Bollinger Bands is one of the most popular forex indicators used by many traders around the world for trading stocks, futures and currencies. It is one of the best tools for technical analysis of the current market.
Bollinger Bands indicator is useful for determining overbought and oversold levels, as a trend following tool, and for monitoring for breakouts. This indicator is widely used in many expert advisors (forex robots) for automated trading.
There are several Bollinger Bands strategies for trading but in this article we will explain only one of them: Trading inside of Bollinger Bands.
Bollinger Bands indicator has 3 lines: upper, lower and main line. The main (middle) line of the indicator is a simple moving average (SMA). The upper and lower bands, represent two standard deviations above and below the main line (moving average). In most trading platforms the default period of Bollinger Bands is set to 20. This default value is good in most cases. For our strategy we need the upper and lower line. Please check the below image to see how Bollinger Bands looks like:
Continue reading to learn how to trade inside of the Bollinger Bands indicator!
As you can see from the above image the strategy is very simple. When the price crosses the upper line of Bollinger Bands and reverses you can open a SELL position. When the price crosses the lower line of Bollinger Bands and reverses you can open a BUY position. It is so simple. Of course this strategy works best for ranging markets. If one instrument or currency pair is in ranging mode then you can trade and make money using this simple Bollinger Bands Strategy.
We said when to open BUY and SELL positions. But when to close them? Actually it is also very simple. When you have a SELL position and the current price crosses the lower line (or even the middle line) or it is close to the lower line you can close it and take the profit. When you have a BUY position and the current price crosses the upper line (or even the middle line) or it is close to the upper line you can close it and take the profit. In any case it is recommended to set any reasonable stop loss level too because the price may go in the opposite direction.
Our free forex robot (expert advisor) Bollinger Bands Tunnel EA trades exactly based on this strategy. If you wish you can download and test it completely free:
If you have any questions related to this article don't hesitate to comment below or to contact us.