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Calculated Shard: 21 (from laksa182)

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curl -X POST \
  'http://laksa021.int.ahrefs:8124/' \
  -H 'Content-Type: text/plain' \
  -H 'X-ClickHouse-Database: crawler3' \
  -H 'Authorization: Basic YXBpOg==' \
  -d 'SELECT getAhrefsURLFromUnparsed(src_unparsed) AS found_url, ifNull(toUnixTimestamp(download_stamp), 0) AS crawl_time, ifNull(toUnixTimestamp(props_url_first_seen), 0) AS first_indexed_time, download_http_code AS http_code, src_unparsed AS src_unparsed, src_root_hash AS src_root_hash, history_drop_reason AS history_drop_reason, meta_title AS meta_title, meta_descriptions AS meta_descriptions, attrs_boilerpipe_text AS attrs_boilerpipe_text, attrs_markdown AS attrs_markdown, attrs_readable_markdown AS attrs_readable_markdown, meta_canonical AS meta_canonical FROM crawler3.page_info_local FINAL PREWHERE (src_root_hash, src_unparsed) IN ((getAhrefsRootHashFromUnparsed(getAhrefsUnparsedNoserviceFromURL(\'https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/\')), getAhrefsUnparsedNoserviceFromURL(\'https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/\'))) FORMAT JSONEachRow'

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{"found_url":"https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/","crawl_time":1776049146,"first_indexed_time":1665741683,"http_code":200,"src_unparsed":"org,litefinance!www,\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/ s443","src_root_hash":"7134305776517168621","history_drop_reason":null,"meta_title":"Bollinger Bands Guide: Trading Strategies & Best Settings | LiteFinance","meta_descriptions":["Bollinger Bands Explained. Setting up Bollinger Bands indicator. Seven Bollinger Bands strategies and 11 secrets of Bollinger Bands Forex Trading"],"attrs_boilerpipe_text":"Menu\n✖\nEnglish\nLogin\nRegistration\nLive Chat\nBlog\nClient's trading interface\nAbout Us\nFor beginners\nTrade Forex\nFor investors\nFor partners\nPromotions\nContests\nSupport\nBlog\nEnglish\nIndonesian\nРусский\nမြန်မာ\nMalay\nThai\nالعربية\nEspañol\nPortuguês\n中文\n한국어\nTiếng Việt\nМонгол хэл\nTürkçe\n繁體中文\nភាសាខ្មែរ\nLogin\nAbout Us\nHistory\nLiteFinance's history and achievements\nAdvantages\nThe benefits of trading with the LiteFinance broker\nCompany news\nLatest LiteFinance important updates\nContact details\nLiteFinance client support team' and other departments' contact details\nRecruitment\nWork at LiteFinance\nRegulatory documents\nLegal information\nLiteFinance awards\nAchievements and awards of LiteFinance from 2005 to 2026\nPress centre\nLiteFinance's media contact details and materials\nLeicester City Sponsorship\nMaster the Market, Dominate the Game.\nFor 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here\nFor professionals\nTrading blog of successful Forex traders\nFor investors\nBest investments in the financial markets\nFor partners\nBlog on easy Forex affiliate programs\nAnalysts' opinions\nForex analysis and market forecasts\nOur authors\nAnalysts and authors of the LiteFinance Forex blog\nHome\nBlog\nBeginners\nBollinger Bands Indicator in Forex Strategies\nBollinger Bands Indicator in Forex Strategies\nAuthor\nMichael Hypov\nReviewed by\nJana Kane\nUpdated version\n09\nJul.\n2024\n16:51\n2025.11.14\n2024.07.09\nBollinger Bands Indicator in Forex Strategies\nMichael Hypov\nhttps:\/\/www.litefinance.org\/blog\/authors\/mikhail-hypov\/\nDear friends!\nIn this article, we will take a detailed look at Bollinger Bands, a classic indicator that many traders have been using for many years.\nI will tell you what are Bollinger Bands, what this tool does, how it works, how are Bollinger Bands calculated, how to use Bollinger Bands Forex strategies, and give you lots of other interesting information with examples.\nThe article covers the following subjects:\nWhat Bollinger Bands are: Definition and History\nBollinger Bands Formula & Calculations\nHow Bollinger Bands Indicator Works\nBollinger Bands Signals\nBollinger Bands Strategies\nBollinger bands best settings\nBollinger Bands Screener\nBollinger Bands Tips & Rules\nBollinger Bands FAQ\nConclusions on Bollinger Trading\nLet's get started with bollinger bands tutorial!\nWhat Bollinger Bands are: Definition and History\nLet's dive into the history of the indicator. The very first mention of a tool similar to Bollinger Bands dates back to 1960.\nThe well-known trading analyst Wilfrid LeDoux used a trading channel based on two moving averages as technical indicators in his trading system. The first band was built based on the highs, and the second — on the lows. The signals in the LeDoux’s trading system were both the expansion leading to the bands expand accordingly, or the contraction of the channel itself where the bands contract, following the security’s price movement to shape within it.\nJohn Bollinger\nFunnily enough, at first John Bollinger did not even think about trading. He thought his future work would be on television. But while working as an operator at one of the Hollywood companies, he encountered some financial analysts and became interested in this occupation. Later, the future trader’s mother asked her son to help organize her investment portfolio.\nStarting then, Bollinger finally decided to be part of the world of stock trading. Combining his work as an operator at Financial News with training from experienced financiers, he quickly mastered trading and moved on to the position of financial analyst on the same channel. He did not become a TV star, but he gained fame thanks to successful trading ideas based on simple envelopes.\nThe envelope is one of the oldest technical analysis indicators. It was built on the basis of a simple moving average and two bands located at an equal distance from this center line.\nBetween 1984 and 1991, John worked on his own trading system based on the LeDoux strategy and the envelope indicator. John's brainchild was named after its creator — the Bollinger Bands. This technical analysis tool developed was based on a middle band known as the moving average with so-called volatility bands plotted above and below. However, unlike envelopes, the offset is not by a certain number of points, but by a percentage.\nThe Bollinger Bands are shown in the\nEURUSD\nchart.\nThe red lines are the upper and lower boundaries of the channels. They are plotted based on the percentage offset from the blue middle band of the moving average. The main purpose of BB indicator is to determine a sharp deviation from the average direction of the current trend.\nNext, we will analyze the techniques for using the Bollinger indicator in detail. In order to study the material as efficiently as possible, I advise you to go to the LiteFinance\ndemo account\nright now (you do not need to register), open any trading instrument and apply the Bollinger bands to the chart. Skim the Bollinger Band chart and see how it reacts to price changes. If you encounter any difficulties, we will do it together below.\nThe Bollinger Bands indicator became widely known in comparison with other technical indicators after the mention in the book The New Commodity Trading Systems and Methods by Perry Kaufman published in 1987.\nThe author of the indicator spoke about his brainchild and Bollinger Bands strategies only in 2001, in the book Bollinger on Bollinger Bands. The article that you are now reading is written on the basis of materials from these two books. I have extracted from them the most relevant and useful information adapted for modern financial markets. Enjoy the article!\nBollinger Bands Formula & Calculations\nToday, in order to draw Bollinger Bands in a chart, you just need to select the required indicator from the list. Before, a trader had to gather it piece by piece. The process is as follows: take the moving average as the middle line (hereinafter the MA) and build the upper and lower bands: one above the center line by some percentage distance and one below it. The main issue was selecting the optimal interval for the MA and the deviation of these volatility bands (Bollinger levels) from it.\nThe author of the indicator looked for an effective way to select the interval for a long time.\nMarc Chaikin\nFor some time he followed Marc Chaikin’s principles. Chaikin used a 21-day moving average for his bands offset up and down so that the resulting zone contains about 85% of last year's price data. However, he later realized that the key to success in establishing the width of trading bands is the degree of market volatility.\nTo determine the offset of the waves from the moving average, John used the formula for the root-mean-square or standard deviation. This variable is usually denoted as σ (sigma). To calculate the standard deviation, the average closing price is calculated for a specified period. The resulting value is subtracted from each point of this closing price dataset. As a result, you will have a list of deviations from the average price. Some of these typical values will have positive values, others will be negative. The general principle is that the range of deviations is in direct proportion to the degree of variability of the series. Simply put, in a volatile market, Bollinger bands expand, and in case of consolidation, they narrow.\nAt the next stage, we add up the list of data we have obtained. If we add negative and positive values, we end up with 0. To get a non-zero result, we need to get rid of negative values by squaring them. As a result, after adding up, we get the average absolute deviation. This amount is divided by the period for which the data was collected, and then we extract the root of the resulting value.\nWe get the following formula for calculating the square deviation:\nσ — standard deviation;\nx — closing price;\ni — order number of the bar;\nμ — moving average;\nN — total number of points (period).\nIf we translate all of the above from the math language into trading language, the obtained value of σ determines the area in which all candles close with a probability of 68.2% (if the indicator is based on closing levels) for the selected period. When the price breaks out of this area, it is outside the root-mean-square distribution — it becomes an anomaly in terms of mathematical statistics. What does this mean for the trader? We'll find out it out a bit later.\nAs for the choice of the optimal moving average period, the classic version of the Bollinger indicator uses a 20-period MA. This range is approximately equal to the number of trading days in a month. If for some reason the period has to be shortened, in order to obtain the optimal width of the band, you need to cut the number of standard deviations. If the period is lengthened, the number of standard deviations must be increased.\nThe need to adjust the calculation of the Bollinger Bands width may arise because of the peculiarities of the formula. After analyzing the largest markets, the author has derived the most convenient ratios for frequently used periods:\nPeriods\nMultiplier\n10\n1,9\n20\n2\n50\n2,1\nLet me explain why you need these ratios. In most markets, when using 20 periods and 2 standard deviations, you can get coverage of 88-89%. As the period is shortened or lengthened, the coverage changes, which affects the analysis efficiency. To maintain coverage at 88-89%, Bollinger Bands should be plotted using a 1.9 ratio for a 10-bar period. This means you cut the band width from 2.0 to 1.9. With a period of 50 bars, respectively, you need to increase the width from 2.0 to 2.1.\nAfter selecting the multiplier and the period, you can calculate the Bollinger bands themselves.\nThe formula for the top band is as follows:\nUB\n=\nμ\n+ (\nm\n*\nσ\n),\nFor the bottom band:\nLB = μ - (m * σ),\nUB — upper band;\nLB — lower band;\nμ — moving average value;\nσ — standard deviation value;\nm — factor.\nAs an example, let's calculate the value of one point of the upper Bollinger band. To simplify the calculations, let's take a period of 10 bars.\nCandles entering the period are marked with a blue rectangle in the chart.\nFirst, let's identify the closing levels of these candles in points, starting with the most recent. For convenience, I have rounded ten thousandths to 0:\n1,18700;\n1,17700;\n1,16500;\n1,14200;\n1,13000;\n1,12400;\n1,12100;\n1,11700;\n1,12500;\n1,12900.\nTherefore, the moving average is:\n= (1,18700 + 1,17700 + 1,16500 + 1,14200 + 1,13000 + 1,12400 + 1,12100 + 1,11700 + 1,12500 + 1,12900)\/10 = 1,14200\nWe can now move on to calculating the standard deviation:\nNow we know the value of the standard deviation and can calculate the point of the upper Bollinger band above the last bar (take the multiplier 1.9 from the table above):\n1,14200 + 1,9 * 0,02404 = 1,18768.\nKnowing the standard deviation, we can calculate other points and draw the top line along them. The points of the lower line are calculated similarly. As you can see, manual calculations are too cumbersome. To simplify the Bollinger Band calculation, you can use an Excel spreadsheet, which I will discuss below.\nNow let's talk about the allowed parameters. From my own experience, I can say that it makes no sense to use the Bollinger indicator with a period of less than 10 and more than 50. If such a need arises, you need to change the timeframe, for example, switch from a daily to a four-hour chart or vice versa. In the initial stages, I recommend limiting yourself to a period of 20-30 bars. The author himself believes that his indicator works best in this range.