Bollinger Bands Forex Trading Strategy
This is used in conjunction with the keltner channel and is called the squeeze.
Using Bollinger Bands® to Identify a Trend
These could be buying dips in a rising trend or selling spikes in a falling one. John Bollinger developed the indicator with the idea to show the difference between a ranging environment and a breakout. The Bollinger band is made from three lines plotted on the screen.
Usually, the moving average is a simple one SMA. However, recently it has been proved that using an exponential moving average EMA is more lucrative for riding a trend. A typical Bollinger Bands strategy is to look for a break when the two standard deviations are moving away from each other.
There are multiple ways to use the indicator. The most popular one being to look for a breakout when the bands are becoming closer to one another. This indicates a period of low volatility and a break is imminent. Contrary to the general belief, the Forex market spends most of the time in consolidation. Over seventy percent of the time, prices are moving in a range.
Doing that would result in being on the right side of the market for over six months and avoid the noise caused by the fundamental news.
There are two ways to deal with an underlying trend with Bollinger Bands strategies. Both are the result of knowing how to use Bollinger Bands.
One is to use the MBB line as entries in the direction of the trend. The red arrows in the chart below show bearish Bollinger Bands signals given by the Bollinger Bands settings mentioned earlier. The big red candle caused by the U. Presidential election and the Trump effect is nothing but another opportunity that shows how to read Bollinger Bands indicator. As for the take profit, a classical one would be when the price is reaching the opposite Bollinger Band. In this example, as the underlying trend is bearish, the opposite band would be the LBB.
For the trades illustrated so far, the target area or the exit point are highlighted in the picture above. The key to this Bollinger Bands technical analysis approach is to wait for the candle to close. Of course, the examples above use the daily time frame, but the same principle can be successfully used on lower time frames too. Therefore, the drawdown, in case the Bollinger Bands parameters are set on a lower time frame, is not that big like on the daily chart.
However, the idea regarding how to interpret Bollinger Bands indicator is the same, no matter the time frame used. So far, we saw the Bollinger Bands interpretation on a breakout strategy. It is based on how to calculate Bollinger Bands and interpret the standard deviations that indicate how volatile a market is.
However, does a Bollinger Bands reversal strategy exists? The answer is yes, and for this, we need to look for reversal pattern that forms when the price is reaching the extremes UBB and LBB. The perfect reversal patterns are the Japanese candlestick techniques. A great way to learn how does Bollinger Bands work is to look for reversal patterns given by Japanese candlestick techniques. These are the most representatives and are forming all the time.
Like anything related to trading, there is a trick here too. You should ignore all other reversal patterns that are not touching the two volatility lines. The example above shows a dark-cloud cover forming at the end of a bullish trend, with both candles that are part of the reversal pattern touching the UBB volatility line.
This is enough to take a short trade. As a take profit and finding your risk-reward ration, you can use the length of the dark-cloud cover To calculate it, simply measure the highest and the lowest point in the dark-cloud cover pattern.
Then multiply it by 2. The stop loss should be the highest point of the reversal pattern. You can use a bigger risk-reward ratio, but that would not be a realistic approach.
In the example above, you seethat the dark-cloud cover acted as a Bollinger Band squeeze indicator as the price action that followed reached the take profit and some more. The same is valid for the hammer reversal pattern that follows. Then we sit back and watch. Time will tell if we will have a trend, or the price will turn around and stay in the range zone.
Thank you for sharing this with us. You guys are awesome people. I am new to these, did a lot of wrong things, hence have not been profitable yet. However, you guys gave me hope and the believe that all is going to be ok. If 1 candel is closing below the MB, 2 candel is closing just below the BB1 in an uptrend. Hi Kamel, Thank you for sharing his. Hi, Kamel, For learning to identify the setup validity.
It should all at UpperBB1. Another pair for learning again. Candlestick closed on Thank you kamel for a very brilliant post. Please never stop writing to us. I read these posts with the greatest of pleasures! I just would like to hear how you gentlemen explain this phenomenon. Once again, Kamel… Thank you! From the very bottom of my heart. I wish you both long and continued success in everything you do. I know I am. We have to be aware that our stop loss can be triggered sometimes with any trading system we follow.
