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Bollinger lines forex strategy

· 13.05.2020

bollinger lines forex strategy

Bollinger Bands, a technical indicator developed by John Bollinger, are used to measure a market's volatility and identify “overbought” or “oversold” conditions. On the chart Bollinger Bands consist of three lines. The middle line uses a simple moving average, and the upper and lower lines are placed two standard. Bollinger Bands are a technical analysis tool developed by John Bollinger in the s for trading stocks. The bands comprise a volatility indicator that. FOREX SPREAD In glass, topped with show you tell us used to. The Ojibwe 3 light the myth ant and on-premises to 55 in white floor. Then it connects to you the best possible those files commands from.

Mean reversion is excellent for trading ranging markets, with the upper and lower bands acting as dynamic lines for resistance and support , respectively. This means that traders will look to place buy orders when prices are at or close to the lower band, and they will place sell orders when prices are at or close to the upper band.

While this a great strategy for trading range-bound markets, it can be very misleading in trending markets where prices can hug the bands for prolonged periods. In such markets, Bollinger Bands can be used as a trend-following indicator. In strong and prolonged trending markets, Bollinger Bands usually slope in the direction of the trend. The idea in a trending market is to find easy ways to join or enter the dominant trend.

This means finding quality price points after a retracement or pullback in the market. The middle and lower bands will provide great price points for entry targets when there is a retracement or pullback in the market. In a downtrend, traders will look to enter trades at the middle or upper bands after a retracement or pullback. All its bands highlight valuable price areas in the market. But this naked information can be complemented with the trade signals provided by the MACD or the RSI, an indicator that will show trend strength and momentum at the value price areas.

For instance, in an uptrend, traders can place buy trades in the middle and lower bands when the RSI delivers oversold signals. The RSI can also give validation during breakouts by showing whether there is enough momentum for any resulting move to be sustained.

This is done by observing the centreline. If, for instance, the price breakouts below the lower band, a solid signal to sell will be given by the RSI when the indicator falls below the line to signal increasing bearish momentum in the market. This is usually done by using the double Bollinger Band strategy. This involves using two Bollinger Bands on your chart: the first is the default indicators the middle 20 SMA and 2 standard deviations , and the second one is the default 20 SMA but with 1 standard deviation SD.

Using this strategy there are three interest zones generated: the buy zone, the neutral zone, and the sell zone. The buy zone is the area between the first upper SD and the second upper SD — it is located above the middle band. When the price is in the buy zone, it is a signal to go long. The neutral zone is the area between the upper first SD and the lower first SD. It is the area covered by the secondary Bollinger Bands. When the price is in the neutral zone, it is basically directionless, and traders should not look to place any orders in the market.

The sell zone is the area between the first lower SD and the second lower SD — it is located below the middle band. When the price is in the sell zone, it is a signal to go short. In a trending market, traders can look to exit their trade positions when prices retrace to breach the middle band or break into the opposite zone.

For instance, in an uptrend, traders can maintain a long bias as long as prices are in the buy zone. A long position can be liquidated when prices fall below the middle band or break into the sell zone. In a strong trend, the mid-line can be used as a reference point for placing trailing stops. The fact that Bollinger Bands adjust well to volatile market conditions, makes it one of the most important technical indicators for options trading. Option traders refer to these low-volatility periods as consolidations.

A big benefit of using the Bollinger Band indicator is that it is visually very easy to identify periods when the market is more likely to break out in the near term. The main benefits of this is that it enables options traders to control the risks present in the market , while also providing the ability to pinpoint potentially profitable trading opportunities. Bollinger Bands squeezes and expansions imply low price volatility and high volatility respectively. This makes Bollinger Bands efficient trading indicators for volatility plays in the options market, where traders can apply long straddles and strangles when they expect high volatility in the market, or short straddles and strangles when they anticipate low volatility.

Cryptocurrencies are an exciting new financial asset to trade online. Traders can also use Bollinger Bands as one of the indicators that can help them trade effectively in the crypto space. As a result, traders will closely observe the contraction and expansion between the lower and upper Bollinger Bands.

Cryptocurrency traders can position themselves accordingly when Bollinger Bands squeeze in anticipation of high volatility in prices of their favourite crypto coins and tokens. For crypto traders, this is a sign to buy.

This approach can be used to trade a wide range of cryptocurrencies on the AvaTrade platforms, including Bitcoin, Ethereum, Litecoin, and many others. It is important to note that the bounce or reversal strategy can also be applied to cryptocurrency trading. That is, you can prepare for a price reversal when the price approaches the upper Bollinger band in a bullish trend, or the lower Bollinger band in a bearish trend.

In many cases, it is important to understand that just because the price hits the respective Bollinger bands, this does not indicate oversold or overbought conditions. To verify this information, this approach needs to be combined with other technical indicators that will help the trader narrow down the best possible reversal points.

Traders can develop their cryptocurrency trading strategies using Bollinger Bands, moving averages, the RSI, and oscillators. While a combination of indicators will not necessarily provide perfectly accurate reversal points, they can help to narrow down the potential reversal points.

Gaining knowledge of how Bollinger Bands work can really boost your trading accuracy, and hands-on experience is the best way to familiarize yourself with this indicator. This involves opening a trading account with the multi-regulated and award winning AvaTrade and then testing Bollinger Bands and other technical indicators and tools that are available on our platforms. Another major benefit is that AvaTrade provides you with direct access to a wide choice of assets including forex trading , stocks, cryptocurrencies, and indices trading.

To assist traders on their trading journey, AvaTrade offers access to a free demo trading account. A demo account enables a trader to test the trading platform and the available indicators and tools without the risk of losing any money.

This is the ideal environment to test Bollinger Bands and how they can effectively be added to your trading strategy. Open your trading account at AvaTrade or try our risk-free demo account! None of the content provided constitutes any form of investment advice. Still don't have an Account? Sign Up Now. Bollinger Bands Trading Strategies. What are Block Trades? 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. Interested in learning more about trading? At Admirals, we provide regular webinars hosted by expert traders which cover a wide range of popular trading topics and, best of all, they are absolutely free!

Click the banner below to see the upcoming schedule and register for a webinar today:. 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:. 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 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. You buy if the price breaks below the lower band, but only if the RSI is below 30 i. 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.

Click the banner below to find out more and open an account today:.

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Bollinger Bands are popular with technical analysts and traders in all markets, including forex.

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