\nIn addition to the classic setting of this technical indicator, the use of Bollinger Bands varies since combined options are also possible to be implemented for better results. For example, a chart might contain two band indicators plotted using the same calculation period but with different ratios. In his book, the analyst gives an example of a chart with two volatility bands in 20 periods that differ in width by 1 and 2 standard deviations.\nYou can see this tool in the picture above. Visually, these two technical indicators coincide at the moving average line but have different widths. A narrower channel is built with a factor of 1.0, and a wider one — with a factor of 2.0.\nThe second popular option for setting up the indicator is to plot BB of two different types. For example, one channel can be formed based on a moving average with a period of 20 bars and a width of 2 standard deviations. The second one has a period of 50 bars and a ratio of 2.1. If you think you already know how to use Bollinger Bands, you are wrong. All the fun is yet to come. Get a cup of tea and let's move on.\nBollinger Bands Excel Sheet\nHere you can find the Bollinger Bands Excel Sheet\n. It is designed to accurately calculate Bollinger Bands at a specific point in time. This tool can also be used to experiment with inputs to calculate the MA or the multiplier.\nIn order to use the table, you need to make a copy of it or download the Bollinger Bands calculator directly to your computer. The screenshot above shows the path: File \/ Make a copy or Download.\nThe table is very simple. In column A, you fill in the purple cells. The formulas work for 50 cells, but there is no need to enter numbers in each one. Input values can be any numbers. For example:\nclosing levels;\nopening levels;\nbar highs;\nbar lows;\nweighted averages of each bar;\nor any other numbers for your experiments.\nThe number of values corresponds to the calculated period. If 10 cells are filled in, the calculation will correspond to a moving average with a period of 10.\nIn column B, indicate the multiplier in the purple cell. The default ratio is 2, but you can enter any other number instead.\nColumns C, D and E contain the final result and a caption for the values:\nstandard deviation — σ;\nupper band — UB;\nmoving average — μ;\nlower band — LB.\nImportant!\nAll calculations are done automatically. You do not need to enter data manually in the blue cells in column E.\nHow Bollinger Bands Indicator Works\nWe already know that the Bollinger Bands indicator consists of three lines: a moving average, upper and lower bands. The latter are formed with an offset ranging from 1.9 to 2.1 standard deviations.\nSetting up Bollinger Bands is pretty straightforward even for beginners. There are only two relevant columns in the Parameters tab: \"Length\" or the period for which calculations will be made, and the \"Multiplier\" factor. It only makes sense to change other settings within the classic Bollinger Bands if you want to experiment. For example, changing the source from the closing price to the opening price changes the traditional approach to building the indicator, but it may show an unexpectedly interesting result on certain trading instruments.\nIn the second \"Style\" tab, you can set the color of the Bollinger bands, the moving average, and the chart area between them.\nJohn suggests using two indicators in the trading process:\n%b allows you to determine exactly where the price data is in relation to the Bollinger Bands. This tool will be useful when developing a trading system that uses the relationship between price behavior and the behavior of the upper and lower bands.\nBandWidth analyzes the current offset width. This metric is very useful for finding the start and end points of a trend, and BandWidth is an integral part of the squeeze technique. I will talk about it in detail a bit later.\nFirst, let's take a closer look at %b. This tool is calculated by the formula:\n%b = (Last price - LB) \/ (UB - LB).\nUB — upper band;\nLB — lower band.\nIf you look closely at this formula, you will understand that if the last price is located on the upper Bollinger bands, the calculation result will be 1. If it is located on the moving average, the %b value will be 0.5. And if the price falls and stops at the lower bands, the result of the above formula will be 0.\nIn this case, negative %b is possible if the price falls and breaks out of the lower Bollinger bands. This signal can be interpreted both as a sign that the asset is oversold and as a sign of a trend reversal.\nA value greater than 1 is possible if the price goes above the upper Bollinger bands. In this case, it will be a signal either about an overbought asset, or about a change from a bearish to a bullish trend.\nIn order to read these signals correctly, you need to use additional indicators as filters.\nThe Alligator indicator is often used for this purpose.\nIn the chart above we can easily identify the m tops, and we can see that the price has gone above the upper band, i.e. %b must be greater than 1 (highlighted in the graph with a green oval). At the same time, Alligator does not show any crossings between its lines (in a blue circle), which indicates an early sign of an overbought asset and a possible trend change.\nIn the next chart, the green oval marks an area where several candles in a row close below the lower band where we can identify the w bottoms, meaning that the %b will be less than 0. This can be both an oversold signal and a trend reversal signal. A little later, the Alligator lines cross, which confirms the trend change and lets us open a short position. We see that Alligator helps us correctly interpret the Bollinger signal.\n%b can also be used to identify shapes. We will talk about this later.\nNow let's move on to BandWidth, which analyzes — you guessed it — the current band width. It is determined by calculating the difference between the upper and lower bands and dividing the result by the moving average value. The formula looks like this:\nBandWidth = (UB - LB)\/μ\nUB — upper band;\nLB — lower band;\nμ — moving average.\nThis signal is useful for detecting squeeze. In other words, it describes a situation when market low volatility has decreased to an abnormally lower level.\nThis situation can be described as the calm before the storm.\nBollinger noticed that most trends are born when BandWidth is at its lowest. The market’s low volatility is like the calm before bad weather. The emergence of a sharp expansion of Bollinger bands and a strong price movement in such a situation indicates the possible formation of a new strong trend.\nIn the chart, the green oval marks the moment when the Bollinger Bands narrow, i.e. the market volatility decreases to a local minimum. As you can see, a sharp upside breakout occurs after this, which is the start of a bullish trend.\nBandWidth will also be very useful in determining the end points of strong trends. Heavy movements provoke a significant increase in volatility and the bands widen. Because of this, the level of dispersion increases and the Bollinger Bands expand. In the case of a bullish strong trend, after the channel narrowing, we will see a strong fall of the lower Bollinger band downwards against the main trend. This phenomenon is an early signal of a bullish trend reversal.\nThe\nEURUSD\nchart shows Bollinger Bands at the time of the trend development. The green rectangle marks the area when the lower line begins to move down during the formation of an upward trend. After that, in the area marked with a blue rectangle, the lower band reverses and begins to move up. A signal about the end of the trend appears. And indeed, after a while there is a transition from a bullish trend to a bearish one.\nBollinger Bands Signals\nEarlier, we have already discussed the main signals of the Bollinger Bands. Their weak point is the need to filter and identify entry and exit points. The simplest solution to the first problem is a Bollinger filter.\nTo solve the second problem — identifying the entry and exit points — in most cases finding shapes is the solution. A shape is a pattern formed by the market movement and the price volatility or a sequence of such movements. They are fairly easy to recognize in the chart. At the same time, for a better understanding, beginners are recommended to use Bollinger Bands. They smooth out minor market fluctuations, making it possible to focus only on significant price data reversals. Often, shapes precede a reversal or are themselves part of a trend reversal. I will tell you about the two most common shapes — W and M.\nBefore we move on to examining the features of the shapes, have a look at their types.\nW-bottoms\nM-tops\nThe image above will help you understand what types of patterns m tops look like.\nThe meaning of each of the presented shapes is unique. You can read more about this in Arthur Merill’s work with the name MW Waves. Here we will just take a quick look at these patterns and discuss how to work with them.\nAll shapes can be grouped by to the signal the trader receives. Let's take a look how to read bollinger bands signals:\nM15, M16, W14, W16 signal the formation of an uptrend.\nM1, MZ, W1, W2 indicate the formation of a downtrend.\nW6, W7, W9, W11, W13, W15, M2, M4, M6, M8, M10, M11 are reversal formations. These patterns indicate a trend reversal.\nM13, W4 — in classical technical analysis these figures are called triangles. The direction of movement is determined by the side of the exit from the figure.\nM5, W12 — in classic technical analysis, these are expanding triangles — the trend is determined after the breakout.\nW6, W7, W9, W11, W13, W15 are most often part of the head and shoulders reversal formation.\nM2, M4, M6, M8, M10, M11 are often components of the inverted head and shoulders pattern.\nFor the rest of the figures — M7, M9, M12, M14, W1, W3, W5, W8, W10 — signals are generated based on the general rules described below for W and M shapes.\nW-Bottoms (Double Downs)\nW-bottom is the most common pattern of transition to the bullish market. It is rarely seen in its pure form and often has a variety of deviations from the ideal shape.\nBollinger developed a system for the psychological assessment of market sentiment based on the following pattern features:\nLonger right side suggests that there is a sentiment of disappointment in the market. Many investors expect another retest of the lows, abandoning their positions and are extremely disappointed after the price soars up.\nEquality of the lows on the left and right sides indicates a calm market. Investors make purchases after a repeat testing without much stress and soon get the expected profit.\nIf the low on the right side is lower than the low on the left, this situation is accompanied by fear and discomfort on the part of the masses of ordinary traders. Many of them went long at the previous low and ended up being kicked out of the market. Few of them will want to buy again, and the inflow of new money is limited to the formation of a new low point. The technical analyst Richard Wyckoff once called this phenomenon a spring, and this term is still used in the trading circles to this day.\nAs for the interaction of the W-bottom with the BB, in most cases the left side of the pattern will touch the lower line or cross it. The growth following the local low will again return the candles to the inner zone of the bands. In this case, the crossing of the middle line of the moving average indicator should occur.\nThe next move will be a second touch inside the lower Bollinger Band. It is important to pay attention here that the low in the considered strategy is determined by the lower Bollinger bands. If the first point crossed the band, and the second is formed within the channel, then the second low will be considered higher even if it is located lower in absolute terms.\nThe retest price must be greater than or equal to the price of the first low. This is one of the most important requirements. To check whether it is met, you can use the previously discussed %b indicator, which allows you to accurately measure the position of candles relative to Bollinger bands.\nAnother feature of W-bottoms is the presence of some smaller formations in their structure. A closer look at smaller timeframes reveals reversal signals. They form the beginning or end of the compound segments of a large figure.\nA W-bottom gives a clear signal of base formation. Therefore, these formations are often used to predict trend reversals and open positions.\nThe chart depicts a growing W-bottom. This is a formation in which retesting occurs at a higher level. This is true only when analyzing the absolute location of the lows, i.e. the location relative to the coordinates of the chart. As for the Bollinger Bands, both low points cross the lower line at approximately the same distance. We can talk about the equality of the lows of the left and right sides and equilibrium in the market.\nAfter finding the W-bottom, you need to answer the question: \"When and what positions should I open?\" Experts recommend buying “strong” — wait for the moment when a bar with a volume and range above average is formed. This will be the signal to open a long position.