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Bollinger band trading

  • #1
  • First Post: Sep 17, 2012 9:08pm Sep 17, 2012 9:08pm
Hello everyone,

I trade the eur usd 1hr time frame with a set of bollinger bands. I enter my trades when price goes outside the outer bands and then enter on the first reversal candle or change of the color ( I use the line graph instead, to me it looks easier on the eye and is not as distracting as candles).

Ok, there are no certainties in forex, however guess what? When price goes outside the outer lines it will 100% come back in eventually. That's good enough for me.

Of course if you enter expecting a reversal and price continues upwards or downwards then you are left behind. So with this in mind how can we differentiate between reversals and strong up or down movements?

For me its just a case of experience and being able to recognize a strong up or down movement. If price is vertical along with the outer line and if the bands are widening, the position of the middle line etc. All of these things help me decide. As long as I am current most of the time and am profitable then that is all that matters.

So far I have had 4 different practice accounts and Grown them all successfully.
Trading with just the bb bands. Before that I was using all sorts of indicators and methods and getting no where. For me this way of trading works.

Before trading like this, I tried every method under the sun, and also tons of different indicators. I did'nt have a whole lot of success. I worry that the brokers make the demo accounts too easy, am i being paranoid? Would I have the same success with a live account? I did have 2 very small ($200) live accounts over a year ago, but I was changing strategies/indicators every day and lost money. I didn't have much control. I blame myself for killing those accounts. However I wanted to experience live trading conditions and accepted that I could lose.
Now I am ready to start a live account trading with just the bands.

I would love to hear from other traders who trade in a similar way.
Thanks a lot,
Matt

I use tradeinterceptor on an iPad. I really like tradeinterceptor.
  • #2
  • Sep 18, 2012 1:48am Sep 18, 2012 1:48am
backtest my friend. that's the solution to your question. not live not demo because of the small number of trades. backtest 500-1000 trades using your rules and see for yourself if it works or not.
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  • #3
  • Sep 18, 2012 2:23am Sep 18, 2012 2:23am
Congratulations tokyotrader,

Can you put some charts, please.

Thank you.
  • #4
  • Sep 18, 2012 3:51am Sep 18, 2012 3:51am
Bollinger Bands are the Standard Deviations * (2) from a moving average.
it is supposed to encompass 95% of price movement...assuming price moves in a normal distribution with not so many heavy tails...and that is a big assumption.

It works better in ranging environments although it is a very useful statistical tools....i am afraid your take on it is flawed.

i believe it should give you an idea of how price is moving viz a viz the mean of N periods and still you are confronted with the breakout/reversion dilemma.

According to your opinion on the underlying factors that are acting upon this move, and your extrapolation of probabilities taking into account price formation, levels and candle patterns. then you can look for opportunities to short or long at levels where the price moving against your position should signal that you are wrong...do not enter where you have to wait for confirmation while you are in the red.

EVEN THEN, you need to have a clear target of VaR, and parameters predetermined per your MM strategy.

volatility stops, or any other risk reduction strategy that you have come up with.
AVT INVENIAM VIAM AVT FACIAM
  • #5
  • Sep 18, 2012 4:01am Sep 18, 2012 4:01am
if you really think about it....RSI, MACD, Stochastics, S/D, S/R all signal the same thing as Bollinger bands ...that is is price relatively high or relatively low according to historical levels (whether recent or distant in the past)

whatever it is that your decision is your MM should assume that price is Random and has to have a positive expectation over a large sample period.

this is how binary brokers make money, look how their pay out is X% of premium, well.....take a lesson from them and make your SL...x% of TP.

never assume that price is predictable nor should you attempt to predict...strategize, execute, and cover your ass. Have a good reason for why you are taking your position and should be in accordance to current risk on and risk off environment.....take a look at equity futures and bond yields, listen to news, and current events.
AVT INVENIAM VIAM AVT FACIAM
  • #6
  • Sep 18, 2012 10:17am Sep 18, 2012 10:17am
Thanks everyone for your thoughts I appreciate it!

When price goes outside the bands there are more reversals then straight upward or downward vertica trend typel movements. That's what I trade. Some of these reversals can be short, however as long as the trade is profitable then I'm happy.

I close the trade manually when it's in profit. I watch the trade usually from entry to exit. My entry signal is when price is outside the bands and does a u-turn at a 45* angle or more. Only then will I enter. I use a line so it looks like a pointy arrow. Of course some times price doesn't turn back, in which case I just watch it and wait for the next chance. That's it really.


I don't really like stochastics or macd. The b-bands are on the chart with price whiles the stochs are separate below your chart, so you look at your chart, then you glance down at these stochs and see if they line up.. In my brain it just seems distracting and also with the RSI etc. it's above 80 or under 20 and you think it's going to reverse and instead it just continues sideways and then seems to not reverse and go the other way..b-bands to me seem a lot more truthful and give me a more accurate picture of the market. Again whatever works.