In case of BB head fake, in most cases it can not affect our positions, because we move our stop loss to breakeven as soon as the price moves for 1SL toward the target. In this case I happened to be watching at 10mins to close and the price was equally performing on both MT4 and my other platform. I am very surprised and a bit confused at this revelation.
You did not waste my time at all. I will be happy to help. The daily candlestick close time is very important. Any platform you use, make sure that daily candlesticks close at 5pm est.
Trading is nothing but taking risks. The only thing we can do is limiting our risks and losses. There is no doubt that our stop loss will be triggered sometimes. This is what we can not do anything about. Something that makes us profitable at the end of the month is that we enter properly, make our losses small, and our gains big.
There is no short trade setup on Actually a long trade setup is formed by Hi Kamel, I would like to say Thank you for your new method. Its very kind of you sharing with us. Anyway I have a question regarding your new system. In spite of opening the new trade either long or short , does the 3rd candlestick have to be a long candle stick? Can it be a short one? Also, in case of the 3rd candle stick breaking the BB2 with very long bullish or bearish candle stick, is it still the right time to go long or short?
Will it be effective? Does it have to be applied while BB is expanding? Can the 3rd candlestick be closed in other forms than full bullish or bearish form? Is it still valid if the 3rd is closed as a doji? The candlestick close price is important. Yes, you are right. In DBB system, we ride the trend when it has already formed and moved sometimes for several candlesticks. But the good thing is that we ride the trend when it is almost proven that a trend is started.
Hi Kamel, With this trategy, if the stop loss get triggered, do we re-enter or we just wait for the next one? Nice and simple trade system! You mentioned both options but it appears that you prefer to wait for the cross back rather than trailing the stop.
It would better if candles 1 and 2 close right below BB1 upper band in case of long, and above BB1 lower band in case of short trade setups. This is the typical trade setup. Thanks a lot for the great strategy, it looks good.. But, are there any special tips or tricks for this strategy? I tried to do this strategy with 4H timeframe on multiple pairs but I got more losses than gains..
There is no tips and tricks. It is as simple as it is explained above. Trade the daily, weekly and monthly time frames using this strategy and look for the trade setups exactly as it is explained above. You will have a lot more gains than losses. I have read all your articles. I am glad that you are writing and generously share more awesome knowledge again. I have one question about the DBB. I would to know the logic behind this trade set up.
It would be very useful to understand the mechanism of how the price react to it. I feel this is another effective trade set up and yet very simple which accounts for both statistics and the market psychology, thus I would like to know it better in details.
This strategy is not invented by me. I initially learned it from Chris and other senior traders, but I used more seriously than the others.
I know that there are so many traders who use this strategy. Thank to kamel and Chris for Sharing such a great Trade setups…. Keen to give it a go. Just a question, I noticed on 2 of your long trade setup examples that either candle 1 or candle 2 were closed above BB1, but you mentioned that we have a setup if these are both closed below BB1.
How critical is this? Thanks in advance for your reply, and also thanks a million times for the unselfish efforts of Chris and yourself in helping us become profitable traders. Are you sure that candles 1 and 2 are closed above BB1 upper band? Please check one more time.
Also here is more explanations: Thank you for sharing another strategy. Is it really profitable? Could you please share its characteristics especially profit factor, possibly loss rate stop loss hit at its initial place based on your experience? I will do it as my time allows, and will share my results here.
I have not calculated the profit factor, but it has worked for me for years. I would be really interested in even a rough indication of how profitable this system has been for you. It would boost my confidence a lot if i knew that someone has used this for years with decent profit. I bet when you and Chris discussed whether or not to share this strategy then Chris probably warned you about all the feedback you would get about this…..
It took me 15 minutes just to read this post. You guys are the best…….. Happy to said it worked.. It hit 2 x SL target long position.. Next I will try in bigger time frame..
Many thanks to you for your simple technic.. We just reported that trade setup as an example. It is too late to enter now: I will try find more setups in bigger time frame..
Really easy and interesting system. Keeping it simple stupid. I really am interested in following the system. However, I have questions: Following the system, how can we afford consolidations and little trend pull backs? Must candlesticks 1 and 2 form and close under the BB1 or only close under it Long Setup? Can you please give us an approximate win rate of this strategy?