\nThe stop order should be set below the last low point (below the right side of the formation). Later it should be moved up. You can do this by eye or according to your own rules. For beginners, I recommend starting with stop losses set off from local lows.\nM-Tops\nWhile the most common base shape is a W-bottom, the tops can be double or triple in an M-top.\nThe most common case of a triple top is the head and shoulders pattern, which is well known in technical analysis. It shows rapid growth and small rollbacks. This rollback forms the left shoulder. It is followed by another period of growth, which forms a new high, which ends with an even larger rollback. Quite often, this rollback completes near the previous local low. It forms the so-called head.\nFollowing the head, the right shoulder is formed. It represents a failed growth with an amplitude less than the previous one (ideally ends around the peak of the left shoulder) and a subsequent fall in price setting a new low. The right shoulder may be followed by another minor growth, bringing prices back to the vicinity of the lows of the left and right shoulder. Many traders often refer to these lows as the neckline. It is usually followed by a complete fall.\nThe chart depicts a head and shoulders formation. For clarity, I marked its outlines with green lines, and its components with numbers:\nleft shoulder;\nhead;\nright shoulder;\nbackward movement before final decline.\nThis example clearly shows that in practice the head and shoulders are rarely formed as a perfect structure. Deviation of one or more parameters is considered acceptable.\nWhen analyzing a figure, I also recommend paying attention to volume. On the left side of the figure, especially in the head area, it is characterized by high values. At this point, news is published preceded by rumors and expectations. After passing the peak of the head, activity decreases. A small surge of optimism can be observed on the right shoulder or the last jump up.\nIn the chart, we see that at the moment of the formation of the right shoulder, traders are confused. Most of them argue that a reversal is inevitable. Therefore, the increase in volume occurs at the stage of the lowering of the right shoulder. In the first part of the last spike, the high volume can be explained by the struggle between bulls still hoping for growth and bears confident of the fall. After passing the peak, massive sales continue at the expense of traders, who at the last moment realized that further growth is impossible.\nAnalysis of the formation using Bollinger signals is even more interesting. In the ideal version, the left shoulder goes beyond the upper line. The right one misses it by a little. The neckline in the right shoulder often stops at the moving average, and the first decline is in the vicinity of the lower Bollinger band.\nIn our graph above, only one condition is met strictly. Upon reaching its peak, the first shoulder is crossed by the Bollinger Wave indicator (blue arrow). The bands contract when the neckline is bounded by the lower band rather than the moving average. You can also say that the first decline stops at the lower line (red arrow). However, upon closer inspection, a slight overlap is noticeable. This once again confirms the fact that in real trading you will rarely come across perfect shapes.\nThe first part of the head and shoulders formation is ideally an M-top consisting of a left shoulder and a head. Most often it is expressed in the form of an M15 or M16 shape. The next part is also an M and it includes the head and right shoulder (possible shapes are M3, M4, M7 and M8). The last phase (right shoulder and reverse growth before the final decline) can be formed in the form of an M1 or M3 shape.\nM-tops are useful for identifying the tops of sustainable trends. In the process of their formation, there is a reversal of the price movement, which opens up opportunities for effective entry into the market. Even more useful is the analysis of the interaction of the head and shoulders with the BB. It allows you to recognize the pattern before it is fully formed, which means opening a position at one of the high points and increasing the final profit from the trade.\nAt the same time, starting from the right dip after the head, the structure has a downward slope. This means it can be analyzed using W shapes. Reverse growth often forms as W1 or W2 shapes.\nAs you analyze, you can get deep into the details by identifying each component of the M and W at the following levels. There should be five of them in total. But with traditional analysis, there is no need to analyze all the constituent figures. It is enough to find a few of them. In addition, the formation is easy to read visually, as well as in terms of its interaction with Bollinger Bands and the impact on trading volumes.\nThree pushes to high\nIn addition to the classic head and shoulders, you will often see a variation of this pattern, which Bollinger calls the three pushes to a high. It usually completes larger shapes. When analyzing this structure using Bollinger Bands, you can see the following patterns:\nThe first push goes beyond the upper bands.\nThe second push creates a new high and touches the upper level.\nThe third push may or may not form a new high. If a new extreme point is created, it will not be much higher than the previous one. In this case, the third push does not touch the upper Bollinger band.\nThe highest volumes are observed at the first stage of the development of the three pushes to a high. Then the activity gradually decreases and in the final stage reaches a low. Let's take a look at an example.\nIn the EURUSD chart, I marked the direction of price movement with green lines. The peaks of the three pushes to a high are labeled with numbers. We will use them as serial numbers. The first push naturally crosses the upper Bollinger band. The second creates a new top. However, it is only slightly higher than the previous one. Because of this and as a result of the previous rapid upward movement, the second pattern is not realized.\nThe third spike is also not much stronger than the previous ones. Its high touches the Bollinger band, but the end point of the candlestick is below it. A gradual decrease in volumes from the beginning of the formation to its end confirms an early reversal. I marked this phenomenon in the chart with a blue line.\nBollinger Bands Strategies\nIn this section, I have collected the most popular Bollinger Bands strategies. We will look at various methods within the day, in the lowest timeframes, learn how to squeeze the bands and use their signals in conjunction with other indicators. I will separately talk about the Bollinger Bands strategies, which involve trend following in the presence of a breakout of important levels and additional reversal signals.\nDaily Trading with DBBs (Double Bollinger Bands)\nKathy Lien\nThis method appeared as a result of the efforts of the exchange analyst Kathy Lien. In her book, The Little Book of Currency Trading. How to Make Big Profits in the World of Forex, she described an unusual technique involving the use of two Bollinger Bands of the same type in the same chart.\nTo understand what this is about, let's add them to the chart. The first indicator will be with a period of 20 candles and two standard deviations.\nFor the second indicator, we use slightly different Bollinger Band strategy settings: a 20-bar period and one standard deviation.\nI also recommend assigning its own color scheme for each indicator, so that it’s easier to compare their readings in the chart.\nThe final Bollinger indicator consists of five lines:\ntop (red) line with two standard deviations;\ntop (green) line with one deviation;\nmoving average (blue);\nbottom (green) line with one deviation;\nbottom (red) line with two deviations.\nAll bands, except the middle band of the moving average, form trading zones that we will use to open trades:\nbuy zone — between the upper red Bollinger band and the upper green line;\nneutral zone — between the upper green and lower green line;\nsell area is between the lower green and lower red line.\nThe price being in the buy zone indicates the strength of the current trend. This means that there is a high probability that the price moves will go up for some time. For trend trading, Ketty recommends opening long positions when the close of the candlestick hits the upper quarter of the double Bollinger indicator. In this case, the two bars preceding it should close in the neutral half. Keep a long position as long as the candles close within it.\nOn the other hand, if the price moves in the sell zone, it indicates the strength of the bearish trend. By analogy, here you should open short positions (provided the closing points of the two previous bars are in the neutral half) and keep them until the candle closes return to the neutral zone.\nFor an uptrend, we should identify the m tops and place a stop order at the lowest price of the first bar that broke the upper bands of the neutral zone. For a downtrend, the stop order position is determined by the high of the first bar that breaks the lower line of the neutral zone. The initial target is set at a distance of two stop losses. When the distance of one stop loss is passed, Kathy recommends moving it to breakeven. Then it should be gradually moved along with the potential target following the price moves and closed manually when the last candlestick closes in the neutral zone.\nAfter the price has entered the neutral zone, we can consider two possible scenarios:\nThe price will move to one of the trading quarters — usually this happens when a trend reverses.\nThe price will consolidate in the neutral zone — there will be a “calm before the storm”. You can prepare for a strong movement in either direction.\nThe price being in the neutral zone demonstrates uncertainty. You should refrain from entering the market and wait for the price to close in one of the quarters. Alternatively, you can go to a lower timeframe or trade short-term trades within the channel. In the latter case, the\nGrid trading strategy\n, which I talked about in one of the previous materials, may come in handy.\nNow let's look at the classic strategy Double Bollinger Bands through an example.\nIn the chart, the bar marked with a blue oval closes in the upper quarter. A buy signal appears. Open a long position at the close of the candlestick at 1.17873 points (blue line in the chart). Set the stop loss at the low of the candle that has broken through the first upper line. It is marked with a red line in the chart. I’ve marked the target with a green line, it’s located at two stop loss lengths.\nIn the future, you can stop at the target level. But it is much better when the price grows to move the stop loss to the breakeven level, leave it at this position and wait for the signal to close the order or move it dynamically with the target.\nAs long as the price remains in the upper quarter, we leave the position open. In the chart above, the borders of this period are between the blue and orange ovals. Then a downtrend bar forms — see inside the orange oval. It closes in the neutral zone, which is a signal to take profit. The closing price is marked with a black line and is 1.18755 points. The resulting profit will be equal to 1.18755 - 1.17873 = 0.00882 points excluding spread.\nIf we had stuck with the option of moving the stop loss and target, the close would have occurred automatically at the 1.18877 level marked with a red line. In this case, net profit excluding spread would be 0.00886 points.\nIt is recommended to use the strategy of double Bollinger bands on trend instruments. You can use almost any timeframe — from M15 to D1.\nHere's what experienced traders think of the strategy:\nBollinger Bands Scalping\nThis strategy\nworks on any exchange instruments. The recommended chart timeframe is M1 to M15.\nWe will receive the main signals from Bollinger Bands. We will use them to identify opportunities for opening and closing positions.\nThe picture above shows how to set up the Bollinger Bands trading strategy. The parameters are standard — the period of the middle band of the moving average of 20 bars and two standard deviations.\nThe\nRSI indicator\nis used as a signal filter.\nI recommend using the 8 bar period for it. Go to the indicator settings, open the \"Parameters\" tab and set 8 under the \"Length\".\nWe leave the upper and lower limits as is — 30 and 70.\nTo open a long position, the following conditions must be met:\nthe price candlestick touches or breaks the lower Bollinger band;\nRSI level is below 30;\none of the following candles will close within the channel.\nThe stop loss is set just below the low level of the breakout candle. The gap should not be less than 10 points. The optimal ratio of take profit to stop loss when using this strategy is 0.6. Therefore, the minimum target should be at least 6 pips above the buy price.\nTo open a short position, the following conditions must be met:\nthe candle touches or breaks the upper band;\nRSI level is above 70;\nenter when one of the following candles closes within the channel.\nSet stop losses and take profits similarly as with long positions.\nLet's consider the application of the strategy using an example.