In the demo accounts. I trade conservatively, slowly at first and then make larger trades once I have some profit behind me. Mentally I like to trade out of or with the profit money, I don't want to trade with my starting capital amount. I mean if I lose money at the start and if I start with 5k and now I have 4.7k then I'll close the account. If I'm losing money then that means my method is wrong and I'll stop. I expect to have more winning trades than losing trades. So I expect to be growing the account from day 1.
  • #7
  • Sep 18, 2012 10:22am Sep 18, 2012 10:22am
good luck tokyotrader
  • #8
  • Sep 18, 2012 10:27am Sep 18, 2012 10:27am
Quoting tokyotrader
Thanks everyone for your thoughts I appreciate it!

When price goes outside the bands there are more reversals then straight upward or downward vertica trend typel movements. That's what I trade. Some of these reversals can be short, however as long as the trade is profitable then I'm happy.

I close the trade manually when it's in profit. I watch the trade usually from entry to exit. My entry signal is when price is outside the bands and does a u-turn at a 45* angle or more. Only then will I enter. I use a line so it looks like a pointy arrow....

don't miss understand me, I did not suggest you use them but the concept is basically the same.

good luck to you, but mean reversion doesn't always happen take heed to what i said regarding covering your ass.
AVT INVENIAM VIAM AVT FACIAM
  • #9
  • Sep 18, 2012 10:48am Sep 18, 2012 10:48am
Even John Bollinger acknowledge, "tags of the bands are just that - tags, not signals. A tag of the upper Bollinger Band is not in and of itself a sell signal. A tag of the lower Bollinger Band is not in and of itself a buy signal". Price often can and does "walk the band". In those markets, traders who continuously try to "sell the top" or "buy the bottom" are faced with an excruciating series of stop-outs or worse, an ever-mounting floating loss as price moves further and further away from the original entry.
  • #10
  • Sep 18, 2012 10:57am Sep 18, 2012 10:57am
Quoting highpriest
Even John Bollinger acknowledge, "tags of the bands are just that - tags, not signals. A tag of the upper Bollinger Band is not in and of itself a sell signal. A tag of the lower Bollinger Band is not in and of itself a buy signal". Price often can and does "walk the band". In those markets, traders who continuously try to "sell the top" or "buy the bottom" are faced with an excruciating series of stop-outs or worse, an ever-mounting floating loss as price moves further and further away from the original entry.
well if John Bollinger was honest he would not call it bollinger bands, it is nothing but SD(2) of the Mean.

and does exactly that give you a visual statistical representation of price now in relation to the mean of N periods.....hardly predictive at all but a good measure to watch for outliers or gauge if price is expensive or cheap related to the average.

walking the bands...really means...this sh*t is not going to revert and the average will simply change according to where the market finds equilibrium or as Emerald Eyes would put it......where there is liquidity or the lack there of
AVT INVENIAM VIAM AVT FACIAM
  • #11
  • Sep 18, 2012 12:10pm Sep 18, 2012 12:10pm
Hi tokyotrader,

I am curious to see some of your entries in a chart if you don´t mind.
I think this kind of approach it´s to work in sideways markets, because in trend markets may have very losses.

Thank you.
  • #12
  • Sep 18, 2012 12:45pm Sep 18, 2012 12:45pm
I also you Bollingers a lot. In ranging markets, it is very useful.

I do the following:
1. See the trend on the higher timeframes. This works best on the 1 min charts ( in my experience). However the 5, 15 and the 30 min time frames have to show ONE trend.Either up or down.

Then on the ONE minute timeframe, trade in the direction of the trend.
For example the higher timeframes show UPTREND.
Then on the 1 min chart keep buying on the lower bollinger and selling on the Upper, till the trend changes on the higher time frames.
Don't trade during times of major news releases.

2. Use the SAR also and buy or sell only when it agress ( on the 1 min time frame where you re trading).
Stop the minute the SAR changes direction.

Thus the SAR could be taken as Stop Loss.
However you have to monitor the trades...

3. Take profit is no more than 5 to a max of 10 pips, or till the SAR changes direction, whichever occurs first.

4. Lot size is ALWAYS mini lot (10K) or less depending on margin and how much you have in the account.

This has worked for me... And hope my friends here also strike it rich

As I am very busy at work most of the time, have little time to post articles but I do follow this excellent forum regularly...
Cheers
  • #13
  • Sep 18, 2012 6:30pm Sep 18, 2012 6:30pm
Sure you could get left in a losing trade if price decides to 'walk the bands'

The thing is I expect and assume that most of the time it will turn into a reversal however if it's clearly a trend then I either won't enter or if I do mess up, close the trade. Being able to spot these large upward and downward movements is just a case of lots of screen time. Its easy to see contraction or narrow bands, then you see the bands opening up more which usually signals a trend starting.

