Bollinger Bands (BB) is an indicator used to determine the volatility of the market or determine a trend very effectively. One of the characteristics of the BB indicator that many traders use in trading is that the price tends to move from the upper band to the lower band in a trending market.

Although the upper or lower band is not where we determine the trading signal, at these zones if price reversal patterns occur, it is a good opportunity for us to enter the trade.

The trading idea is as follows: If a bearish 1-2-3 appears in the upper band or a bullish 1-2-3 appears in the lower band or moving averages, that's how the signal is. Reliable reversal transaction. However, we still need a few rules to come up with how to trade.

Note, this strategy applies to all currency pairs, indices, ... and to any timeframe.

Take a look at the image below:

The picture above shows to buy and sell setups occurring in both the upper and lower bands of the BB indicator. Every time you see a 1-2-3 pattern appear in this area you can place a trade order when the price breaks the pattern (breakpoint 2). However, as shown in the picture above, it can be seen that most of the sell-offs are successful and take profits. And the signal to buy is not matched.

Principles to remember

In a bearish market, the price must touch and go above the upper band or must touch and exceed the moving averages before forming a 1-2-3 pattern. And similarly, in an uptrend, the price must touch or go above the lower band or have to touch or exceed the moving averages before a 1-2-3 pattern forms.

Add another example of this trading setup:

As you can see there are still signs of failure. However, if the market has a strong and clear trend then our trade setup will work very well.

Point of entry and exit
  • The entry point for the trading strategy will be when the price breaks point 2 in the model (As shown above, the entry point is in the black arrows).
  • Your stop loss is about 4 pips away from point 3. If it is a sell strategy, the stop loss is placed above point 3. If it is a buying strategy, the stop loss is placed below point 3. If the stop loss is too large then you should consider staying put or moving down the time frame. time to set your stop loss to match your risk appetite.
  • Your take profit points are located at the nearest support and resistance levels. If the support resistance is too close and the strategy's RR ratio is too low, you might consider staying out. However, if you trade, you should pay attention to exit at strong support levels when you have made a profit or at least even break even.