\nIn the five-minute\nEURUSD\nchart, a blue circle marks the area where one of the candles touches the lower band. At the same time, the RSI is below 30%, confirming a buy signal. We open a long position immediately after the close of the next upward candlestick within the channel. The opening price is 1.18805 points (green line). The stop loss is set below the low of the touch candle. Since there are several such bars in a row, we take the smallest low and set the stop loss just below it. Set the take profit slightly above the buy price so that it is about 60% of the stop loss.\nThe take profit is crossed on the next candlestick after the opening. Thus, the long position is automatically closed at the price of 1.18868 points. The profit from the trade is 1.18868 - 1.18805 = 0.00063 points.\nBollinger Band and Stochastic Strategy\nBollinger trading with the\nStochastic indicator\nis similar to the previous strategy using the RSI. We will use the bands to detect potential entry points, and the oscillator readings to filter signals. Unlike the previous one, this trading method is more like a channel strategy, with the only difference that the Bollinger channel will be used for trading decissions. Therefore, it is very important to pay special attention to setting the indicator bands. As an example, we will use standard parameters — a 20-bar moving average and a multiplier with a factor of 2. Your input data may be different. Depending on the trading instrument, timeframe and market peculiarities, select the period and multiplier in such a way that the moving average of the indicator shows the correct trend direction. At the same time, the price should not be outside the channel for longer than several candles.\nTo add a Stochastic, click on the \"Indicators\" button in the upper part of the online terminal window. Select \"Stochastic Oscillator\" from the dropdown list.\nWe will use the following default parameters for the Stochastic: periods 5 for line K and 3 for line D, length 3. You can change the colors of the K and D lines, as well as the upper and lower limits in the \"Style\" tab. By default, K is orange and D is blue.\nConditions for opening a buy order:\nthe candlestick crosses or at least touches the lower band;\nthe oscillator shows oversold (less than 20%);\nline K crosses D from bottom to top;\nbuy after the close of the signal candle.\nConditions for opening a sell order:\nthe candlestick crosses or at least touches the upper Bollinger band;\nthe oscillator shows overbought (more than 80%);\nline K crosses D from top to bottom;\nSell when the signal candle closes.\nStop loss is set with an offset of at least 10-20 points from the low of the breakout candle in the case of a long position and the high in the case of a sell position. Set take profit on the opposite Bollinger band. When buying, take profit will be located on the upper bollinger band, and when selling — on the lower one.\nLet's consider the application of the strategy using an example.\nIn the area of the chart marked with a blue oval, the candlestick crosses the lower band. Here line K crosses D, and the Stochastic itself shows oversold below the 20% level.\nAt the opening of the next candle, we enter the market with a buy position at 1.08752 points (green line). Set the stop order a little lower (red line).\nPlace the take profit on the upper Bollinger band. It is marked with a blue line in the chart. After a while, one of the candles reaches it and the order is automatically closed at a price of 1.09100 points. Thus, the profit from the trade is 1.09100 - 1.08752 = 0.00348 points.\nIf you are going to use this strategy on small timeframes, I recommend to monitor more stable trends additionally. This way you will avoid entering the market against powerful trends.\nUsing EMA and WMA instead of Simple Moving Average\nMany traders often ask: \"Can I use a weighted average or exponential instead of a moving average?\" In theory, any average is suitable for plotting BB. When trying to answer this question, John Bollinger himself did a comparative analysis of various averages and came to the conclusion that the classical moving average is the simplest and most accurate tool for constructing reference points.\nLet's compare the indications of moving averages using an example.\nIn the chart, the blue middle band channel represents standard bands based on a 20-period moving average. The orange channel, in turn, was built on the basis of the 20-period EMA. As you can see, in times of high volatility, where the bands expand significantly, these methods give different results.\nAnd in this chart, the red channel marks the bands plotted by the WMA, and the blue one — by the middle line of the moving average. As you can see, in this case the differences are noticeable, especially at the extreme points.\nBoth examples show that using WMA and EMA instead of a moving average can give very unexpected results. Therefore, these averages are not recommended for Bollinger trading.\nBollinger Band Squeeze\nBollinger Band strategy is driven by volatility. Because of it, the bands widen or contract.\nTo determine the degree of compression, John created the BandWidth indicator. It determines volatility as a function of the average and works great on any time frame. BandWidth is calculated by the formula:\nBandWidth = (UB - LB) \/ μ\nUB — upper Bollinger line;\nLB — lower Bollinger line;\nμ — moving average value.\nYou can download Bollinger Bandwidth for MetaTrader 4\nhere\n.\nLet's look at the process of installing and setting up the indicator:\nDownload the archive from the link above and unpack it. We need the dinapoli-BandsBandwidth.mq4 file.\nOpen the File tab in the MetaTrader4 top menu. Next, select the item \"Open Data Folder\".\nFile explorer will open with the target folder. In it, select the \"MQL4\" folder.\nThen select the \"Indicators\" folder. Copy the unarchived BandsBandwidth.mq4 file to this directory. Restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be\nEURUSD\n.\nAt the top of the terminal, open the \"Insert\" tab, then go to the \"Indicators\" item. Click on the \"Custom\" item and select the name of the newly installed indicator. In our case, it’s BandWidth.\nAfter that, the indicator window will appear. By clicking on the OK button, you launch the indicator with default settings.\nBollinger bands best settings\nYou can also change the indicator settings. Best Bollinger band strategy setting is:\nCommon — these are the technical settings for the indicator. They are best left as default.\nInputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings.\nColors — here you can set up the color, thickness and look of the indicator lines.\nLevels — this item allows you to set levels. For example, the level, upon crossing which you need to buy, etc.\nLet's look at the indicator's application using an example.\nThe Bollinger indicator is shown in the chart with red lines. At the bottom, the blue line shows BandWidth. The principle is simple: the higher the line, the greater the expansion; the lower the line the stronger the narrowing. With blue arrows, I marked the narrowing areas, which correspond to the minimum typical values in the BandWidth chart.\nThe Bollinger Bands Squeeze strategy shows good results during narrowing and expansion. It is a channel trading method. The idea is to open positions on a rebound from one of the levels. The strategy works well on any exchange instruments with a timeframe of M30 and higher.\nWe need:\nBollinger Bands indicator with the following settings: 20 periods and two standard deviations.\nBandWidth indicator.\nTo add the Bollinger Bands indicator to the chart, open the \"Insert\" tab in the main menu, then \"Indicators\", \"Trend\" and in the submenu that opens, select Bollinger Bands.\nThis will open the settings window. In it, we will set the period equal to 20 bars and two standard deviations.\nAs John Bollinger argued, periods of low market activity are cyclically replaced by periods of high volatility where the bands widen. This statement is the essence of the Bollinger Squeeze strategy.\nThe signal for an early entry into the market is the narrowing of the BB. We will identify it using BandWidth, which demonstrates its lowest values during this period.\nIn the EURUSD chart, the blue arrows indicate a narrowing. Please note that the BandWidth is at its lowest during this period.\nThe next goal is to identify when the narrowing ends. The beginning of the movement is evidenced by the breakout of one of the Bollinger bands. For a bearish trend, this will be the crossing of the lower level, and for a bullish trend, it will be the crossing of the upper level.\nIn the chart, I have marked the moment of the breakout of the lower level with a red arrow. This signal indicates the beginning of a bearish trend.\nYou can set the stop order, as in previous trading methods, at the high or low point of the breakout candle. The initial take profit must be at least twice the stop loss length. Since we are talking about trend trading decissions, it makes sense to use the trailing stop and wait for the signal of the trend end. This signal can be one of the patterns described in the analyst's book or another narrowing of the channel.\nThe next narrowing of the channel is marked by green arrows in the chart. It signals a reversal, which means it's time to close the short position.\nImportant!\nDuring the squeeze, one unusual phenomenon often happens that confuses most beginners. This is a false breakout that occurs in anticipation of the end of the squeeze. At this moment, the chart makes an intense but short-term movement. After that, it also reverses sharply and starts to move in the direction of the emerging trend. This phenomenon can also be used as a signal for the end of market consolidation.\nIn order not to be fooled by a false breakout, don’t jump to conclusions. Wait a bit until the movement develops so that there is no doubt that a new trend is forming. Experienced traders often derive additional profits from false breakouts. To do this, they open a position at the very beginning of the movement. After that, a trailing stop is set in such a way that it falls into the breakeven zone as soon as possible. Further moving of the stop order in the direction of the candlestick formation will give profit when triggered.\nBollinger Bounce\nThis strategy is suitable for trading opportunities on timeframes from M30 to H4. It is based on two popular tools: the Bollinger Bands indicator and the RSI. The essence of the trading system boils down to finding a price bounce, which is formed during the development of a trend.\nFirst, let's add Bollinger Bands and RSI to the EURUSD chart of\nLiteFinance online terminal\n. To do this, click on the \"Indicators\" button at the top of the chart. Then, in the menu that opens, click on the \"Bollinger Bands (BB)\" and \"RSI\" links.\nNow let's move on to setting up the tools.\nFor Bollinger Bands trading strategy, we will use standard parameters: 20 bar period and 2 standard deviations.\nFor RSI, we will also leave the default settings:\nlength — 14;\nlimits — 30 and 70.\nLet's modify the RSI a little by adding a horizontal line at the 50 level.\nThe Bollinger Bounce strategy involves trading on developing trends. The direction of price movement does not matter. In an uptrend, we will look for the moment when the price action rolls back down, touches or almost touches the lower band. In a downtrend, on the contrary, we need a moment when several candles go up and stop at the border of the upper band and identify the m tops.\nNext comes the RSI. We will use it to understand how the instrument is strengthening or weakening in its value. In an upward trend and downward rollback, the signal is confirmed when the indicator line is within 30-50. Ideally, it goes up. Accordingly, in a downtrend and an upward rollback, the RSI should be between 50 and 70 and going down.\nIf the main trend is upward, we enter the market at the close of the subsequent bullish (white) candlestick. If the trend is downward, enter after the close of the bearish bar. If the movement is too strong and you are afraid to miss a significant part of the movement, you can move to the next smaller timeframe and wait for the bar to close on it.\nPlace stop loss a little behind the touch point of the Bollinger Band indicator. It is recommended to place take profit at the level of the opposite band.\nLet's see how the strategy works though an example.\nThe\nEURUSD\nchart shows an uptrend. In the place of the supposed bounce, one of the bars touches the lower band (green oval area). In this area, the RSI moves in the direction of the trend and is located in the optimal range from 30 to 50 percent. Therefore, we can talk about a signal for the upcoming bounce.\nFollowing the touch candle, a bullish bar is formed, signaling the start of a bounce. At its final point, open a long position at 1.09042 points (green horizontal line). Set the stop loss (red line) slightly behind. Take profit is placed at the level of the upper band (blue line).\nThe position closes by take profit (blue line) upon reaching the level of 1.10031 points. The profit from the trade was 1.10031 - 1.09042 = 0.00989 points.\nBollinger Band Breakout Strategy\nMany experts agree that strategies based on breakout signals are the most effective. The Bollinger Bands indicator is among the best indicators for tracking and predicting future impulses. This is noted by D. Rooney, technical analyst and trader with ten years of experience, winner of an award in writing trading systems.