This is the second trading strategy i am writting about Bollinger bands but this one is total different from the first one. This is a price action trading strategy that uses the trendline strategy and Bollinger bands. Combining trendline with Bollinger Bands, creates a great trading system that shows the strongest reversal trade setups.
Bollinger bands are mainly used for volatility but they can also be used to show both overbought and oversold condition.
Bollinger Bands has three lines: Bollinger Upper Band, Bollinger Lower Band and Bollinger Middle Band. In this case, Bollinger bands are used as indication to show overbought and oversold areas. It is overbought when the price has moved up and touched the upper band and oversold when the price has moved down and touched the lower band.
Under such a condition, overbought or oversold, there is the highest chance of forming a reversal signals.
How to Use Bollinger Bands with support and resistance levels?
For starters, you need to know how to draw trendlines; make sure you read this trendline strategy here. you will learn what are trendlines, different types of trendlines and most importantly how to draw them.
Forex Currency Pairs to Trade: Any Currency Pairs.
Forex Indicators Needed: Only bollinger bands with defaul settings (20, 2, 0)
Timeframes: any timeframe but i prefer daily timeframe.
Lets get straight to the trading rules and trading setups now.
Buy trading setup and rules
1. Draw an upward sloping (rising) trendlines connecting at least 2 support points to confirm the uptrend.
2. apply Bollinger bands on your chart.
3. Wait for the market price to retrace back and touch both the lower band and the rising trendline for the 3rd time.
When the price touches the trendline for the 3rd time, the candlestick that touches the trendline must also touch the lower Bollinger band and close above the lower Bollinger band and trendline. When that happen, Immediately place a buy trade.
Place your stop loss few pips below the candlestick that touches both trendline and lower Bollinger band and close above them.
For a take profit target you can one of these two options:
1. Use previous swing high as your take profit target
2. You can use risk-to-reward-ratio at least 1:4 meaning if you risk 20 pips,you can aim for 80 pips profit.
1. Draw a downward sloping trendline connecting at least 2 resistance points on the chart to confirm the falling trendline.
2. Apply a default Bollinger bands.
3. Wait for the market price to retrace back and touch the trendline for the 3rd time. See illustration below.
Once the price touches the trendline, the candlestick that touches the trendline must also touch the lower Bollinger band and close above both lower Bollinger band and trendline. When that happen, Immediately Place a sell trade when the candlestick has closed.
Place your stop loss few pips below the candlestick that touches both trendline and lower Bollinger band and close above them
For a take profit target you can one of these options:
1. Use previous swing low as your take profit target
2. You can also use risk-to-reward-ratio at least 1:4, which means you are only risking one dollar for every four dollars of profit potential,
As you can see, using the trendline trading strategy with the bollinger bands indicator is not a complicated trading system at all.
It is a simple price action trading system even a new forex trader can find easy to understand and use.
I like to know whose reading my tutorials so hit me up! If you have a question about a tutorial please leave a comment in the comment section. Otherwise, I hope you learn a ton and all the best with your trading. Don’t forget to share.
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