This article is all about the standard versions of Bollinger band (BBANDS), its custom versions and the dangerous you’ll meet trading with this indicator. This Forex indicator used to be really popular in mid-80s when stock market was highly liquid for most of the indicators worked flawlessly back then. Today, the story goes in a slightly opposite direction – trading with BBANDS is next-to-impossible mission, especially on Forex. Surprised? Don’t be, hear what I’ve got to say.
- Bollinger Band (BBANDS)
- BBands Stops Custom indicator
- BBands Stops Alert – version with alerts
- Download (BBands Stops + Alert ver. + BBands EA)
Bollinger Band (BBANDS)
If you trade on metatrader platform you will find this indicator as a default. The same goes with large number of other broker platforms that keep Bollinger Band in their toolbox. Before I explain you how to trade with this indicator, and bring you closer the trading strategy, have a look how the Bollinger Bands standard version looks like in charts.
Bollinger Bands consists of three components:
- A simple moving average
- TWO standard deviations of this moving average (known as the Upper and Lower Bollinger Band).
The picture above shows two standard deviations, upper and lower, with simple moving average in the middle.
Trading at BBANDS goes as following. You first identify the trend. Should candles go above SMA, it’s a buy trend, in case they are below the SMA then we’ve got a sell trend. When the mid-line goes up and down throughout whole chart – it’s a sideway trend. Its quiet simple.
How to act in case of buy trend? If you’ve got a buy trend, you need to wait for the price to reach the middle SMA line where you will search for spot to open buy position.
If it’s a sell trend, then you’ve got to wait for the candles from below to come up at SMA and seek for opportunity to open sell position.
In case of a sideway trend, sell position is opened at the upper line (overbought) and closed at lower oversold line. Opposite activities are applied in case of buy trend.
The picture shown above shows a sideway trend, thus you would sell each time price hits the upper line (overbought) and buy whenever the price hits the lower line (oversold).
The essence of BBANDS is as matter of fact very good if you know how to trade with it. However, I would never recommend it to starter as this indicator became popular in the time when stocks’ growth was simple to track with any indicator, including this one too. More of it will be said in Bollinger Band Guide – How to Trade With Bollinger Bands.
It’s time to have a look at the Bollinger Band indicator custom versions.
BBands Stops – Custom Indicator
This custom version of Bollinger Band indicator is far simpler to trade with comparing to its original. Using this indicator you will easily get to know in which trend type is the market and opening position is fairly easy following few simple rules, while books could be written around tens of various examples occurring when you use original version.
I’ll try to keep it as simple as possible explaining you how to trade with BBands Stops indicator.
I opened a platform, added BBand indicator at the chart and I’ve got a following graph:
This indicator clearly shows which trend I’m dealing with. When the blue line is above the price – it’s a downtrend, when the candles are above the red line – it is uptrend.
In my case, trend started in the point 1 marked at the graph. This indicator starts the trend beginning with the red dot you can see at the start of the right line (just below the number 1).
Now that it’s obvious I’m dealing with the uptrend, I aim to search for ideal spots to open position at.
Rules for opening buy position:
- When price lowers and touches the red line, buy position should be opened.
- Position is opened only after the second candle is closed above the red line of BBand Stops indicator.
As you can see at the example graph, according to the rules from above, I should open buy positions in points number 2 and 3. At chart, you can see the candles at these points, the first is touching the indicator (the red line) and that’s the signal for possible position opening.
However, I wait for the second candle to close above and only after this has happened I am free to go with opening position. Always apply this rule to protect yourself from the loss.
This is the simplest and the most reliable way to trade with this indicator. If you try to apply particular changes it might lead to increase in signals indicating to open positions which again, could make you a lot of troubles.
This is also a fairly dangerous way to trade as the prices will successfully bounce off the blue and red line only in sideway trends, while they’ll break through the line in uptrend and downtrend, hence it’s really important to wait for the second candle to see whether it’s going to close above the indicator or not.
Note: You will be getting only few chances to open positions trading this way. If you follow instructions closely you will still be able to profit.
How to trade by the rules set by indicator’s creator
The default rules for trading with this indicator are even more dangerous than the rules I’ve shown you above.
The default rules would have you trade this way. Each time indicator alerts changes in trend, the blue dot indicates the start of downtrend while the red dot indicates the beginning of uptrend. According to the default rules, you should start opening positions as following. Sell positions in points 1, 3, and 5 with buy positions in points 2 and 4. Using this indicator you would hardly go profitable regardless of which Forex trading method you use.
If you still consider it useful and absolutely want to trade with it you can download BBands Stop indicator at the bottom of the article.
BBands Stops Alert – Custom Indicator
This is the BBands Stops Alert review. It works in the following way.
Each time there are changes in trend you are alerted, by the indicator’s default rules. Have a look at the screenshot below for a better grasp.
As I have already said, using this indicator is fairly dangerous for beginners especially at Forex market. It’s true that Bollinger Bands is never used alone but in combination with technical analysis. Regardless of that, my advice is to stay away from it. Indicator can be very confusing and there are set of rules you should better be avoiding too. I’d put my hand in fire for trading solely with trendlines would make you more profit than with BBANDS. Don’t believe in every Forex tools review online.
I’m not gonna be a prick and try everything to keep you away from it. If you consider this indicator necessary for any purpose, you can find download links for all the versions below.