Educational Series: Trading with Bollinger Bands (Part 1)
Bollinger Bands is a volatility indicator. It indicates how HIGH or LOW prices can move during any period. When the market is volatile, the bands widen; conversely, when the market is less volatile, the bands contract.
The standard Bollinger Band indicator comes with a preset calculation of the 2 standard deviations and the 20period moving average.
This enables us to use the Bollinger Bands more effectively in the following ways;
1) Bollinger Squeeze
2) Bollinger Reversal (Read about this in Part 2)
3) Bollinger Trend (Read about this in Part 3)
What is a Bollinger Squeeze?
A Bollinger Squeeze is identified when the bands contract for a medium time, and economic news is to be released on the horizon. It is characterized by a horizontal consolidation of price over a period of time. Typically, the horizontal squeeze can be encompassed within a rectangle (shown on the chart).
This indicates the potential for an explosive BIG move as the price breaks out of the consolidation.
What do with a Bollinger Squeeze?
Because the Bollinger Squeeze occurs before a news event, it would be unwise to pick a side for the potential breakout and gamble on the news result. Therefore, the best way to take advantage of this setup is maximized by deploying pending orders.
1) Place a Buy Stop order slightly above the top of the consolidation area, Stop Loss (SL) should be about 1.5 times the size of the consolidation area, with the Take Profit (TP) at the nearest swing high or 2 times the SL amount.
2) Place a Sell Stop order slightly below the top of the consolidation area, Stop Loss (SL) should be about 1.5 times the size of the consolidation area, with the Take Profit (TP) at the nearest swing high or 2 times the SL amount.
Whenever the Buy or Sell trade is activated, you must remember to cancel the other pending order (Or you could try to find a One-Cancel-Other EA)
Remember
- Breakout of the consolidation should result in a quick and fast price movement. If it breaks and climbs slowly, it could be a false break, and you would want to get out of the trade quickly.
- Trend could be ignored briefly (due to the explosive and short term move). But only briefly.
- Support and Resistance levels are still crucial and must be respected.
- This indicator is effective on Forex, Commodity, Cryptocurrency & Equity markets
Use the Bollinger Squeeze only on the M15 or H1 timeframe, and remember, it is a relatively rare occurrence.
The standard Bollinger Band indicator comes with a preset calculation of the 2 standard deviations and the 20period moving average.
This enables us to use the Bollinger Bands more effectively in the following ways;
1) Bollinger Squeeze
2) Bollinger Reversal (Read about this in Part 2)
3) Bollinger Trend (Read about this in Part 3)
What is a Bollinger Squeeze?
A Bollinger Squeeze is identified when the bands contract for a medium time, and economic news is to be released on the horizon. It is characterized by a horizontal consolidation of price over a period of time. Typically, the horizontal squeeze can be encompassed within a rectangle (shown on the chart).
This indicates the potential for an explosive BIG move as the price breaks out of the consolidation.
What do with a Bollinger Squeeze?
Because the Bollinger Squeeze occurs before a news event, it would be unwise to pick a side for the potential breakout and gamble on the news result. Therefore, the best way to take advantage of this setup is maximized by deploying pending orders.
1) Place a Buy Stop order slightly above the top of the consolidation area, Stop Loss (SL) should be about 1.5 times the size of the consolidation area, with the Take Profit (TP) at the nearest swing high or 2 times the SL amount.
2) Place a Sell Stop order slightly below the top of the consolidation area, Stop Loss (SL) should be about 1.5 times the size of the consolidation area, with the Take Profit (TP) at the nearest swing high or 2 times the SL amount.
Whenever the Buy or Sell trade is activated, you must remember to cancel the other pending order (Or you could try to find a One-Cancel-Other EA)
Remember
- Breakout of the consolidation should result in a quick and fast price movement. If it breaks and climbs slowly, it could be a false break, and you would want to get out of the trade quickly.
- Trend could be ignored briefly (due to the explosive and short term move). But only briefly.
- Support and Resistance levels are still crucial and must be respected.
- This indicator is effective on Forex, Commodity, Cryptocurrency & Equity markets
Use the Bollinger Squeeze only on the M15 or H1 timeframe, and remember, it is a relatively rare occurrence.
Free trading community: discord.gg/kPDXU2ZaDt