\nOne such trading system is the Bollinger Band breakout strategy. It is equally effective on both 5-minute and weekly timeframes. This strategy is the complete opposite of the Bollinger Bands bounce strategy. The founder of breakout trading is Bruce Babcock, the author of the intuitive trading theory. John Bollinger liked his approach to trading volatility breakouts and decided to adapt it to his indicator.\nThe key to success is the correct choice of timing to enter the market, namely, the moments of lowest volatility. To determine the narrowing, we will use the already familiar BandWidth indicator. I’ve talked in detail about this tool, its installation and setting up in the section on narrowing.\nIf the BandWidth narrows, the trader should be prepared to see a breakout of one of the Bollinger Bands. We enter the market as soon as one of the candles closes above or below the line. The direction of the position coincides with the direction of the breakout. This means, if the upper band is crossed, we open a long position, and if the lower one is crossed — a short position.\nStop orders are placed just below the breakout candle. Then, at regular intervals, the stop loss is pulled up by the price movement distance. Such intervals will be different for each of the timeframes. In daily charts, the optimal nudge time would be the opening of trades at the beginning of the day. You can also use the trailing stop, which changes the stop loss value at the close of each candle.\nBreakout Strategy is almost identical to Bollinger Squeeze. But there is also a significant difference. It’s in an alternative parabolic way of exiting the market. In this case, the stop loss is set in the breakeven zone during the growth process. We exit the market when the opposite band is touched: for the bullish movement — the lower bands, and for the bearish — the upper band. Let’s look at this option through an example.\nFor the breakout strategy, I took the same chart that was used to demonstrate squeeze trading. The blue arrows indicate the narrowing area, the red one shows the candlestick crossing the lower level. When it closes, we enter a short position. With the blue line, I marked the entry price of 1.00002 points. And the red line is the initial stop loss.\nDuring the development of a bearish trend, we move the stop loss to the opening price (in reality you need to move it a little lower to compensate for the spread). The new stop loss is marked with a red line. I also left the original one intact for clarity. It is now marked with a semi-transparent red line.\nThe position is closed when the candlestick touches the upper Bollinger band. This event is marked with a red cross in the chart. The closing price is marked with a green line and is 1.09410. This trade should have brought us a profit of 1.09410 - 1.00002 = 0.09408 points.\nTrend Trading Indicator Strategy\nThe essence of this approach boils down to predicting the birth of trends using price strength analysis. The analyst considers the ability of the chart to approach the upper band during an upward movement and the lower one during a downward movement as a sign of strength. Additionally, the strength is confirmed by the MFI readings.\nTo measure how close the price action is to one of the bands, we will use the Bollinger Bands %b indicator. I talked about it in detail in the section \"How the Bollinger Wave Indicator Works\".\nLet's look at the process of installing and setting up the indicator:\n1. Download the Bollinger Bands %b indicator from\nhere\n.\n2. Open the \"File\" tab in the top menu of MetaTrader4, select the \"Open Data Folder\" item.\n3. File explorer will open with the target folder. In it, select the \"MQL4\" folder.\n4. Select the \"Indicators\" folder. Copy the unarchived Bollinger_Bands_3b.mq4 file to this directory and restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be\nEURUSD\n.\n5. At the top of the terminal, open the \"Insert\" tab, then go to the \"Indicators\" item. Next, click on the \"Custom\" item and select the name of the newly installed indicator — Bollinger_Bands_3b.\n6. The indicator window will appear. By clicking on the OK button, you will launch the indicator with default settings.\nThe editable parameters of the tool are in the following tabs:\nCommon — technical settings for the indicator. They are best left as default.\nInputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings.\nColors — here you can set up the color, thickness and look of the indicator line. By default, it is bright yellow, so it is better to immediately change it to a more vivid color.\nLevels — this item allows you to set levels. For example, a level, at the crossing of which you need to buy, etc. In the case of our strategy, it makes sense to add levels 0.8 and 0.2.\nVisualization — here you can select the timeframes on which the indicator will be displayed.\nYou can download MFI from\nhere\n.\nThe installation principle for this instrument is the same as for Bollinger Bands %b. Most of the settings are the same as well.\nThe only difference is in the \"Inputs\" tab, where you can only change the period. For trend trading with MFI, it is recommended to set a period that is half the period of Bollinger Bands %b, which for us is 10 bars.\nThe tool itself is designed to measure the intensity with which funds are invested in a security’s price or withdrawn from it. Its full name reads as the Money Flow Index. Within the described trading system, we will only be interested in levels above 80 and below 20 signaling a potential market top and bottom.\nWe also need classic Bollinger Bands trading strategy with standard settings: 20 period and 2 standard deviations.\nConditions for opening a long position:\nBollinger Bands %b is in the range from 0.8 to 1.\nThe MFI chart is above 80.\nWe enter after the completion of the growing bar. Stop orders are set at the low price with a two candlestick offset, counting from the bar with an open position.\nConditions for opening a short position:\nBollinger Bands %b is in the range from 0 to 0.2.\nThe MFI chart is below 20.\nWe enter after the completion of the descending bar. Stop orders are set at the high of the candlestick with an offset of two bars from where the position was opened.\nIn the process of the market movement along the trend, the stop order should be moved to a break-even position. We take profit when one of the bars crosses the Bollinger Band opposite to the trend direction. For an upward movement this will be the lower Bollinger bands, and for a downward movement it will be the upper one.\nLet's look at an example.\nThe\nEURUSD\nchart shows a downward trend movement. The blue arrows mark the candlestick in which the Bollinger Bands %b ranges from 0 to 0.2, and the MFI chart is just below 20. Both conditions for opening a short position are met.\nEnter the market at the close of this bar at 1.09731 points (blue line). Stop-loss is placed at the candlestick low with a two-bar offset from where the position was opened (red line).\nWhen the trend develops, we move the stop loss to a breakeven position (red line). For clarity, I marked the initial stop level with a transparent red line.\nThen the price touches the upper band opposite the green cross. At this moment, we close the order at 1.09402 (green line). The total profit is 1.09731 - 1.09402 = 0.00329 points.\nSome traders prefer to use an alternate version of the trending strategy that uses\nMACD\ninstead of MFI. This indicator shows really good results on some instruments. So if you want to find the ideal trading method for several of the most commonly used currency pairs, it makes sense to test the strategy with both MFI and MACD.\nBollinger Bands Reversal Strategy\nThis strategy aims to predict trend reversals by comparing the touch of the Bollinger Bands with the behavior of indicators.\nFirst of all, we need a Bollinger indicator with standard settings. I’ve described earlier how to add it to the MT4\/MT5 chart.\nWe also need the MACD oscillator. It is available in MetaTrader by default.\nTo add this instrument to the chart, click on the \"Insert\" button, then \"Oscillators\" and select MACD in the drop-down list.\nA new window with the settings will appear. The period of the fast EMA should be set at 21 bars, the slow one at 100 candles, and the signal line — at 9. You can do this in the \"Parameters\" tab.\nIn the \"Colors\" tab, you can change the colors of the histogram and signal line.\nFor convenience, in the \"Levels\" tab, add a new value \"0\". The third indicator will be the Bollinger Bands %b, which is already familiar to us from the previous strategy. I have already described its installation and setting up. It is standard.\nIn the trading process, we will need to determine the levels 0.95 and 0.05. So let's add them to the indicator chart.\nOpen a long position when the following conditions are met:\nThe candlestick touches the lower Bollinger band;\nBollinger Bands %b ranges from 0 to 0.05;\nMACD is above zero.\nOpen a short position if the following conditions are met:\nThe candle touches the top band,\nBollinger Bands %b ranges from 0.95 to 1,\nMACD is less than 0.\nPlace the stop loss at the extreme reversal point, and in the process of the new trend development, move it to the breakeven zone. A signal to close can be a narrowing, the appearance of conditions for the next reversal, or touching of the Bollinger Band opposite to the direction of the main movement.\nLet's look at the strategy using an example.\nIn the chart, blue arrows mark the moment when one of the candles touches the upper band, Bollinger Bands %b is in the range from 0.95 to 1, and MACD is less than 0. This is a clear signal to enter the market.\nAt the close of the bar, open a short position at a price of 1.10447 points (green line). Wait for the appearance of the high price values at the reversal in the vicinity of the candlestick and set a stop loss (red line) at this level.\nMove the stop order to the breakeven zone (red line). I’ve marked the previous stop loss value with a semi-transparent red line.\nThe development of the downtrend ends. The candlestick marked with a red cross crosses the upper border of the channel. After detecting the signal, close the position at a price of 1.09831 points (green line). The profit from the trade is 1.10447 - 1.09831 = 0.00616 points.\nBollinger Bands Screener\nFor effective profitable trading, it is important to always be on alert and monitor the market situation. While accessing the market is easy now even from a smartphone, novice traders often have problems with the choice of an instrument for trading.\nScreeners help you solve this problem — these are services for tracking trading instruments according to user-specified criteria. With their help, you can not only save time on market analysis, but also choose the best moments for entry and exit.\nOne of the best quality screeners is offered by tradingview.com.\nHere you can set up filters by technical and fundamental parameters.\nFor your convenience, in the upper part of the window there is a search bar for parameters by name. All filters are divided into three categories:\ncommon;\nfundamental;\ntechnical.\nAs part of Bollinger trading, we are interested in technical filters.\nIn particular, here you can select assets whose price action is located near a certain level of the upper or lower Bollinger band, such as a security’s price for example. In this case, you can set both standard parameters (higher or lower) and more complex ones: for example, higher or equal, crosses up and down. You can even configure the Bollinger indicator so that it will work with an alert and send trading signals if a specified condition is met.\nYou can refine your search using other tools that we used in the described strategies. For example, you can use the RSI readings to select trading instruments for which you should enter the market right now.\nBollinger Bands Tips & Rules\nWhichever strategy you use, certain basic rules should always be followed when working with Bollinger Bands. They were deduced by the author of the indicator John Bollinger and listed in his book. I chose the most relevant ones and put them in a simpler language:\nBollinger Bands should be used in conjunction with other technical analysis tools.\nYou can use a variety of indicators with Bollinger Bands that determine momentum, market sentiment, activity, intermarket data, etc. The indicators used should not be connected to each other. For example, trend and price volatility are used in the calculation of the bands. Their use for additional confirmation of price action behavior is meaningless.\nThe default indicator parameters are applicable for most instruments, timeframes and trading methods. But this does not mean that you cannot use other settings. It is important that the middle band of the moving average always describes the medium-term trend well. If it lengthens or shortens, the number of standard deviations should also be increased or decreased. For example, for fifty periods it is better to use a ratio of 2.1, and for 10 periods — 1.9.\nBollinger Bands are good for confirming chart patterns such as triangles, double and triple tops and bottoms, head and shoulders, and other W-shaped bottoms and M-shaped tops.\nWith a directional price movement, it can often move along the upper line and in the case of a bearish trend — along the lower one.