Bollinger Bands – A Beginner ‘s Guide for Traders

Hello traders. I hope you are doing well in your trading career. In this lesson, we are going to talk about Bollinger Bands, an indicator which is very famous among traders. But most of the traders do not use the indicator correctly. So they might lose their investment completely and blame this valuable indicator instead.

How to use Bollinger Bands ?

You may have heard about this Bollinger Bands indicator for more than 100 times. But do you know how to use it properly? Let’s examine some of the key methods of using this indicator to earn some profits.

There are many sources on the technical details about this indicator. You can find more details even in WikiPedia. So we are not going to talk about the the technical formation of Bollinger Bands. We just focus on how to use this valuable indicator in Forex and other trading activities.

The Bollinger Bands indicator should be used only in a trending market. It means only in an uptrend or in a downtrend. So if the market is moving sideways, then do not use Bollinger Bands, understood ? 🙂

And also, the trend is very important when using any indicator. The same thing is relevant for Bollinger Bands. So keep in mind two things.

  • Never sell in an uptrend
  • Never buy in a downtrend

This means you can only buy in an uptrend and only sell in a downtrend. Never change these rules until you get more professional.

Practical example – Buy Signal

We used the below default configurations for the analysis.

Source : Close Periods : 20 Standard Deviation : 02 MA Type : Simple

Bollinger Bands - USDHKD

 

USDHKD 4H Chart

In the above chart, there is a clear uptrend, it means the candlesticks formed higher highs and higher lows for a certain period. So it is the time to integrate the chart with Bollinger Bands and get some profits.

As you already know, in an uptrend we only buy. So when to buy? When buying, below two conditions should be fulfilled.

  • The price should hit and pass below the lower band
  • There must be a strong price rejection and price should come up faster in the upward direction passing the lower band to enter into a Buy order.

If you analyze the above chart, both of the above conditions have met. First the price goes down passing the lower band. Then the price is rejected and it goes up passing the lower Bollinger Band. So it is the time to buy the currency pair!

Practical example – Sell Signal

We used the same default configurations for the analysis.

Source : Close Periods : 20 Standard Deviation : 02 MA Type : Simple

Bollinger Bands - EURJPY

 

EURJPY 4H Chart

In the above chart, there is a clear downtrend, it means the candlesticks formed lower highs and lower lows for a certain period. This means we can use Bollinger Bands for our advantage.

As you already know, in a downtrend we only sell. So when to sell? When selling, below two conditions should be fulfilled.

  • The price should hit and pass above the upper band
  • There must be a strong price rejection and price should come down faster in the downward direction passing the upper band to enter into a Sell order.

If you analyze the above chart, both of the above conditions have met. First the price goes up passing the upper band. Then the price is rejected and it goes down passing the same upper band. So it is the time to sell the currency pair!

Below is another example with the same sell strategy

Bollinger Bands - CHFJPY

 

CHFJPY 4H Chart

So now, you can understand how to use Bollinger Bands in a trending market. We hope that you will use these strategies and get more profits in the near future.

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