How Bollinger Bands Help Me Trade
In this weekly video:
00:28 – Selecting profit targets
01:20 – I use Bollinger bands to help me trade
02:04 – Trade when the conditions are favourable
02:40 – Trading reversal patterns
03:54 – Trading Continuation trades
04:29 – Teaching the whole package
04:55 – Sell trade on the EUR/CAD off the middle Bollinger band
05:50 – Look for the Bollinger bands to be widening
We need to give the trade room to move. Let's talk about that and more right now.
Hi Forex Traders, it's Andrew Mitchem here with The Forex Trading Coach. Video and Podcast number 240. I want to talk about giving the trade room to move. What does that mean?
Selecting profit targets
Well, a lot of people are very quick to say, “I'm going to place a trade here and I've got my stop-loss here.” But a lot of people have difficulty with profit targets. What I like to see is I like to see the ability on the chart as a technical trader for the trade to get to its profit target with the least amount of support or resistance in the way of the trade depending on whether we're buying or selling. If we're buying, we want to see as few resistance levels like reasons why the trade's not going to hit a level and bounce. Why it will get to its profit target. If we're selling, we want to see as few support levels, like as few areas below where the price is right now where it might bounce. We want to see as few of those as possible. We want to give the trade room to move and allow it to get down to our profit target if we're selling with as few support areas in the way as possible.
I use Bollinger bands to help me trade
To do that, I like to use support and resistance levels but I also use Bollinger Bands. I'm going to talk about Bollinger Bands and how I use them. Bollinger Bands are quite fascinating if you can use them in the right way. They really do aid your trading. As a technical trader, I look at Bollinger Bands and I'm looking at how they're moving with the current price. If they're level, or they're flat, or they're coming together the upper or lower Bollinger Band, that tells me that there's very little price action, or there has been good price action and now it's over because the bands are getting tighter together or they're parallel. When that happens, trading conditions are not good right now. It's not a great time to be trading.
Trade when the conditions are favourable
What you need to do is to be able to trade when the price starts to move; when you get decent, active conditions in the market at the current time and the Bollinger Bands start to widen. What that means is that there is good price action right now. To give you a few examples of how I trade.
As you know, I like either reversal trades or continuation patterns, two quite different patterns. Continuation patterns are probably safer, reversal patterns look really good and really dramatic on your charts but a little bit high risk.
Trading reversal patterns
If I see a reversal pattern, and I'm seeing a bearish reversal pattern, I like to see that at or near the upper Bollinger Band. If I'm seeing a bullish reversal pattern, I like to see that at or near the bottom Bollinger Band. Then what I'm looking at doing is I'm looking … Let's say we're taking a buy trade. We're near the bottom Bollinger Band, I'm seeing a good pattern to go long, a reversal of the previous downtrend. What I'm looking at doing is I'm looking for my profit target to ideally be before we need to break through the middle Bollinger Band. The reason for that is the middle Bollinger Band is also the 20 period moving average, and a lot of people rightly or wrongly use moving averages as support and resistance levels. Because the 20 period moving average is the middle Bollinger Band, so a lot of people using that level.
If we're taking the buy trade, we don't want the price to be too close to that middle Bollinger Band, because the likelihood is the price may bounce up to that or head up towards that middle Bollinger Band and then bounce there. Then the overall downtrend may continue again. That's not great for our buy trade. I like to give the trade room to move and what I mean by that, I like to see a good amount of distance between the bottom Bollinger Band and the middle Bollinger Band. They're reversal trades.
Trading Continuation trades
For a continuation trade, what I love to do is see an uptrend and then a pullback, and that pullback stalling at and around the middle Bollinger Band. Then I like to take the buy trade heading upwards. Again, I like to make sure that my profit target is out of the trade, I'm out of the trade for full profit before we need to hit the upper Bollinger Band. Because quite often when the price hits the upper Bollinger Band in a buy trade, it will stall there and potentially reverse there.
It's just another factor of probable stalling area. We just want to make sure that we're out of the trade before that area.
Teaching the whole package
Of course, things like round numbers and strength and weakness all come into as well and other candle patterns. That's why I teach the whole package as part of my coaching course. That's why our traders do so well, because we're putting the whole thing together. I'm just teaching you here and giving you some clues and some tips and information about one small part, which is the Bollinger Bands, and they are very very important. But so is everything else put together. That's why you need to jump onto the full course to get that information.
Sell trade on the EUR/CAD off the middle Bollinger band
To give you an example, I took a trade yesterday. Sell trade, Euro-Canadian dollar. Just after my webinar finished last night my time. Fantastic trade only on a 15 minute time frame chart. I was looking at 15 minute time frame charts on the webinar. I don't trade them much normally, but I happened to see a really good sell setup, jumped in straight at the market, off the middle Bollinger Band a continuation trade. I was out of the profit, out of the trade for full profit before the bottom Bollinger Band was hit, and had a fantastic trade. Made a lot of money in six minutes. It was a great trade because everything was there in the factor of the trade. The technical setup was there, the Bollinger Bands were there, the bounce off round number, the trend line break, all of it was put together and the overall daily strength and weakness. Great trade, six minutes. In, out, done, bank, profit. Thank you very much.
Look for the Bollinger bands to be widening
That's how you can use Bollinger Bands. Use them to your advantage. As I mentioned, look for the Bollinger Bands to be widening, the upper and the lower band to be widening, spreading apart. It means you've got good price action, great time to trade. Bollinger Bands getting tight, very narrow, horizontal, parallel; not a good time to trade. When that happens, move on to another currency pair or go and do something else other than trading, because that's telling you that the conditions are not great at that particular time.
This is Andrew Mitchem, the Forex Trading Coach. Have a great weekend. I'll see you at this time next week.