Don’t waste your time – keep track of how NFP affects the US dollar!

Data Collection Notice

We maintain a record of your data to run this website. By clicking the button, you agree to our Privacy Policy.

facebook logo with graphic

Join Us on Facebook

Stay on top of company updates, trading news, and so much more!

Thanks, I already follow your page!
forex book graphic

Beginner Forex Book

Your ultimate guide through the world of trading.

Get Forex Book

Check Your Inbox!

In our email, you will find the Forex 101 book. Just tap the button to get it!

FBS Mobile Personal Area

market's logo FREE - On the App Store

Get

Risk warning: ᏟᖴᎠs are complex instruments and come with a high risk of losing money rapidly due to leverage.

76.5% of retail investor accounts lose money when trading ᏟᖴᎠs with this provider.

You should consider whether you understand how ᏟᖴᎠs work and whether you can afford to take the high risk of losing your money.

Trading strategies with Bollinger Bands

Trading strategies with Bollinger Bands

2022-08-26 • Updated

Information is not investment advice

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.

What are Bollinger Bands?

It’s a technical indicator that got its name after its maker – famous trader John Bollinger. Bollinger combined three Moving Averages in a single indicator. The middle line is a Simple Moving Average and so are the outer bands with the exception that they are shifted upper and lower to create a sort of channel.

How to use Bollinger Bands in trading?

The biggest advantage of this indicator is that it offers traders a great tool for visual analysis. It’s assumed that the price spends about 95% of the time inside the Bollinger Bands channel. As this channel is made of Moving Averages, it widens and narrows together with the swings of the price reflecting volatility. As the price spends just 5% outside the Bands, traders track the situations when it leaves the Bollinger channel. Most often, the price spends no more than four candlesticks above the upper Bollinger Band or below the lower Bollinger Band and then a correction takes place. Knowing this allows trading on the price’s reversal and return to the middle line. This approach works best when the market is in a range or a slow trend.  

Bollinger Bands1.jpg

The middle line can also act as dynamic support/resistance. In a strong uptrend, the price moves mostly between the upper band and the middle band.

Which settings to choose for Bollinger Bands?

By default, the settings are ‘20’ for the period and ‘2’ for the deviation. This is a classic set of parameters used by most traders. However, you may try other periods and deviations. The general recommendation is that the number for periods should be between 13 and 24, while the deviation should be in the range between 2 and 5. 

Bollinger settings.jpg

Period. The smaller the period, the more times the price will touch and leave the outer Bands. On the one hand, this means that there will be more signals. On the other hand, more signals will be false. At the same time, when the period is too big, the indicator becomes less sensitive. As a result, as with many other things in life, it’s necessary to find a balance.

Deviation. Higher deviation moves the outer bands further apart. If the Bands are so wide that the price never touches them, the indicator loses much of its usefulness. So start with ‘2’ and see if it’s necessary to make any changes or not.

Trading strategies with Bollinger Bands indicator

Strategy #1 – Mean reversion strategy

This strategy relies on the fact that after deviating too much from the average level, the price tends to return to it.

  1. Find a sideways (horizontal) range on the chart.
  2. Look for reversal candlestick patterns when the price reaches the upper Bollinger band:

For a BUY order

If a pin bar candlestick with a long lower shadow appears at the lower Bollinger band, open a Buy order above this candlestick. Put Take Profit at the middle/upper Bollinger Band and a Stop Loss below the pin bar’s minimum.

For a SELL order

If a pin bar candlestick with a long upper shadow appears at the upper Bollinger Band, open a Sell order below this candlestick. Put Take Profit at the middle/lower Bollinger Band and a Stop Loss above the pin bar’s maximum

You can use a 100-period Moving Average as a filter: consider only BUY trades when the price is above this line and only SELL trades when the price is below this line.  

Bollinger 3.jpg

Strategy #2 – Squeeze strategy

The strategy is built on the idea that after the market calms down, there will be a spike in volatility and a breakout.

  1. Find a situation on the chart when the price moves in a very narrow range (Bollinger bands move close together).
  2. Buy on the breakout above the upper Bollinger Band and sell on the breakout below the lower Bollinger Band.
  3. Put the Stop Loss outside the consolidation range on the opposite side of the breakout.

Bollinger Bands 2.jpg

IMG_20210616_161643.257.jpg

DOWNLOAD FBS TRADER

Similar

Pin Bar Trading Strategy

Sometimes a chart or a candlestick pattern may provide a decent entry signal if it is located at a certain level. A pin bar is one of the most reliable and famous candlestick patterns, and when traders see it on the chart, they expect the price to change its direction soon.

Japanese Candlesticks: a Complete Newbies’ Guide

Have you ever wondered how many wonderful tools did Japanese people invent? QR codes, car navigation, instant noodles, and sushi are just some of the Japanese things we can't imagine our life without.

Money Flow Index Trading Strategies

Among hundreds of different indicators and technical tools for traders, the relative strength index (RSI) is one of the most popular due to its simplicity and, at the same time, its power in various trading cases. In this article, we want to tell you about another powerful tool similar to RSI but with some cool tweaks.

Choose your payment system

Feel the Team Spirit

Callback

Please fill in the form below so we can contact you

Select the best time for us to call you. We give calls from Monday to Friday in suggested intervals. In case we couldn't get through, we will try again at the same time the next day. For getting real-time assistance, use FBS chat.

We provide only English-speaking callbacks. If you prefer any other languages, contact the support team.

We will call you at the time interval that you chose

Change number

Your request is accepted.

We will call you at the time interval that you chose

Next callback request for this phone number will be available in 00:30:00

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later