100% winning with bollinger band indicator

  • 100% winning with bollinger band indicator

    You may often hear - or even use - one technical indicator called "Bollinger Bands" (hereafter we call BB). Naturally, if you often hear it, because the indicator named after the creator's name (John Bollinger) is indeed one of the technical indicators that are quite well known among forex traders.

    The most accurate trend indicator that is often used by traders is Bollinger bands and will be even more stable if combined with other indicators.

    Basically all indicators are good, depending on the traders who use them, so choose and use indicators that match the trading styles

    Bollinger Bands are a useful indicator to help measure market volatility and estimate the range of normal price movements.

    When price movements exceed normal limits, that's where we use to take trading positions.

    What is the Bollinger band indicator?

    Bollinger Bands is a toolbox in the technical analysis developed by John Bollinger.

    This indicator forms a price envelope in which the upper and lower belts are designed to determine the range level of a currency pair or trading asset.

    The middle line of this indicator is a moving average usually period 20, while the upper and lower lines are based on standard deviation statistics so that the two lines adjust to changes in price volatility.

    The Bollinger Bands indicator can help determine if prices are already considered too high or too low in relative terms.

    Below as example Bollinger band indicator over stocks

    Chart by Tradingview

    If you pay attention to price movements, it rarely crosses the upper band or lower band, and when the price breaks, it will often immediately rebound and return to the envelope.

    As mentioned, the standard period for Bollinger bands is 20 and the standard deviation is 2, however, you can adjust it according to your needs. By changing the deviation value, the difference between the upper and lower band distances will be obtained from the middle band.

    Bollinger band formula

    The Bollinger bands indicator is available in the default MT4 platform, you just need to enter the period and deviation then attach it to your chart.

    However, if you want to know the Bollinger band calculation steps, the first step is to calculate the SMA which usually uses the 20 days SMA.

    SMA 20 calculates the average closing price for the first 20 days as the first data point.

    The next data point is the 21st-day price and taking the average, and so on.

    Meanwhile, standard deviation measures how to spread out a number from the average value.

    This is the formula for Bollinger bands in general

    Source investopedia

    Because the Bollinger band also takes into account the measurement of volatility, the two bands will move according to market conditions.

    Bollinger Bands can be found on trading platforms in general, including Metatrader4 (MT4) and Metatrader5 (MT5) with the default SMA parameters: 20 periods, and standard deviations: 2. 

    To place them, look for the Insert menu >>> Indicators >>> Trend >> > Bollinger Bands. After being applied to the chart, Bollinger Bands will appear similar to the following EUR / USD Daily screenshots

    In general, an overbought condition occurs when the price has touched the Upper Band, but the closing price (Close) is still below the Upper Band. While the condition was stated oversold if the price had touched the Lower Band, but it was still closed above the Lower Band.

    Bollinger Bands help traders to analyze whether the market is crowded or quiet based on the volatility that appears on the indicator.

    Psychology:

    • When Bollinger Bands narrow (the distance of Upper and Lower narrows) means the market is quiet

    • When Bollinger Bands Widen (Upper and Lower distance widens) means the market is crowded.

    How Bollinger band work

    This Bollinger band indicator has a unique character which is how the indicator works.

    In certain conditions the Bollinger band tightens, this is often the price will experience a sharp surge and this can be an early signal.

    The band will widen if the volatility of the share price or trading asset increases significantly.

    Sometimes the price can exceed the Bollinger bands as a continuation of the trend.

    In a sideways condition, the price has a tendency to touch the upper and lower bands then bounce off the middle band within the indicator range.

    The middle band is often used to determine profit targets and stop losses, this is SMA20 so it can be a trend signal.

    If the price breaks the band traders wait as a continuation of the trend before finally returning to the range band.

    Bollinger Bands as a Measure of Volatility

    A measure of market volatility is seen in the width of the band. If the volatility is high, the distance between the two bands will be wider.

    It usually occurs when changing sideways conditions become trending conditions. On the contrary, low market volatility is seen at the narrowing distance between the two bands and usually occurs when there is a change from trending market conditions to sideways.

    Trending means that the price shows a tendency to move in one direction with, either up or down. While sideways means prices tend to move up and down in a certain range (limited).

    Chart by tradingview

    Trading with Bollinger Bands during Sideways

    When the market tends to be sideways, then an open position (entry) can be done when the price has passed (penetrated) the line of the 20-SMA with the target at the level of the closest band (example in the image below). Rules:

    • If the price breaks the level of the SMA-20 towards the top, the entry is done when the candle closes above the SMA-20 with the target of closing position (exit) when the price reaches the Upper Band.