\nBars closing outside the bands are statistically more likely to indicate the continuation of the trend, rather than its end.\nThe price touching the band does not in itself signal a buy or sell. Therefore, it should be considered only in conjunction with the readings of other indicators.\nThe Moving Average in Bollinger Bands is not a substitute for strategies that involve SMA, EMA and other types of averages.\nThe Bollinger Bands %b indicator will help determine the position of the price relative to the Bollinger Bands.\nThe BandWidth indicator is recommended to be used together with Bollinger Bands. It helps identify the “calm before the storm” and signs of trend changes.\nBollinger Bands work on any timeframe and any market conditions. An important requirement for the correct use of the indicator is sufficient price activity and calibration of the parameter settings based on the history of its movement.\nBollinger Bands do not provide clear recommendations on their own. This indicator should improve your chances of avoiding bad trades.\nBollinger Bands PDF\nHere you can download a\nquick guide to Bollinger Bands PDF with the secrets to using them\n.\nRemember these rules and always stick to them if you use Bollinger Bands in your trading method.\nBollinger Bands FAQ\nHow does the Bollinger indicator work?\nThe Bollinger Bands is a technical analysis tool that works on the basis of a moving average. The upper and lower levels are equidistant from the MA. The lag rate is calculated using the standard deviation multiplied by the specified factor. The latter depends on the length of the moving average. For example, for the MA with a period of 21 bars, it is recommended to use 2 standard deviations, and for one with a period of 10 bars — 1.9.\nHow to use the Bollinger indicator?\nThe indicator itself provides little information. Almost all trading systems use Bollinger Bands in conjunction with the readings of other indicators. These can be both classic RSI, MACD, Average True Range (ATR), as well as more complex volume indicators or entire trading systems. The only condition is that there is no connection between the calculation of the Bollinger Bands and additional indicators.\nWhat is the best setting for Bollinger bands?\nThe key nuance in setting up Bollinger Bands is maintaining the optimal ratio between the period of the moving average and the number of standard deviations. The classic version uses a 21 bar period and 2 deviations. If the period for some reason increases to 50 bars, you should use the ratio 2.1. And if it decreases to 10 bars, then 1.9.\nHow accurate are Bollinger Bands?\nThe Bollinger Bands indicator itself cannot provide accurate information about whether to open a position or close an existing one. They provide good forecasting accuracy when used with other indicators or in combination with several Bollinger Bands with different settings.\nHow do you master Bollinger bands?\nI think one of the simplest and at the same time effective methods is the trend following strategy. It is used for trading instruments that follow long-term steady trends. If we are talking about volatile currency pairs, a scalping strategy is better suited for them.\nHow do I use Bollinger Bands in intraday trading?\nIn intraday trading, I recommend using channel strategies in combination with Bollinger bands on small timeframes. If you are a beginner, it is recommended to consider trending strategies with a horizon of at least a few days. The Double Bollinger Bands strategy is great for this. It allows you to accurately identify the buy, sell and profit-taking zones. This will increase your trading discipline and help you avoid unnecessary mistakes at the very beginning.\nWhat do fundamental investors think about Bollinger Bands?\nOne of the most famous investors in the world Warren Buffett never mentioned that he uses Bollinger Bands. Lesser-known traders often stick to Bollinger's tools and rules. Experienced traders are captivated by the versatility of the indicator and good compatibility with any trading strategy. Bollinger Bands are often used as a confirmation filter for signals and help to figure things out when the market conditions are not obvious.\nAre the Bollinger Bands the most useful indicator?\nIt is difficult to gauge the usefulness of Bollinger Band indicators. Despite its relatively young age, this tool has become classic in technical analysis. Such a phenomenon cannot be an accident. You shouldn't overestimate the capabilities of the Bollinger Bands either. One thing is certain. This indicator needs to be tested with your trading strategy. This is the only way you can understand whether this indicator is useful to you or not.\nWhich are some good books on Bollinger Bands?\nBollinger on Bollinger Bands is the only book by the author of the instrument that describes Bollinger trading in detail.\nWhat does it mean when the Bollinger bands are narrow?\nThe narrowing of the bands indicates a decrease in volatility to a minimum. Bollinger believes that such situations occur cyclically. The narrowing is always followed by expansion, and expansion is always followed by narrowing. This pattern is used in some strategies to identify the beginning or end of a trend.\nConclusions on Bollinger Trading\nBollinger Bands, like most other technical indicators, are best not applied alone. However, they can become an integral part of your trading strategy and give a good result in combination with other trading signals. At first, you can use the above trading methods. If you are just starting out as a trader, it is best to first master the Bollinger Bands trending strategy on a large timeframe. You can get invaluable experience in trading the Bollinger Bands strategies mentioned in this article on a Litefinance demo account completely free of charge and without registering.\nThe Bollinger Band indicator can be compared to a seasoning. Eating it with a spoon will not bring great results, but it will make any dish tastier. When you gain experience and intuitively understand the indicator signals, try additional tools and different combinations of settings and indicators to maximize your profitability. The Bollinger Band indicator is perfect for almost any strategy!\nP.S. Did you like my article? Share it in social networks: it will be the best \"thank you\" :)\nUseful links:\nI recommend trying to trade with a reliable broker\nhere\n. The system allows you to trade by yourself or copy successful traders from all across the globe.\nUse my promo code BLOG to get a 50% deposit bonus on the LiteFinance platform. Simply enter this code in the appropriate field when\nfunding\nyour trading account.\nTelegram chat for traders:\nhttps:\/\/t.me\/litefinancebrokerchat\n. We are sharing the signals and trading experience.\nTelegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders\nhttps:\/\/t.me\/litefinance\nThe content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. 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Bollinger Bands Indicator in Forex Strategies\n# Bollinger Bands Indicator in Forex Strategies\n![Michael Hypov](https:\/\/www.litefinance.org\/images\/blog\/authors\/Mikhail_Hyipov.jpg)\n\nAuthor\n\n[Michael Hypov](https:\/\/www.litefinance.org\/blog\/authors\/mikhail-hypov\/)\n\n![Jana Kane](https:\/\/www.litefinance.org\/images\/blog\/authors\/jana-kanne.jpg)\n\nReviewed by\n\n[Jana Kane](https:\/\/www.litefinance.org\/blog\/authors\/jana-kane\/)\n\nUpdated version\n\n09Jul.202416:51\n\n2025\\.11.14\n\n2024\\.07.09 Bollinger Bands Indicator in Forex Strategies\n\n[![Bollinger Bands Guide: Trading Strategies & Best Settings \\| LiteFinance](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/new-logo.jpg?q=75&w=1000&s=f06453fe08b2fcbd7d6fdbb8c5f87a17)](https:\/\/www.litefinance.org\/assets\/2d47d2c9\/images\/_loading-image-331w.png)\n\nMichael Hypovhttps:\/\/www.litefinance.org\/blog\/authors\/mikhail-hypov\/\n\n[![logo](https:\/\/www.litefinance.org\/assets\/2d47d2c9\/images\/header-logo-litefinance.png)](https:\/\/www.litefinance.org\/assets\/2d47d2c9\/images\/header-logo-litefinance.png)\n\nDear friends\\!\n\nIn this article, we will take a detailed look at Bollinger Bands, a classic indicator that many traders have been using for many years.\n\nI will tell you what are Bollinger Bands, what this tool does, how it works, how are Bollinger Bands calculated, how to use Bollinger Bands Forex strategies, and give you lots of other interesting information with examples.\n\nThe article covers the following subjects:\n\n- [What Bollinger Bands are: Definition and History](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h0)\n- [Bollinger Bands Formula & Calculations](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h1)\n- [How Bollinger Bands Indicator Works](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h2)\n- [Bollinger Bands Signals](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h3)\n- [Bollinger Bands Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h4)\n- [Bollinger bands best settings](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h5)\n- [Bollinger Bands Screener](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h6)\n- [Bollinger Bands Tips & Rules](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h7)\n- [Bollinger Bands FAQ](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h8)\n- [Conclusions on Bollinger Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h9)\n\nLet's get started with bollinger bands tutorial\\!\n\n## What Bollinger Bands are: Definition and History\nLet's dive into the history of the indicator. The very first mention of a tool similar to Bollinger Bands dates back to 1960.\n\nThe well-known trading analyst Wilfrid LeDoux used a trading channel based on two moving averages as technical indicators in his trading system. The first band was built based on the highs, and the second — on the lows. The signals in the LeDoux’s trading system were both the expansion leading to the bands expand accordingly, or the contraction of the channel itself where the bands contract, following the security’s price movement to shape within it.\n\n#### *John Bollinger*\n[![LiteFinance: John Bollinger](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Mr_Bollinger_3.jpg?q=75&s=b7d10d153739e94479825a77723c4490)\n\nFunnily enough, at first John Bollinger did not even think about trading. He thought his future work would be on television. But while working as an operator at one of the Hollywood companies, he encountered some financial analysts and became interested in this occupation. Later, the future trader’s mother asked her son to help organize her investment portfolio.\n\nStarting then, Bollinger finally decided to be part of the world of stock trading. Combining his work as an operator at Financial News with training from experienced financiers, he quickly mastered trading and moved on to the position of financial analyst on the same channel. He did not become a TV star, but he gained fame thanks to successful trading ideas based on simple envelopes.\n\n*The envelope is one of the oldest technical analysis indicators. It was built on the basis of a simple moving average and two bands located at an equal distance from this center line.*\n\nBetween 1984 and 1991, John worked on his own trading system based on the LeDoux strategy and the envelope indicator. John's brainchild was named after its creator — the Bollinger Bands. This technical analysis tool developed was based on a middle band known as the moving average with so-called volatility bands plotted above and below. However, unlike envelopes, the offset is not by a certain number of points, but by a percentage.\n\n[![LiteFinance: John Bollinger](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_5.jpg?q=75&s=1a3666c9577a136941abf1b50bf33094)\n\nThe Bollinger Bands are shown in the [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/) chart.\n\nThe red lines are the upper and lower boundaries of the channels. They are plotted based on the percentage offset from the blue middle band of the moving average. The main purpose of BB indicator is to determine a sharp deviation from the average direction of the current trend.\n\n> Next, we will analyze the techniques for using the Bollinger indicator in detail. In order to study the material as efficiently as possible, I advise you to go to the LiteFinance [demo account](https:\/\/my.litefinance.org\/trading\/) right now (you do not need to register), open any trading instrument and apply the Bollinger bands to the chart. Skim the Bollinger Band chart and see how it reacts to price changes. If you encounter any difficulties, we will do it together below.\n\nThe Bollinger Bands indicator became widely known in comparison with other technical indicators after the mention in the book The New Commodity Trading Systems and Methods by Perry Kaufman published in 1987.\n\nThe author of the indicator spoke about his brainchild and Bollinger Bands strategies only in 2001, in the book Bollinger on Bollinger Bands. The article that you are now reading is written on the basis of materials from these two books. I have extracted from them the most relevant and useful information adapted for modern financial markets. Enjoy the article\\!