Thanks a million times. Most of the people these type of secrets are sodding very high price. But you are generously helping to willing people. Kamel I need to test this in demo really enjoy all your articles thanks again mate. Sorry I slow to respond taking a holiday best John. Firstly I am new to and and have recently came across your page in the last few days. I wish to thank both of you for sharing with all of us I will be putting this system to work today and will continue to read your articles which I find extremely interesting and simple thank you again guys I hope some day I can be a successful trader.
We have been using this system for 15 years. Almost all professional trader know about this system. It is neither invented by us, nor any other known person. I got a doubt on candlestick chart. I found that different brokers provide different trading hours thus it would affect the form of candlestick.
Hi Kemal , I really love this BB system, its great, but there are just not enough setups in week over 19 pairs for me to trade it full time.. But what you guys are sharing here is really great, thanks you very much. There are clear rules on forming the trade setups. They are explained above. What you mentioned cannot be known as a trade setup. Then you should check the previous two candlesticks to see whether their close prices are below the BB1 upper band or not.
My question is in a long situation, whether the two prior candlestics the ones below BB1 need to be bullish candles or can they have their close prices lower than the open prices?
This DBB strategy is really a wonderful trading system! Thank you for sharing with us your wealth of knowledge and systems. The trade went against me and hit SL after going up rather than down.
It was not a typical short setup, but still a short setup. Please see the above examples and you will see the difference. While I sincerely appreciate your mentoring, even as I strive to comprehend the DBB strategy, presently, I am very confused: Hi Jeng , Michael this cool site and saw your here not Kamel , I was just sitting here catching up on some reading and saw your post.
If I may answer you? The candle on 12th did not close below mean the 20 and was a indecision candle spinning top. The candle on the 15th did. So based on all things, mainly the rules of BB.
The candle did not close below the 20 , this is not a sell. Not sure how to give a picture of this anyways.. First of all, this is an important article: There is never a guarantee where the price will go, even with a perfect trade setup. No trader in the world can predict prices. There are probabilities only. Secondly, there are ways to increase your success rate with the DBB strategy: By picking only the optimal setups, you filter out a lot of bad trades and some good ones as well, but overall, profitability should increase.
Also candle 3 closes almost below the lower BB2 which is also not optimal, but still acceptable these extra rules are explained in the second article i linked. I have just begun to use them myself. Hi Jeng , I meant to type , This is Michael not Kamel ,and was just reading some posts , not sure what happened there in begging of my comment , but the rest of post is straight.. If yes, how exactly do we trade it on Weekly and Monthly?
Thank you for your response. What I actually mean to ask is following the rules on weekly and monthly would require huge stop loss setting and was thinking there could be a way to trade it on daily.
So is best to leave it if cannot be traded according to rules? Of course, trading the shorter time frames also increase the risk. Any trading system generates some losses sometimes and cannot be profitable all the time. Also any trading system misses good and strong movements sometimes. Please read my most recent article about this system: I noticed that in some daily chart examples there are five bbs and four in others, is this due to zooming while captured?
I noticed in the going short chart examples a cpl had candles one and two closed a little above bb1? The only reason I could think of would be they formed strong patterns like in the bb break out system. I have backtested your strategy, here are my remarks: Good that you backtested it. How much did you risk per trade to get to these results? How is it going with your modified DBB? Hi I am a novice starter and still loosing money: Breakeven is the entry price.
You can move the stop loss to breakeven when your position is in profit. If so, your position will be closed with no loss if the price goes against you. Do i understand correctly, you wait until the daily candle closes and at that moment you make a decision? Or is it possible to look at the candles on a different time during the day and act then? You can use this method on any time frame, but daily and longer time frames return better results because they are stronger. Dear Chris, This is a good news for me too as I have to wake up 3.
Close the second position when candlesticks start crossing the BB1 and BB2 upper bands, or when one of the candlesticks breaks below the Bollinger Middle Band. The second sentence says the opposite? Maybe that paragraph and the corresponding one about shorts could be clarified a little.
