How to trade Bollinger bands squeeze the right way

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Bollinger Band Squeeze

The Bollinger Band Squeeze strategy is a very simple and very profitable strategy that is used by many professional traders in both stocks and currency trading. here, I am going to explain how to trade Bollinger bands squeeze the right way, where to place your protective stop loss and your take profit target, but before I do that let me quickly explain what Bollinger bands are:

Bollinger Bands consist of 3 bands or lines : Bollinger Upper Band, Bollinger Lower Band and Bollinger band middle. The middle band is a 20 Simple Moving average. The Bollinger band upper and bollinger band lower are the standard deviation of the middle band.

According to John Bollinger- the creator of Bollinger bands, Bollinger bands are  a measure of volatility in the market;

When the is low volatility in the market, the market price will start to move sideways and that’s when the Bollinger bands become so close or compressed to each other. This is called “Bollinger Bands Squeeze”. 

Most professional traders who trade with Bollinger bands understand this concept and they look forward to Bollinger bands squeeze because when these bands squeeze together it usually indicates that the volatility is about to increase.

let’s take a look at how to use the bollinger band squeeze to our advantage.

How to trade Bollinger bands squeeze?

For starters, apply a default a bollinger bands indicator on your MetaTrader 4 platform

Preferred time frame(s): any timeframe

Currency pairs: any currency pairs

Trading Sessions: any session

Trading Rules

 

  • Buy position:

1. Wait for the Bollinger bands to squeeze.

2. Wait for a bullish candlestick to break and close above the upper band.

3. When these two conditions happen, open a buy position immediately.

Place your protective stop loss few pips below the bullish candlestick that touches and close above the upper Bollinger band.

Exit or  set a take profit on the previous swing high.

See the charts below to make this trading concept a little bit more clearer for you:

 

Bolling bands

 

 

Bollinger bands

 

  • Sell position:

1. Wait for the Bollinger bands to squeeze.

2. Wait for a bearish candlestick to break and close below the lower band.

3. When these two conditions happen, open a sell position immediately.

Place your protective stop loss few pips above the bearish candlestick that touches and close below the lower Bollinger band.

Use the previously swing low as your take profit.

See the chart below to make this trading concept a little bit more clearer for you:

Bollinger bands

Also read: how to move your stop los to lock in profit 

That’s it… This is how you trade the Bollinger bands squeeze. I hope you have learned something from this tutorial. If you have any questions at all leave me a comment below and I’ll be glad to answer your questions. Otherwise, good luck!

Cheers,

Leonard.

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