How to trade forex using the Bollinger Bands

Another indicator that is widely used by forex traders to trade the financial market is the Bollinger Band.

The bollinger band is a technical analysis tool defined by a set of trendlines. The bollinger band was created by John Bollinger.

The bollinger band measures a market's volatility and identify when a market condition is overbought or oversold.

What do i mean by when the market is overbought or oversold? This means that the bollinger bands informs us when the market is quiet or loud. When the market is loud the band would expand and when it is quiet the bands contracts. The bollinger bands is a two standard deviations,(positively and Negatively),away from a simple moving average of a price.

Now,you understand what the bollinger bands is all about for further clarification,here is an illustration of when the bollinger band is quiet and when it is loud.

This picture illustration means that when the bollinger bands are close together (as seen in the picture above) price is quiet,when the price went down the bollinger bands spread apart and made loud noise.

Now let's go straight to how to make use of the bollinger bands to trade.

The bollinger bands appear as three lines:

• The upper band

• The middle line

• The lower band

This three line has it role it actually play in the accuracy of price movement.

The upper and lower bands represents two standard deviations above and below the middle line. While the middle line is a simple moving average(SMA).

Most of the time, the chart default to a 20-period moving average, but you as a trader can change it to your want, but still leaving it at the 20-period moving average is perfect.

Trading using the bollinger bands is very easy and it is best used when the market is ranging. Yes the bollinger band is best used when the market is ranging.

How to use

Applying the bollinger bands to your chart and using it is very easy.

The standard setting

period: 20

Shift: 0

Deviations 2.000

Apply to close

This are the standard settings level for bollinger bands, but you can change it to your own setting if you wish.

Now once you have applied the band on your chart, the next step is to know how to take a buy trade and a sell trade.

How to take a buy trade:

The bollinger bands act like support and resistance levels.Look at this chart below.

Now what does this image illustrate? Don't forget we are looking for a buy signal, The market was going long before it traded below the bollinger band.

What we need the market to do is to trade below the bollinger band. It has to trade to it and reach the bottom as seen in the image above. Then that is your entry. Once the market price reaches the bottom of the band you take a buy signal, place your stop-loss 10 pips below your entry and for those that can risk more, place your stop-loss 20 pips below your entry, just make sure you are not risking more than 2% of your account equity,then you go long/buy.

Now when to take your profit

Looking at the image above, the trade was a success as it went long.

You take your profit when the price touches above the band again. Once the band touches the top of band,that is when you take your profits.

How to take a sell trade

All you have to do is just apply the same application you used in taking a buy trade for a sell.

Now let's explain in full details on how to take a sell trade using the bollinger band.

Look at this chart below

Now what does this image illustrate? The market was ranging before it traded above the bollinger band. We need the market to trade above the bollinger band to get a sell entry. It has to trade to it and reach the top as seen in the image above. Then that is your entry. Once the market price reaches the top of the band you take a sell signal, place your stop-loss 10 pips above your entry, and for those that can risk more, place your stop-loss 20 pips above your entry, then you go short/sell.

Now when to take your TP(Take profit)

Looking at the image above,the trade was a success as it went short. You take your profit when the price touches below the band again. Once the band touches the bottom of the band, that is when you take your profits.

Now that you have understand how to trade using the bollinger band, let's guide you through some facts.

Don't trade the bollinger band when the market is Squeezed. Once the market is really squeezed, it means the market is no longer ranging and a breakout is about to happen

Here is a picture to understand better

You can see what happened above, the market was really squeezed causing a breakout to the upside in the process. SO it is best not to trade once the market is squeezed.

What timeframes is the best to trade using the bollinger bands

Well,you can use the bollinger bands on all time frames but the best time frame to use the bollinger bands is on the higher timeframe like the 1hr,4hr and so on. Using the higher timeframe would give you a higher chance of bigger profits.

Komolafe Peter Adedayo

Pelegists website is all about getting the latest news on finaces, cryptocurrency and also those seeking to invest and have no idea on how to go about it.subscribe to this page and get the latest gist around the world and many more. All news posted here are true details as we would not post untrue news With time we hope to become the internet most trusted source of informations for Finaces and business growth all round the world

Post a Comment

Previous Post Next Post