\n\n## Bollinger Bands Formula & Calculations\n[![LiteFinance: Bollinger Bands Formula & Calculations](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-1.jpg?q=75&s=b2e98fb6593b5b76cd09d4238a777303)\n\nToday, in order to draw Bollinger Bands in a chart, you just need to select the required indicator from the list. Before, a trader had to gather it piece by piece. The process is as follows: take the moving average as the middle line (hereinafter the MA) and build the upper and lower bands: one above the center line by some percentage distance and one below it. The main issue was selecting the optimal interval for the MA and the deviation of these volatility bands (Bollinger levels) from it.\n\nThe author of the indicator looked for an effective way to select the interval for a long time.\n\n#### *Marc Chaikin*\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/stochastic-oscillator\/marc__circle.png?q=75&s=9b4b94490b7f932b922ec7dfd324ef31)\n\nFor some time he followed Marc Chaikin’s principles. Chaikin used a 21-day moving average for his bands offset up and down so that the resulting zone contains about 85% of last year's price data. However, he later realized that the key to success in establishing the width of trading bands is the degree of market volatility.\n\nTo determine the offset of the waves from the moving average, John used the formula for the root-mean-square or standard deviation. This variable is usually denoted as σ (sigma). To calculate the standard deviation, the average closing price is calculated for a specified period. The resulting value is subtracted from each point of this closing price dataset. As a result, you will have a list of deviations from the average price. Some of these typical values will have positive values, others will be negative. The general principle is that the range of deviations is in direct proportion to the degree of variability of the series. Simply put, in a volatile market, Bollinger bands expand, and in case of consolidation, they narrow.\n\nAt the next stage, we add up the list of data we have obtained. If we add negative and positive values, we end up with 0. To get a non-zero result, we need to get rid of negative values by squaring them. As a result, after adding up, we get the average absolute deviation. This amount is divided by the period for which the data was collected, and then we extract the root of the resulting value.\n\nWe get the following formula for calculating the square deviation:\n\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/new-Deviation_8.jpg?q=75&s=7824a4651b1be4c86e02dc69c8b8d13b)\n\nσ — standard deviation;\n\nx — closing price;\n\ni — order number of the bar;\n\nμ — moving average;\n\nN — total number of points (period).\n\nIf we translate all of the above from the math language into trading language, the obtained value of σ determines the area in which all candles close with a probability of 68.2% (if the indicator is based on closing levels) for the selected period. When the price breaks out of this area, it is outside the root-mean-square distribution — it becomes an anomaly in terms of mathematical statistics. What does this mean for the trader? We'll find out it out a bit later.\n\nAs for the choice of the optimal moving average period, the classic version of the Bollinger indicator uses a 20-period MA. This range is approximately equal to the number of trading days in a month. If for some reason the period has to be shortened, in order to obtain the optimal width of the band, you need to cut the number of standard deviations. If the period is lengthened, the number of standard deviations must be increased.\n\nThe need to adjust the calculation of the Bollinger Bands width may arise because of the peculiarities of the formula. After analyzing the largest markets, the author has derived the most convenient ratios for frequently used periods:\n\n|   |   |\n|---|---|\n| **Periods** | **Multiplier** |\n| 10 | 1,9 |\n| 20 | 2 |\n| 50 | 2,1 |\n\nLet me explain why you need these ratios. In most markets, when using 20 periods and 2 standard deviations, you can get coverage of 88-89%. As the period is shortened or lengthened, the coverage changes, which affects the analysis efficiency. To maintain coverage at 88-89%, Bollinger Bands should be plotted using a 1.9 ratio for a 10-bar period. This means you cut the band width from 2.0 to 1.9. With a period of 50 bars, respectively, you need to increase the width from 2.0 to 2.1.\n\nAfter selecting the multiplier and the period, you can calculate the Bollinger bands themselves.\n\nThe formula for the top band is as follows:\n\n*UB* *\\=* *μ* *\\+ (**m* *\\** *σ**),*\n\nFor the bottom band:\n\nLB = μ - (m \\* σ),\n\nUB — upper band;\n\nLB — lower band;\n\nμ — moving average value;\n\nσ — standard deviation value;\n\nm — factor.\n\nAs an example, let's calculate the value of one point of the upper Bollinger band. To simplify the calculations, let's take a period of 10 bars.\n\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_9.jpg?q=75&s=2b84d4985af193df36f687529e85adc9)\n\nCandles entering the period are marked with a blue rectangle in the chart.\n\nFirst, let's identify the closing levels of these candles in points, starting with the most recent. For convenience, I have rounded ten thousandths to 0:\n\n1,18700;\n\n1,17700;\n\n1,16500;\n\n1,14200;\n\n1,13000;\n\n1,12400;\n\n1,12100;\n\n1,11700;\n\n1,12500;\n\n1,12900.\n\nTherefore, the moving average is:\n\n\\= (1,18700 + 1,17700 + 1,16500 + 1,14200 + 1,13000 + 1,12400 + 1,12100 + 1,11700 + 1,12500 + 1,12900)\/10 = 1,14200\n\nWe can now move on to calculating the standard deviation:\n\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/standard_deviation.jpg?q=75&s=0ac8306048818f4738994a20dfc7ca89)\n\nNow we know the value of the standard deviation and can calculate the point of the upper Bollinger band above the last bar (take the multiplier 1.9 from the table above):\n\n1,14200 + 1,9 \\* 0,02404 = 1,18768.\n\nKnowing the standard deviation, we can calculate other points and draw the top line along them. The points of the lower line are calculated similarly. As you can see, manual calculations are too cumbersome. To simplify the Bollinger Band calculation, you can use an Excel spreadsheet, which I will discuss below.\n\nNow let's talk about the allowed parameters. From my own experience, I can say that it makes no sense to use the Bollinger indicator with a period of less than 10 and more than 50. If such a need arises, you need to change the timeframe, for example, switch from a daily to a four-hour chart or vice versa. In the initial stages, I recommend limiting yourself to a period of 20-30 bars. The author himself believes that his indicator works best in this range.\n\nIn addition to the classic setting of this technical indicator, the use of Bollinger Bands varies since combined options are also possible to be implemented for better results. For example, a chart might contain two band indicators plotted using the same calculation period but with different ratios. In his book, the analyst gives an example of a chart with two volatility bands in 20 periods that differ in width by 1 and 2 standard deviations.\n\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_10.jpg?q=75&s=2410bb5a2bbbc65807cc0cf092657957)\n\nYou can see this tool in the picture above. Visually, these two technical indicators coincide at the moving average line but have different widths. A narrower channel is built with a factor of 1.0, and a wider one — with a factor of 2.0.\n\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_12.jpg?q=75&s=e53ed30a1a797f47a2ed6e378d55b470)\n\nThe second popular option for setting up the indicator is to plot BB of two different types. For example, one channel can be formed based on a moving average with a period of 20 bars and a width of 2 standard deviations. The second one has a period of 50 bars and a ratio of 2.1. If you think you already know how to use Bollinger Bands, you are wrong. All the fun is yet to come. Get a cup of tea and let's move on.\n\n### Bollinger Bands Excel Sheet\n[Here you can find the Bollinger Bands Excel Sheet](https:\/\/docs.google.com\/spreadsheets\/d\/1TfiWC5q9gVd_6T69ypexUwYNLgD1mWeF5xsR6tKnALY\/edit?usp=sharing). It is designed to accurately calculate Bollinger Bands at a specific point in time. This tool can also be used to experiment with inputs to calculate the MA or the multiplier.\n\n[![LiteFinance: Bollinger Bands Excel Sheet](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_calculator_eng_17.jpg?q=75&s=5b832886260a740e3399580b650a2935)\n\nIn order to use the table, you need to make a copy of it or download the Bollinger Bands calculator directly to your computer. The screenshot above shows the path: File \/ Make a copy or Download.\n\n[![LiteFinance: Bollinger Bands Excel Sheet](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_calculator_eng_19.jpg?q=75&s=55e7a4eaa8785e90bf5bdd92ca013895)\n\nThe table is very simple. In column A, you fill in the purple cells. The formulas work for 50 cells, but there is no need to enter numbers in each one. Input values can be any numbers. For example:\n\n- closing levels;\n- opening levels;\n- bar highs;\n- bar lows;\n- weighted averages of each bar;\n- or any other numbers for your experiments.\n\nThe number of values corresponds to the calculated period. If 10 cells are filled in, the calculation will correspond to a moving average with a period of 10.\n\nIn column B, indicate the multiplier in the purple cell. The default ratio is 2, but you can enter any other number instead.\n\nColumns C, D and E contain the final result and a caption for the values:\n\n- standard deviation — σ;\n- upper band — UB;\n- moving average — μ;\n- lower band — LB.\n\n> **Important\\!** All calculations are done automatically. You do not need to enter data manually in the blue cells in column E.\n## How Bollinger Bands Indicator Works\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-2.jpg?q=75&s=3df11ee0373562b34f4ffd94360b0ba1)\n\nWe already know that the Bollinger Bands indicator consists of three lines: a moving average, upper and lower bands. The latter are formed with an offset ranging from 1.9 to 2.1 standard deviations.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_22.jpg?q=75&s=8a581dbee104c9b054349d30fdf2529c)\n\nSetting up Bollinger Bands is pretty straightforward even for beginners. There are only two relevant columns in the Parameters tab: \"Length\" or the period for which calculations will be made, and the \"Multiplier\" factor. It only makes sense to change other settings within the classic Bollinger Bands if you want to experiment. For example, changing the source from the closing price to the opening price changes the traditional approach to building the indicator, but it may show an unexpectedly interesting result on certain trading instruments.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_24.jpg?q=75&s=f8c89290192f83412f0e30b053cb8b37)\n\nIn the second \"Style\" tab, you can set the color of the Bollinger bands, the moving average, and the chart area between them.\n\nJohn suggests using two indicators in the trading process:\n\n- %b allows you to determine exactly where the price data is in relation to the Bollinger Bands. This tool will be useful when developing a trading system that uses the relationship between price behavior and the behavior of the upper and lower bands.\n- BandWidth analyzes the current offset width. This metric is very useful for finding the start and end points of a trend, and BandWidth is an integral part of the squeeze technique. I will talk about it in detail a bit later.\n\nFirst, let's take a closer look at %b. This tool is calculated by the formula:\n\n%b = (Last price - LB) \/ (UB - LB).\n\n- UB — upper band;\n- LB — lower band.\n\nIf you look closely at this formula, you will understand that if the last price is located on the upper Bollinger bands, the calculation result will be 1. If it is located on the moving average, the %b value will be 0.5. And if the price falls and stops at the lower bands, the result of the above formula will be 0.\n\nIn this case, negative %b is possible if the price falls and breaks out of the lower Bollinger bands. This signal can be interpreted both as a sign that the asset is oversold and as a sign of a trend reversal.\n\nA value greater than 1 is possible if the price goes above the upper Bollinger bands. In this case, it will be a signal either about an overbought asset, or about a change from a bearish to a bullish trend.\n\nIn order to read these signals correctly, you need to use additional indicators as filters.\n\nThe Alligator indicator is often used for this purpose.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_25.jpg?q=75&s=bd3e43905c59c8d3ffb51c878c50dd1c)\n\nIn the chart above we can easily identify the m tops, and we can see that the price has gone above the upper band, i.e. %b must be greater than 1 (highlighted in the graph with a green oval). At the same time, Alligator does not show any crossings between its lines (in a blue circle), which indicates an early sign of an overbought asset and a possible trend change.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_26.jpg?q=75&s=b017b00d7fbf8c93d34f0e986c6d3bc3)\n\nIn the next chart, the green oval marks an area where several candles in a row close below the lower band where we can identify the w bottoms, meaning that the %b will be less than 0. This can be both an oversold signal and a trend reversal signal. A little later, the Alligator lines cross, which confirms the trend change and lets us open a short position. We see that Alligator helps us correctly interpret the Bollinger signal.