Bollinger Band Trading
Bollinger band trading is so much more powerful than most people realize. Typically and even on the Bollinger band website the most common talked about Bollinger band set-ups will talk of a squeeze or expansion, and although these are great tools that lead to powerful Bollinger band set-ups they are not to be considered the sum of the true power of this indicator..
In fact Bollinger band trading once mastered can lead to a trader growing any account into huge amounts of cash with extremely limited risk and in a rapid manner. This indicator has the ability to throw off not just extremely low risk entry signals providing what I call dynamic support and resistance along the way, but also provides clear and precise exit signals as well.
Recently once again, while waiting for a signal to enter a Forex trade I was looking at a chart on the EUR/USD… The date was Jan. 15st 2010 you might consider pulling up a daily chart on this, because it’s a trade that made me a killing and finding these big paydays is not difficult if you master Bollinger band trading.
To start let me say that when I enter any trade I look for what I call Dual role entry. In other words I find a high odds trade set-up that has low risk, meaning my stop is tight by virtue of current support or resistance from whatever means. I imagine the trade going against me and I try and determine that if the trade goes against me is the set-up equally as “high odds” in the other direction.
In other words if my broken support that I’m using to enter becomes broken resistance above me or if my stop is hit, is this trade just as impressive in the other direction? This is important because if you can stick to entering trades with that have this quality, (there’s plenty of them trust me.) then you can reduce your risk dramatically.
I determined that this trade had all my signals. My trigger then became a close below a 10 period EMA. Bollinger bands by default will usually lay down a 21 period MA right smack in the middle of the bands. I like to add a 10 period EMA. This moving average goes together with Bollinger bands like a hand in glove.
If you look at the chart you will see that my close below the 10 day EMA came on the 19th day of Jan. 2010 on the daily chart. I entered near the close of that candlesticks session, however one could have waited until the next day’s open. At any rate we were in the trade. Let’s talk about why we entered and why we didn’t enter what seemed to be a similar set-up that would have failed on 1/7.
Take a look. Make sure you slide your chart to the day of 1/19/10 so that you can’t see the 20Th but just the 19Th and back. Notice how go beyond the 10 day EMA Bollinger bands is hooking up on the top and the bottom bands are hooking down? This is the expansion we hear of so much. This is a signal of a large move that is about to occur.
Your job is simply to figure out direction. Once the bands throws off this signal you must determine direction because Bollinger bands won’t tell you that. We determined direction because we had a failed higher swing low. In other words broken swing low support, and then broken support of our 10 period EMA. Couple that with the expansion of the bands and you end up with a trade that paid almost $8,000 dollars with risk kept to an absolute minimum.
If you slide your chart to the 7Th you will see that although the bands are providing no such clues. In fact the bands are actually coming together indicating that price is going to move very little for the short term.
If you want to learn more about Bollinger band trading, check out my website. I have a few videos that you can get access to free that will cover more details.
