Bollinger Bands Trend Trading Strategy

Bollinger bands are used to measure the volatility in the market in terms of the standard deviation away from the 20 period moving average of price action. The default settings are 2 standard deviations. Bollinger Bands (BBs) are used to trade ranges but do you know this fact that we can use BBs for trading trends more effectively. Let’s see how!

What we will do is superimpose the settings of 1 standard deviation on the default settings of 2 standard deviation (SD). When the market starts to trend, the price action will be contained within these 4 bands.

These BB bands divide the price action into three separate zones. If prices are between the upper 1 SD BB and the upper 2 SD BB, they are in the buy zone. If the price action is between the lower 1 SD BB and the 2 SD BB, it is in the sell zone. The area between the second Bollinger Band Bands is known as the no man’s land as the price action is struggling to find direction here.

So when the price action is between the buy zone, it is in an uptrend. When the price action is between the sell zone, it is in a downtrend. When it is in the no man’s land, it is essentially directionless.

Here are the rules for making a long entry. Price action must enter the BB buy zone. The price should close within the buy zone to enter into a long trade. Enter into a long trade at the close of the entry bar. Place the stop loss at the bottom of the entry bar. It the trade moves in the right direction, exit only when prices close below the buy zone.

Similarly, when the price action enters the BB sell zone with the price closing within the sell zone, you should enter into a short trade with entry at the close of the bar and stop loss at the high of the entry bar. You will continue in the trade as long as the price action stays within the sell zone and exit when price closes above the sell zone. Get these 3 Swing Trading Systems FREE. Master these highly profitable Candlestick Patterns with this FREE 82 page PDF Candlestick Guide.

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