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Day Trading With Bollinger Bands


Bollinger bands strategy

Below are some techniques traders could consider while using Bollinger Bands. This strategy relies on the fact that after deviating too much from the average level, the price tends to return to it. In the previous article, we explained how to trade using Moving Average. Now it’s time to look into another useful indicator called Bollinger Bands. The indicator is available not only in MetaTrader but also in FBS Trader App.

Bollinger Bands, a technical indicator developed by John Bollinger, are used to measure a market’s volatility and identify “overbought” or “oversold” conditions. Both Apple and IBM were different because they did not break the lower band and rebound. Instead, they succumbed to further selling pressure and rode the lower band down. In the end, both Apple and IBM did turn around and this proved that the strategy is correct.

Bollinger Bands

The combination helps traders to identify an overextended market and the likelihood of a retracement. They differ in that BBs are a lagging indicator, while RSI is a leading one. Some of the Bollinger Bands trading strategies include overbought and oversold approach, squeeze strategy and Double Bollinger Bands (DBB). Traders who use DBB can either trade breakouts or follow the trend.

Bollinger bands strategy

And if these signals align with those of the Bollinger bands, it can be taken as confirmation of the position. The Bollinger Bands Bounce trading strategy can be used for day trading by identifying potential buying and selling opportunities within a single trading day. Traders can use shorter time frames, such as 5-minute or 15-minute charts, and adjust the settings of the Bollinger Bands indicator accordingly.

What are Bollinger bands?

Another popular strategy is to combine Bollinger bands with the Moving Average Convergence Divergence (MACD) indicator. As we can see, the Bollinger bands frequently rise and fall back toward this line. Even on longer divergences, the two will eventually meet again. The Bollinger Bands are a great indicator to use in any market. When you combine these with the RSI indicator, it should give you great entry points for the Bollinger Bands Bounce Trading Strategy.

  • In this article, I am going to cover some basic trading techniques you can use with the Bollinger Bandwidth indicator.
  • I would sell every time the price hit the top bands and buy when it hit the lower band.
  • This helps to confirm that the reversal is actually taking place and reduces the risk of entering a trade too early.
  • In this article, we’re going to review how they are calculated and how they can help you to spot trading opportunities.
  • Let’s dig deeper into this price action by looking at the charts.

Therefore, investors at this position want to close their sell positions and buy. When the indicative price fall above or below the bands, the resulting situation is known as the ‘breaking the bands’. As such, one needs not to understand the background but the concept behind it. In fact, only a very few Bollinger bands strategy traders have the knowledge about the mathematical background of the Bands. Unfortunately, there is no definitive system that can accurately tell a trader when to enter or leave a trade. This is simply because the market is controlled by people who have different ways of reacting to their emotions.

Strategy #2 – Squeeze strategy

Please note that the BandWidth is at its lowest during this period. 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. Copy the unarchived BandsBandwidth.mq4 file to this directory. 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.

Which indicators work best with Bollinger Bands?

Bollinger Bands can be used in combination with different indicators, like RSI, as well as support and resistance, moving averages, and any other research tools that may support your analysis.

Another strategy for using Bollinger Bands is to identify breakouts. A breakout is a period where the price of an asset suddenly moves in either direction after a period of consolidation. When using the Bollinger bands, the area between the moving average (MA) line and each band is known as the orchannel.

Bollinger Bands Strategy PDF

A little-known technique is the double Bollinger bands trading strategy. With this trading method, day traders can pinpoint entries and exits with ease. If the main trend is upward, we enter the market at the close of the subsequent bullish (white) candlestick. If the trend is downward, enter after the close of the bearish bar. If the movement is too strong and you are afraid to miss a significant part of the movement, you can move to the next smaller timeframe and wait for the bar to close on it.

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To do this, we recommend that you use other tools or strategies to predict the direction. For example, if the Bollinger Bands squeeze is happening at a period when there is a bullish pennant or flag, it could be a signal of a bullish breakout. When the price breaks through the upper or lower band, the trader buys or sells the asset, respectively. In the chart below, we see that a fade-trader using Bollinger Band® “bands” will be able to quickly diagnose the first hint of trend weakness.

What are the best settings for the Bollinger Bands indicator for a 5-minute chart?

Quite often, this rollback completes near the previous local low. The retest price must be greater than or equal to the price of the first low. 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. Next, we will analyze the techniques for using the Bollinger indicator in detail. Skim the Bollinger Band chart and see how it reacts to price changes. If you encounter any difficulties, we will do it together below.

What is the best Bollinger Bands setting for scalping?

The rules of the strategy

Indicators: Bollinger Bands with the following settings: a period of 20, 2 standard deviations; Stochastic Oscillator with standard settings (14, 5, 3) as a filter. The whole strategy is based on finding a flat Bollinger band.

Do Bollinger Bands work for day trading?

As reliable indicators of volatility, Bollinger Bands can help day traders as well. A simple day trading strategy could be to focus on two lines at a time – the middle price line and the upper one during an uptrend, and the middle price line and the lower one during a downtrend.

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Mike Dillard

Creator of The Mike Dillard Podcast

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