Advanced intensive Bollinger Bands is that when you use price action in general to trade, you should not stop at using simple price patterns to enter orders like engulfing engulfing pattern or shoulder pattern shoulder head.

Price action traders often overlook a very important aspect of trading: price volatility. While using price action alone to measure price movement is difficult, there is a simpler way for you to quickly grasp the current market volatility. That is using volatility indicators like Bollinger Bands.

Reminder of Bollinger Bands.

Bollinger Bands is a well-known indicator by many traders, Bollinger Bands as its name suggests has the function of creating a band around the price area. And the width of the band will depend on the volatility of the current price zone. Bollinger Bands contract or expand depending on the average volatility of the price.

In other words, Bollinger Bands will help you read the current price movement. The way price interacts with the Bollinger Bands will give you valuable information about the direction of the market.

How to read price action with Bollinger Bands

We will have 3 important cases where price interacts with Bollinger Bands, including:

  • Candles with long tails attach to Bollinger Bands and reverse.
  • Price interacts with Bollinger Bands and gradually opens the band.
  • The candle formed completely outside the Bollinger Bands zone.

Now let's take a closer look at each of those cases.

Case 1: candles with long tails attached to Bollinger Bands and reversed.

Sideway market. Prices continued to move sideways for several days.

This type of market is ideal for scalpers, who often expect low returns, and prefer quick entry and exit.

The method here is that traders will use limit orders when the price touches the upper or lower band of the Bollinger bands. Use sell limit if price touches upper band and buy limit if price hits lower band.

You can increase the odds of winning these trades by waiting for the price to hit the support or resistance area (increasing the high reversal rate instead of just using bollinger bands alone).

Case 2: Price interacts with Bollinger Bands and gradually opens the band.

The price continues to push the band, which is a sign of a strong trending market. See chart below.

To trade price action in this scenario, the most common way is to use a buy/sell stop when the price closes above/below the Bollinger Bands. However, you need to determine in advance whether the market has exited the sideways environment? Has the market broken out successfully or just broke out?.

Why do we ask these questions? Because price action traders only use Bollinger Bands as a support factor, not a determining factor. There are many cases where the price breaks out of the sideway, breaks out of the resistance/support area, the price forms a breakout failure and traps all traders who like to trade breakouts. Therefore, you need to be careful when observing the price falling in this case.

Case 3: The candle forms completely outside the Bollinger Bands.

This case goes against case 2 but is easy to confuse. You need to pay close attention. Bollinger Bands are designed to cover price under normal conditions. That is, when the price closes outside the Bollinger Bands, there will be two cases: the price has formed a strong trend or the price has gone too far (oversold or overbought).

Distinguishing this case from case 2 is not easy if you only use Bollinger Bands and how the price closes outside the Bollinger zone. For me, to determine this case 3, I often observe closely the candles that form outside Bollinger Bands.

Is it forming pinbar, spinning top candles? Is it hindered by any resistance/support nearby? And finally, the price suddenly bounced off the Bollinger Bands. This behavior of the price is akin to a "candle going out" pattern, the price bounces very strongly and will also reverse very quickly.