    • If the price breaks the level of the SMA-20 towards the bottom, the entry is done when the candle closes below the SMA-20 targeting the closed position (exit) when the price reaches the Lower Band.

    Chart by tradingview

    Trading With Bollinger Bands in Trending

    Typically, Bollinger Bands indicators are used for forex trading when the market is sideways. However, it can actually also be used during the trending market, with rules:

    • An uptrend occurs when the price has broken through the upper band and the closing price is outside the band.

    • Downtrend conditions occur when prices cross the lower band and are closed outside the band.

    As a confirmation, it can be determined from the next bar formation. If the next bar formation is really outside the band, then a trend has been formed. Also, note that in trending conditions, the two bands tend to move wider.

    Chart by tradingview

    Strategies Using Bollinger Bands Indicators

    The Bollinger band indicator is a tool of a million traders, it can be applied to a variety of trading strategies, generally as a measure of volatility, following strategies with Bollinger bands.

    Bounce Trading Strategy

    This simple strategy utilizes the Upper Bands and Lower Bands as dynamic support and support. That is:

    • Upper Bands as dynamic resistance

    • Lower Bands as dynamic support

    • Middle acts as a target

    Price movements will tend to bounce back to the middle after the price reaches the Upper (Lower) Line or the Lower Line (lower).

    This movement pattern that we will use to take trading positions. The way is we will take the entry

    • Buy, When the Red candlestick reaches the bottom line (Lower), wait for confirmation of the Green candle.

    •  Sell, when the Green Candlestick reaches the upper line (Upper), wait for confirmation of the appearance of the Red candle.


    Note; The bounce technique strategy is effective if used when the market is moving steadily 

    Breakout Trading Strategy

    With Bollinger bands, we can find out the chance for a breakout. As I explained above.

    Bollinger bands tend to narrow if the market is quiet, which means that market participants are not sure where to go.

    The movement of Bollinger bands narrows if the seller and buyer are equally strong, finally, the price moves in a narrow distance.

    Breakout that will occur is marked by the movement of Bollinger bands (Upper and lower) quickly / suddenly widened and the price penetrated the Upper or Lower line.

    Using this indicator also has rules for determining entry points as alert signals here is the rules:

    • Buy, if the upper band line is crossed by the price

    • Sell, if the lower band is crossed by the price



    Although simple, Bollinger bands are very useful indicators.Experience and conducting evaluations are very important to understand the performance of this indicator.

    Like most indicators, Bollinger bands cannot give 100% correct signals, so it is recommended to use additional indicators.

    Bollinger Bands Indicator Combination Strategy

    Installing many indicators on one chart sometimes makes appearance complicated, although it might be good if you can use it.

    In this Bollinger band strategy a combination the Bollinger bands indicator with indicators: Fractal, Parabolic SAR, and Stochastic Oscillator.


    Trading signals are obtained when the three combinations of indicators give the same signal to each other, meaning that the buy or sell signal alerts are matched

    Fractal Indicator


    The most accurate forex indicator

    Signal entry:

    • Buy, if an arrow appears under Candlestick

    • Sell, if an arrow appears above the candlestick

    Parabolic SAR indicator



    Signal entry:

    • Buy if a parabolic point appears below the Candlestick

    • Sell, if a parabolic point appears above the candlestick

    Stochastic Oscillator indicator

    An easy way to read the stochastic indicator is to pay attention to the Period Kline (Blue). 


    Signal Entry:

    • Buy, if the blue line is above the other line and breaks the 20% line

    • Sell, if the blue line is below the other line and breaks the 80% line

    Note: This trading strategy cannot guarantee 100%, you must pay attention to the risks that are ready to bear it, and always with safe financial management.

    Final thought

    Choosing complicated indicators is not the best way to start, it is recommended that they use indicators that are understood and can be applied in combination with tight money management.

    If traders can find out the indicator formula and how it works, this is the first step in knowing how to best use it.

    Indicators are technical tools that can be used to find trading momentum when traders are about to make entry and exit points.

    A trader may use an accurate forex indicator, but if he or she cannot understand the flow of the mathematical calculation program even then it will not help much. Learning to use indicators, helps a trader to determine why he should make transactions.

    Choosing an indicator doesn't have to be complicated, because it can cause you difficulty making transactions.

    Studying the various toolboxes adds to the horizon of technical analysis. Before deciding to go straight to real trading, you should first try your technical analysis skills on a demo account.