Also I never enter if it touches the outer bands, it would have to go outside the outer bands and do a u- turn. So timing is important.

Are any of you using social trading sites? I hope to go live with 3k this month.
  • #14
  • Sep 18, 2012 6:39pm Sep 18, 2012 6:39pm
I use also B-bands, BB20 and BB100.

TF 1 min, BB100 give me the trend. (BB100 in 1min TF= BB20 in 5min).
  • #15
  • Sep 18, 2012 11:16pm Sep 18, 2012 11:16pm
Quoting deltatrade
backtest my friend. that's the solution to your question. not live not demo because of the small number of trades. backtest 500-1000 trades using your rules and see for yourself if it works or not.

I agree.
I did extensively test out BB in the past. The long term result I came up with was neutral, i.e. it's effectively random. The reversals off the bands are more or less evenly matched by continuations walking the bands.

What this leaves you with is that BB (as well as most other standard indicators I tested, all came up with similar results in long term testing) are essentially valueless for a strict mechanical method of trading.

If you get any value out of them it is due to your own interpretation and trading abilities, i.e. your skill. The value of the indicator is to help you see the market in an orderly way that suits your way of thinking and to bring discipline to your trading - but they have no inherent value in themselves as a mechanical trading tool.

Good luck
  • #16
  • Sep 18, 2012 11:19pm Sep 18, 2012 11:19pm
Hi Matt,
I used to use Bollinger Bands in my stock trading days, here's some "info" that may be of help........

Bollinger Bands offer strong S/R levels when the Bands are moving approximately parallel and sideways, this situation normally starts following the end of a trend or large correction when the bands are wide apart
Under this condition - swing trade

When the bands are narrow (the narrower the better) and tracing sideways, this is when you look to the possibility of trend trading
Entry would be when both bands diverge, breaking S/R, the candle creating the divergence (breakout) ideally should be a larger bodied candle than normal - showing indecision has now been resolved
A new trend can also begin from a trend reversal, at this point the bands will be wide apart, the reversal will cause the price to swing around and head for the opposite band - there is the possibility that the price will be rejected at the opposite band and price would then start range trading, but if price approaches the opposite band and and it turns in the direction of the price, then this would be confirmation that the reversal has become a new trend

Trade management
It is not unusual for price to trade outside the nearest band - but when it does this in a well established trend, this could signal an unsustainable extreme condition, an indication could be the appearance of a larger than normal candle, especially if followed by a small bodied candle. Under these conditions it would be best to trail a stop under the body of each subsequent candle
For an uptrend: if price should trade outside the bands, then retrace inside the bands and form another pivot high, then this is a major sign of weakness (does not matter how high or low the pivot high is) and probably signals the end of the up move
Confirmation of the move being over is when the band nearest price "rolls over"

When not range trading (bands approx horizontal) they can take various forms such as a bubble, a cone or sloping rectangle - trading each requires a different methodology

Good luck
  • #17
  • Sep 19, 2012 4:26pm Sep 19, 2012 4:26pm
Quoting tokyotrader
Thanks everyone for your thoughts I appreciate it!

When price goes outside the bands there are more reversals then straight upward or downward vertica trend typel movements. That's what I trade. Some of these reversals can be short, however as long as the trade is profitable then I'm happy.

I close the trade manually when it's in profit. I watch the trade usually from entry to exit. My entry signal is when price is outside the bands and does a u-turn at a 45* angle or more. Only then will I enter. I use a line so it looks like a pointy arrow....
gr8
i like BB.
pls. post more charts.
cheers
Trade As A Sniper
  • #18
  • Sep 27, 2012 4:33pm Sep 27, 2012 4:33pm
tokyo
how is your bb trading coming up?
risk 55 to long ej after pb retraced from lower band...
cheers
Attached Image (click to enlarge)
Click to Enlarge Name: ej.gif Size: 27 KB
Trade As A Sniper
  • #19
  • Sep 27, 2012 7:56pm Sep 27, 2012 7:56pm
To me indicators like Bollinger Bands are good to measure the strength of a trend. They help to identify a possible trend exhaustion. I'm prefering the RSI to do so, others may use MACD, Stochastics, Bollinger Bands or exotic indicators.
  • #20
  • Sep 28, 2012 5:25am Sep 28, 2012 5:25am
Quoting Totoro
To me indicators like Bollinger Bands are good to measure the strength of a trend. They help to identify a possible trend exhaustion. I'm prefering the RSI to do so, others may use MACD, Stochastics, Bollinger Bands or exotic indicators.
imho any trader can use with/without indicators as long as his trading method profitable in long run


Quoting pama.fx
tokyo
how is your bb trading coming up?
risk 55 to long ej after pb retraced from lower band...
cheers
closed due another pb shown.
happy with 30 odds pips
Trade As A Sniper
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