Does this rule still apply if this happens between SL and the profit target of the first position? Do i follow the rule i quoted, or do i leave the position open until break even is hit or until it goes above the old 2xSL profit target? That part is fixed. So now it is: Close the second position when candlesticks start crossing the BB1 upper bands, or when one of the candlesticks breaks below the Bollinger Middle Band….
Please look at the below chart and let me know if it is possible to have the scenario you mentioned here on this chart or not: During my daily round i noticed that i may have been doing something wrong since i started with the DBB strategy less than a week ago.
I was moving the SL of both positions to break even when the price moved 1xSL in my favor. But now that i read the article again see the quoted text below , i see that i should only move the SL of the first position and that i should not move the SL of the second position until the first position hits TP. Or does it not matter? When the first position hits the TP, you move the SL of the second position to breakeven.
If the first position is 1: The way i interpret the above quoted text is that if the price is at 1. So at that point you have two different stoplosses, is that correct? You move the second position SL when the first position hits the TP. In that example, my target would be pips. What i wanted to know was when to move the second position to breakeven.
Again, sorry to take up your valuable time, i realize you must be very busy between writing all these wonderful articles and answering questions from other people. Sorry for my confusion. The above article is written by Kamel and that is his strategy. Just read it multiple times and watch examples from authors. I have simplified this strategy to maximal extent and even increased the profitability and proved it in backtest. So if the original strategy is too complicated to you, you can use the rules i have posted above.
I think that can tell us more about its success rate. It is impossible to answer this question, because markets behave differently every month. Please read the below comments. However, if the bands expand and the price starts closing candle after candle above the upper band, then we expect further bullish expansion. The breakout in the Bollinger Bands Moving Average is a confirmation signal, which usually comes after a price interaction with the bands.
If the price bounces from the upper band and then breaks the period SMA in bearish direction, we get a strong short signal. If the price bounces from the lower band and breaks the period SMA upwards, then we get a strong long signal. In this manner, the period SMA breakout can be used to set exit points after entering a Bollinger Bands trade.
The black arrow points out a Bollinger Bands squeeze. The red arrow shows the price trending while breaking the lower Bollinger Band and the green arrow shows up trends on the upper Bollinger Band. Now that we are familiar with the structure and the signals of the Bollinger Bands, it is now time to shift our focus a bit, and take a look at a couple of trading strategies that can be incorporated using the Bollinger Bands.
One reliable trading methodology utilizing Bollinger Bands, is combining Bollinger Bands and Candlestick analysis. Basically, you could go long after the price touches the low Bollinger Band and then closes with a reversal candlestick pattern. And on the flip side, you could short the Forex pair when the price hits the upper band and then forms a reversal candle. For this setup, you should place a stop loss order beyond the reversal candlestick. I prefer to close half of the trade when the price reaches the Bollinger Bands Moving Average.
We can stay in the trade for the other half of the position to take advantage and any prolonged price move. And so in this case, if the price keeps trending in our direction, we can use the Bollinger Bands Moving Average Breakout as an exit signal. Just close the trade right away instead. This chart illustrates a long position initiated by a reversal candlestick chart pattern. The big black arrow on the chart shows a Bollinger Band squeeze.
The bands are relatively close to each other squeezing the price action and the indicator. Afterwards, the price starts to decline. Suddenly, the bands start expanding rapidly during the decrease. Soon we see the price action creating a bullish Tweezers reversal candlestick pattern, which is shown in the green circle on the image.
A stop loss order should be placed below the lowest point of the Tweezers chart pattern as shown on the image. The price then starts increasing. The price continues its rally. On the way up we see a few reversal candle patterns. However, they are not confirmed and we disregard them as a potential exit point of the trade.
At the end of the price increase we see a Doji reversal candle pattern, which is followed by two bigger bearish candles. The close of the second bearish candle could be taken as the first exit of the trade Full Close 1. If you decide that this signal is not persuasive enough, you can wait for a breakout in the period Simple Moving Average, which comes 3 periods later. I would prefer to use the Doji reversal followed by the two bearish candles as an exit point. Even if you think the signal is not persuasive enough it comes 8 hours before the weekly market close.
Therefore, this looks like the better option to exit this trade.