Forex Trading Strategies: Double Bollinger Bands
You may often hear – or even use – one of the technical indicators called “Bollinger Bands” (hereinafter we call BB). Naturally, if you often hear it, because the indicator named after its creator (John Bollinger) is indeed one of the most popular technical indicators among forex traders.
Most traders only place one BB on their chart. Well, this time we will try to discuss one of the trading strategies that utilize TWO BB at once in one chart. This strategy is commonly known as “ Forex Trading Strategy with Double Bollinger Bands “ . To be easier, we call it a “Double-BB” trading strategy.
Mechanical Trading System
As a trading strategy that uses technical indicators, the Double-BB is also a technical trading system, a trading system based on technical analysis to produce trading signals. Called “technical” because traders who use a trading system like this should make a decision to buy, sell, or close based on the signals that emerge from the system, regardless of any sentiment that develops in the market.
Actually technical trading system is more “lightweight” than complex technical analysis, such as using a price pattern or candlestick pattern.That is why this method is quite friendly for traders who are “impatient” and do not have enough knowledge to do the analysis using more complex technical analysis . So, this trading method is simpler. But remember, that’s why trading methods like this sometimes have a fairly low success rate. There are advantages (simple), there are also weaknesses.
In essence, you must realize that in the world of technical analysis there is no such thing as a “holy grail” , which is a system that is trusted “anti-loss”. Still there are opportunities for losses.
How is this Double BB?
As mentioned above, Double-BB uses two BBs in one chart. This strategy is very simple, because even though later there will be candlesticks involved but basically you don’t need to bother memorizing the names of candlestick patterns .
This strategy does not require you to spend a lot of time in front of the chart . Even you only need to look at the daily chart (D1) just a few minutes every day. If you see any trading opportunities based on this system, then you can open a position. If not, you just have to go back to the chart the next day. No need to see other time frames , other technical indicators, and so on.
How to Apply Double-BB
As I promised, this method is very simple. You only need two BB indicators. That is all.
Install the BB indicator on your chart with the following settings:
Now, because the entered deviations are worth 2 (two), then for this BB we call BB-2 .
Then install another BB indicator, but this time in the deviations box enter the number 1 (one). BB, which we later call BB-1 . So the settings are:
In this example, I use two different colors for each BB, namely red for BB-2 and blue for BB-1. Of course you are free to choose your favorite color.
Already, that’s all you need to install on your chart . Oh yes, don’t forget: install on DAILY chart (D1). Below is an example of its appearance.
Well, if you look at the chart above, you will be able to see that BB-2 is outside while BB-1 is inside. Note that the middle bands BB-1 and BB-2 are located exactly the same, because the difference in deviations will not affect the middle band position .
OK, now we go into a rather “complicated” section.
Don’t panic first. The “complicated” is actually a way of explaining it, not using it. That’s because I can’t find a simpler way to explain how this strategy works. So maybe you should prepare a cup of cappuccino and some snacks.
Is your Cappuccino ready? Then, let’s continue.
To open long positions:
- Make sure there is a candlestick that closes above the BB-1 upper band but still below the BB-2 upper band .
- See two previous candlesticks . Both candlesticks must close below the upper band BB-1 but above the middle band .
- If you have seen a setup like this, you can open long positions at the 3rd close candlestick price. Remember, the 3rd candlestick must be closed.
- Place a stop loss (SL) at the 3rd LOW candlestick price, while the profit target (TP) can be placed twice the distance of SL. So, if for example your SL is 200 pips, then the TP can be placed as far as 400 pips.
For more details, see the following picture. The chart below is a screenshoot of USDJPY movement on D1 chart . The highlighted part is the candlestick on the 15th, 18th and 19th of August 2014.
To open short positions:
- Make sure there is a candlestick close below the lower BB-1 band but still above the BB-2 upper band .
- See two previous candlesticks . Both candlesticks must close above the lower band BB-1 but below the middle band .
- If you have seen a setup like this, you can open short positions at the 3rd close candlestick price. Remember, the 3rd candlestick must be closed.
- Place a stop loss (SL) at the HIGH price of the 3rd candlestick , while the profit target (TP) can be placed twice the distance of SL.
For more details, see the following picture:
Now you already know that you can use two BBs at once in one chart as one simple forex trading strategy . This is one example of a simple technical trading system .
Remember always that there is no guarantee that the accuracy of this trading strategy is 100%, therefore always pay attention to your risk restrictions and capital arrangements.