The Bollinger bands trading strategy is a forex trading system strategy used to detect the entry and exit points in the market trend. Mostly, it is used to detect the overbought and the oversold in the market trend. It is also used to detect the volatility and price changes in the market trend. It is the simplest trading strategy.
BOLLINGER BAND TRADING STRATEGY:-
Bollinger band indicator is an important tool for professional and home traders. It is a technical strategy developed by John Bollinger in 1980. It is also used to detect the trending lines in the market, it detects whether the market is in a bullish trend or bearish trend.
EXPLANATION OF Bollinger band indicator:-
The Bollinger band indicator uses three different bands to measure the price changes, volatility, and trending lines. It uses the upper band, lower band, and the middle band for its precise measurement. It also has 2 standard deviations. These standard deviations are plotted between the upper and lower levels, which mean that the standard deviations are present in the middle band of the Bollinger band indicator.
It also uses an SMA (simple moving average) indicator as collaborative. It also uses two specific parameters that make it unique from the other indicator. It uses period and standard deviation parameters. In the default setting the period for this indicator is 20 and 2 standard deviations, you can also change this combination from 20/2 to 40/6, etc. this trading strategy has a different type of strategies that makes it unique from the other ones.
The strategies are given below: –
- Double bottoms
- Reversal strategy
- Bands Riding
- Bollinger + MACD
- Gimmee bar
- Breakout with Bollinger bands
DOUBLE BOTTOMS: –
It is a Bollinger band strategy used in the Bollinger bands indicator. It is a trading pattern in the forex market used to detect the momentum and the trend changes. It is also used to detect price action in the market trend. In the indicator chart, it creates a shape like Wand M letters.
It is used to detect the pattern and used to identify clear price action patterns. The top and double bottoms are also used to detect the volumes in the market trend. It creates an automatic rally in the indicator chart. Mostly, the double bottom strategy is used to detect the downward and upward pressure of the market trend.
The reversal strategy is used in mostly indicators to detect the reversals in the trend lines and the price actions. Reversals are the sudden changes or movements of the price trends. It is the most effective strategy that is used in Bollinger band indicator or trading system. Whenever the price starts to move above or below the Bollinger bands in the indicator chart reversal strategy is used, and reversals appear at that time on the indicator chart.
Traders can gain more profits from reversal strategies. This strategy changes the investment performance. The whole trade depends upon the reversal strategy of the Forex market.
This strategy is very helpful in the Bollinger band’s trading strategy. Many traders are using an old and non-profitable strategy to buy and sell rates. They make buy and sell in the trade when the trending line touches the upper and the lower bands in the Bollinger band that is not profitable.
The developer of this strategy tells that the buy and sell strategies depend on the price over time. If the price is increasing then you have to buy and when the price is decreasing you have to place sell strategy, you do not have to wait until the price touches the upper band and lower band, and then you can place buy and sell strategies. This is called bands riding.
BOLLINGER BAND WITH MACD INDICATOR:-
It is also a helpful strategy in the Bollinger trading strategies that helps traders to identify the moving averages within the Bollinger bands (upper band, lower band, and the middle band). In this strategy, traders used the MACD indicator as a collaborative tool in the market trend. Both these indicator works together to identify the volatility and the momentum in the indicator chart.
It is the most effective trend following indicators. This combination is also used to detect the convergence and the divergence in the market trend. Simply, both of these indicators are used for potential breakouts in the Forex market.
It is a trading strategy in the Forex market used to detect the reversals that appear in the market trend. Mostly, it is used to detect the reversals that appear in the market trend and take sudden changes in the price movements. Simply, it is used to detect the top and bottom reversal changes in the market trend.
This concept is given by Joe Ross. Mostly, this strategy is used for the short term traders because it shows sudden and fast-moving reversals in the market trend. This strategy helps the traders to get accurate patterns for buy and sell strategies.
Breakout with Bollinger bands
This system also uses strategies for breakouts. In this strategy mostly, continuous and stopped reversal is detected. This strategy is also used to detect the support and resistance levels in the market trend. This strategy helps the traders to make precise and profitable trade with the help of support and resistance levels.
It also tells about which time or breakout is best for buy and which breakout is best for sell strategy. When the price breaks at the upper level then it is the time to buy and when the price movements break on the lower level then it is the time to sell.
USES OF BOLLINGER BAND TRADING STRATEGY: –
There are different uses of this strategy which helps the traders in a profitable trade. It uses a different strategy that helps the traders in precise measurements of the volatility, price action, market trends, reversals, and support and resistance levels.
This strategy is available for all the traders and it is also applicable for short term trade and long term trade. It is also used to detect the exact buy and sell signals in the market trend.