How To Trade Bollinger Bands Forex

Bollinger Bands® are utilised by technical traders in all financial markets including forex. This article will introduce Bollinger Bands® and how they assist traders in technical analysis. It will likewise provide an overview of top strategies and tips for trading forex with Bollinger Bands® - including trading the trend and the Bollinger squeeze.

What are Bollinger Bands® and how to do they work?

Bollinger Bands® are a versatile technical analysis indicator widely used among traders. John Bollinger commencement developed this indicator as a solution to find relative highs and lows in dynamic markets. The indicator itself is comprised of an upper band, lower band and moving average line.

The two trading bands are placed two standard deviations higher up and beneath the moving average (unremarkably 20 periods). Using 2 standard deviations estimates that 95% of price information will be contained within the two bands.

bollinger band plotted around a 20-day moving average

As a rule of thumb, prices are deemed overbought on the upside when they touch the upper band and oversold on the downside when the reach the lower band.

As price oscillates between the indicators upper and lower extremes Bollinger Bands® become an first-class tool to gauge volatility. When bands contract at that place is less volatility in the market, which is a great indication to use a range spring strategy. Besides, Bollinger Bands® will expand equally the market becomes more volatile. At these times traders may employ a breakout or a trend-based strategy.

How to trade Forex with Bollinger Bands®

In that location are several different techniques involved in using Bollinger Bands® to trade the forex markets. The nigh pop are:

i) Using market trends: Traders can identify entry signals using the bands as a measure of support and resistance.

2) Bollinger Squeeze: Applying the volatility indications of the bands

1) Trading the trend

EUR/USD weekly chart

trading the trend with the Bollinger Band

The chart in a higher place shows the EUR/USD chart in an uptrend – depicted by higher highs and college lows. Using the Bollinger Band® indicator, the lower band is seen every bit a approximate of support. When price touches the lower band, traders use this as a signal to enter a long (buy) trade. This strategy works for both uptrends and downtrends. Take profit (limit) levels are more often than not taken from the upper and lower bands depending on trend. In this case, the upper band volition be used equally the have profit level.

In summary, trading the trend with Bollinger Bands® is relatively simple:

Identify the trend
Use upper and lower bands in conjunction with price movement to place entry points
Apply respective upper and lower band equally target levels

2) Trading the Bollinger Band® Clasp

EUR/USD weekly nautical chart:

As mentioned previously, when the bands contract volatility is low and vice versa. The Bollinger clasp looks for breakouts above/below the band depending on trend to be used as entry signs.

Highlighted in green shows these breakouts in an uptrend. Traders will look to enter at the indicated dark-green circles. Afterward each entry, it can be seen that the candles are 'walking the Bollinger' (post-obit the upper band). Afterwards the breakout candle the bands expand implying greater volatility in the market.

The black shaded circles illustrate the point at which traders volition look to have profit earlier looking for farther breakout signals.

To summarise, when trading the Bollinger Ring® squeeze:

Look for low volatility (contracting bands)
Wait for breakout of upper/lower band
Close trade when price reaches moving average