months, how would you have known there was a big break coming?

Now that I have built up tremendous anticipation, let's see if there is a way to identify an edge. Remember in Chapter 4, the Bollinger Band width can give an early indication of a pending move as volatility increases. In the above example, the volatility of the E-Mini had two breakouts prior to price peaking. If that wasn't enough to convince you, then the second break above the 8-month swing high of the Bollinger Band width was your second sign. After these early indications, the price went on to make a sharp move lower and the Bollinger Band width value spiked.

The inspiration for this section is from the movie Teenage Mutant Ninja Turtles, where Michelangelo gets super excited about a slice of pizza and compares it to a funny video of a cat playing chopsticks with chopsticks.

Does anything jump out that would lead you to believe an expanse in volatility is likely to occur? Let me tell you, when you are trading in real-time, the last thing you want to do is come late to a party. More times than not, you will be the one left on cleanup after everyone else has had their fun. It was very subtle, but you can see how the bands were coiling tighter and tighter from September through December. During this time, the VIXY respected the middle band. There was one period in late November when the candlesticks slightly jumped over the middle line, but the candles were red and immediately rolled over.

However, in late January, you can see the candlesticks not only closed above the middle line, but also started to print green candles. Now, one could argue that this wasn't enough information to make a trading decision. That is a fair statement. You would need a trained eye and have a good handle with market breadth indicators to know that this was the start of something real.

There is the obvious climactic volume which jumps off the chart, but there was a slight pickup in late January, which was another indicator that the smart money was starting to cash in profits before the start of spring break. This gives you an idea of what topics related to bands are important to other traders according to Google. Why is this important? It's safe to say bands is probably one of the most popular technical indicators in any trading platform. If memory serves me correctly, Bollinger Bands, moving averages and volume were likely my first taste of the life.

Well as of today, I no longer use bands in my trading. That doesn't mean they can't work for you, but my trading style requires me to use a clean chart. Therefore, the more signals on the chart, the more likely I am to act in response to said signal. This is where the bands expose my trading flaw. For example, if a stock explodes above the bands, what do you think is running through my mind? You guessed right, sell! The stock could just be starting its glorious move to the heavens, but I am unable to mentally handle the move because all I can think about is the stock needs to come back inside of the bands.

Instead of taking the time to practice, I was determined to turn a profit immediately and was testing out different ideas. I decided to scalp trade. I would sell every time the price hit the top bands and buy when it hit the lower band. It's really bad, I know.

From what I remember, I tried this technique for about a week, and at the end of this test, I had made Tradestation rich with commissions. The key flaw in my approach is that I did not combine bands with any other indicator. This left me putting on so many trades that at the end day, my head was spinning. Flashback to , when I was just starting out in day trading; I had no idea what I was doing. One of the first indicators I put to the test was Bollinger Bands. It's one of the most popular indicators.

Al Hill Click to tweet. At the end of the day, bands are a means for measuring volatility. So, it's not something you can just pick up and use for buy and sell signals. Just as you need to learn specific price patterns, you also need to find out how bands respond to certain price movements. This level of mastery only comes from placing hundreds, if not thousands of trades in the same market.

The thing that surprised me is that I couldn't find many other famous authors or experts in the space. 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 the bands. The books I did find were written by unknown authors and honestly, have less material than what I have composed in this article. The other hint that made me think these authors were not legit, is their lack of the registered trademark symbol after the Bollinger Bands title, which is required by John for anything published related to Bollinger Bands.

Conversely, when I search on Elliott Wave, I find a host of books and studies both on the web and in the Amazon store. I am still unsure what this means exactly. With there being millions of retail traders in the world, I have to believe there are a few that are crushing the market using Bollinger Bands. Your trading system may require price movement touching or exceeding the upper or lower bands before taking a trade.

You can use these as a mean reversion system or a continuation swing trading strategy. The mean reversion aspect is a more advanced bollinger strategy and is shown in the second trade example in the last chart. Bollinger bands can keep you objective in your trading by offering you not only a place to consider a trade, but areas to consider taking profits as described above.

Whatever way you choose to use the bollinger bands as part of a swing trading strategy, ensure you test it and log a trade plan so you can stay on track.

Another use of the bollinger bands is to measure price compression and a break from the consolidation. This is used in conjunction with the keltner channel and is called the squeeze. The Bollinger Band Squeeze can also be a trading system but like every trading method, test your idea before putting money on the line. Mail will not be published required. Forex Swing Trading Strategy 6: Bollinger Bands Indicator The bollinger bands is made up of three lines: Notice in this example how the Band-Width indicator gives lower readings when the bands are contracting and higher readings when bands are expanding.

One particular Bollinger Bands Strategy that I use when volatility is decreasing in the markets is the Squeeze entry strategy. The Squeeze strategy is based on the idea that once volatility decreases for extended periods of time the opposite reaction typically occurs and volatility expands greatly once again.

When volatility expands markets usually begin trending strongly in one direction for a short period of time. The Squeeze begins with the Band-Width making a 6 month low. In this example you can see IBM stock reaching the lowest level of volatility in 6 months. Notice how the price of the stock is barely moving at the time the 6 month Band-Width Low Is Reached.

In this example you can see how IBM stock breaks outside of the upper Bollinger Band immediately after the stocks Band-Width level reached 6 month low. In this example you can see how Apple Computers reaches the lowest Band-Width level in 6 months and one day later the stock breaks outside of the upper band.