\n\n%b can also be used to identify shapes. We will talk about this later.\n\nNow let's move on to BandWidth, which analyzes — you guessed it — the current band width. It is determined by calculating the difference between the upper and lower bands and dividing the result by the moving average value. The formula looks like this:\n\nBandWidth = (UB - LB)\/μ\n\n- UB — upper band;\n- LB — lower band;\n- μ — moving average.\n\nThis signal is useful for detecting squeeze. In other words, it describes a situation when market low volatility has decreased to an abnormally lower level.\n\n> This situation can be described as the calm before the storm.\n\nBollinger noticed that most trends are born when BandWidth is at its lowest. The market’s low volatility is like the calm before bad weather. The emergence of a sharp expansion of Bollinger bands and a strong price movement in such a situation indicates the possible formation of a new strong trend.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_27.jpg?q=75&s=e840ae2605c73fca606285620e2cf807)\n\nIn the chart, the green oval marks the moment when the Bollinger Bands narrow, i.e. the market volatility decreases to a local minimum. As you can see, a sharp upside breakout occurs after this, which is the start of a bullish trend.\n\nBandWidth will also be very useful in determining the end points of strong trends. Heavy movements provoke a significant increase in volatility and the bands widen. Because of this, the level of dispersion increases and the Bollinger Bands expand. In the case of a bullish strong trend, after the channel narrowing, we will see a strong fall of the lower Bollinger band downwards against the main trend. This phenomenon is an early signal of a bullish trend reversal.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_28.jpg?q=75&s=26569f3b326fbf0cd221c4635e8a625f)\n\nThe [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/) chart shows Bollinger Bands at the time of the trend development. The green rectangle marks the area when the lower line begins to move down during the formation of an upward trend. After that, in the area marked with a blue rectangle, the lower band reverses and begins to move up. A signal about the end of the trend appears. And indeed, after a while there is a transition from a bullish trend to a bearish one.\n\n## Bollinger Bands Signals\nEarlier, we have already discussed the main signals of the Bollinger Bands. Their weak point is the need to filter and identify entry and exit points. The simplest solution to the first problem is a Bollinger filter.\n\nTo solve the second problem — identifying the entry and exit points — in most cases finding shapes is the solution. A shape is a pattern formed by the market movement and the price volatility or a sequence of such movements. They are fairly easy to recognize in the chart. At the same time, for a better understanding, beginners are recommended to use Bollinger Bands. They smooth out minor market fluctuations, making it possible to focus only on significant price data reversals. Often, shapes precede a reversal or are themselves part of a trend reversal. I will tell you about the two most common shapes — W and M.\n\nBefore we move on to examining the features of the shapes, have a look at their types.\n\n#### *W-bottoms*\n[![LiteFinance: W-bottoms](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/W_pattern_30.jpg?q=75&s=2751bf72c771b06039de255287459513)\n\n#### *M-tops*\n[![LiteFinance: M-tops](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/M_pattern_31.jpg?q=75&s=8a13394011411fdb7bbc13d8601e5597)\n\nThe image above will help you understand what types of patterns m tops look like.\n\nThe meaning of each of the presented shapes is unique. You can read more about this in Arthur Merill’s work with the name MW Waves. Here we will just take a quick look at these patterns and discuss how to work with them.\n\nAll shapes can be grouped by to the signal the trader receives. Let's take a look how to read bollinger bands signals:\n\n- M15, M16, W14, W16 signal the formation of an uptrend.\n- M1, MZ, W1, W2 indicate the formation of a downtrend.\n- W6, W7, W9, W11, W13, W15, M2, M4, M6, M8, M10, M11 are reversal formations. These patterns indicate a trend reversal.\n- M13, W4 — in classical technical analysis these figures are called triangles. The direction of movement is determined by the side of the exit from the figure.\n- M5, W12 — in classic technical analysis, these are expanding triangles — the trend is determined after the breakout.\n- W6, W7, W9, W11, W13, W15 are most often part of the head and shoulders reversal formation.\n- M2, M4, M6, M8, M10, M11 are often components of the inverted head and shoulders pattern.\n- For the rest of the figures — M7, M9, M12, M14, W1, W3, W5, W8, W10 — signals are generated based on the general rules described below for W and M shapes.\n### W-Bottoms (Double Downs)\nW-bottom is the most common pattern of transition to the bullish market. It is rarely seen in its pure form and often has a variety of deviations from the ideal shape.\n\nBollinger developed a system for the psychological assessment of market sentiment based on the following pattern features:\n\n- Longer right side suggests that there is a sentiment of disappointment in the market. Many investors expect another retest of the lows, abandoning their positions and are extremely disappointed after the price soars up.\n- Equality of the lows on the left and right sides indicates a calm market. Investors make purchases after a repeat testing without much stress and soon get the expected profit.\n- If the low on the right side is lower than the low on the left, this situation is accompanied by fear and discomfort on the part of the masses of ordinary traders. Many of them went long at the previous low and ended up being kicked out of the market. Few of them will want to buy again, and the inflow of new money is limited to the formation of a new low point. The technical analyst Richard Wyckoff once called this phenomenon a spring, and this term is still used in the trading circles to this day.\n\nAs for the interaction of the W-bottom with the BB, in most cases the left side of the pattern will touch the lower line or cross it. The growth following the local low will again return the candles to the inner zone of the bands. In this case, the crossing of the middle line of the moving average indicator should occur.\n\nThe next move will be a second touch inside the lower Bollinger Band. It is important to pay attention here that the low in the considered strategy is determined by the lower Bollinger bands. If the first point crossed the band, and the second is formed within the channel, then the second low will be considered higher even if it is located lower in absolute terms.\n\nThe retest price must be greater than or equal to the price of the first low. This is one of the most important requirements. To check whether it is met, you can use the previously discussed %b indicator, which allows you to accurately measure the position of candles relative to Bollinger bands.\n\nAnother feature of W-bottoms is the presence of some smaller formations in their structure. A closer look at smaller timeframes reveals reversal signals. They form the beginning or end of the compound segments of a large figure.\n\nA W-bottom gives a clear signal of base formation. Therefore, these formations are often used to predict trend reversals and open positions.\n\n[![LiteFinance: W-Bottoms (Double Downs)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_32.jpg?q=75&s=ff917205603f012316daa37b6087ae55)\n\nThe chart depicts a growing W-bottom. This is a formation in which retesting occurs at a higher level. This is true only when analyzing the absolute location of the lows, i.e. the location relative to the coordinates of the chart. As for the Bollinger Bands, both low points cross the lower line at approximately the same distance. We can talk about the equality of the lows of the left and right sides and equilibrium in the market.\n\nAfter finding the W-bottom, you need to answer the question: \"When and what positions should I open?\" Experts recommend buying “strong” — wait for the moment when a bar with a volume and range above average is formed. This will be the signal to open a long position.\n\nThe stop order should be set below the last low point (below the right side of the formation). Later it should be moved up. You can do this by eye or according to your own rules. For beginners, I recommend starting with stop losses set off from local lows.\n\n### M-Tops\nWhile the most common base shape is a W-bottom, the tops can be double or triple in an M-top.\n\nThe most common case of a triple top is the head and shoulders pattern, which is well known in technical analysis. It shows rapid growth and small rollbacks. This rollback forms the left shoulder. It is followed by another period of growth, which forms a new high, which ends with an even larger rollback. Quite often, this rollback completes near the previous local low. It forms the so-called head.\n\nFollowing the head, the right shoulder is formed. It represents a failed growth with an amplitude less than the previous one (ideally ends around the peak of the left shoulder) and a subsequent fall in price setting a new low. The right shoulder may be followed by another minor growth, bringing prices back to the vicinity of the lows of the left and right shoulder. Many traders often refer to these lows as the neckline. It is usually followed by a complete fall.\n\n[![LiteFinance: M-Tops](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_33.jpg?q=75&s=127f709b1fbfaf45575307e34c9c76e1)\n\nThe chart depicts a head and shoulders formation. For clarity, I marked its outlines with green lines, and its components with numbers:\n\n1. left shoulder;\n2. head;\n3. right shoulder;\n4. backward movement before final decline.\n\nThis example clearly shows that in practice the head and shoulders are rarely formed as a perfect structure. Deviation of one or more parameters is considered acceptable.\n\nWhen analyzing a figure, I also recommend paying attention to volume. On the left side of the figure, especially in the head area, it is characterized by high values. At this point, news is published preceded by rumors and expectations. After passing the peak of the head, activity decreases. A small surge of optimism can be observed on the right shoulder or the last jump up.\n\nIn the chart, we see that at the moment of the formation of the right shoulder, traders are confused. Most of them argue that a reversal is inevitable. Therefore, the increase in volume occurs at the stage of the lowering of the right shoulder. In the first part of the last spike, the high volume can be explained by the struggle between bulls still hoping for growth and bears confident of the fall. After passing the peak, massive sales continue at the expense of traders, who at the last moment realized that further growth is impossible.\n\nAnalysis of the formation using Bollinger signals is even more interesting. In the ideal version, the left shoulder goes beyond the upper line. The right one misses it by a little. The neckline in the right shoulder often stops at the moving average, and the first decline is in the vicinity of the lower Bollinger band.\n\n[![LiteFinance: M-Tops](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_34.jpg?q=75&s=9c0fbc1c0f22a36211b9a51b5ef50a19)\n\nIn our graph above, only one condition is met strictly. Upon reaching its peak, the first shoulder is crossed by the Bollinger Wave indicator (blue arrow). The bands contract when the neckline is bounded by the lower band rather than the moving average. You can also say that the first decline stops at the lower line (red arrow). However, upon closer inspection, a slight overlap is noticeable. This once again confirms the fact that in real trading you will rarely come across perfect shapes.\n\nThe first part of the head and shoulders formation is ideally an M-top consisting of a left shoulder and a head. Most often it is expressed in the form of an M15 or M16 shape. The next part is also an M and it includes the head and right shoulder (possible shapes are M3, M4, M7 and M8). The last phase (right shoulder and reverse growth before the final decline) can be formed in the form of an M1 or M3 shape.\n\nM-tops are useful for identifying the tops of sustainable trends. In the process of their formation, there is a reversal of the price movement, which opens up opportunities for effective entry into the market. Even more useful is the analysis of the interaction of the head and shoulders with the BB. It allows you to recognize the pattern before it is fully formed, which means opening a position at one of the high points and increasing the final profit from the trade.\n\nAt the same time, starting from the right dip after the head, the structure has a downward slope. This means it can be analyzed using W shapes. Reverse growth often forms as W1 or W2 shapes.\n\nAs you analyze, you can get deep into the details by identifying each component of the M and W at the following levels. There should be five of them in total. But with traditional analysis, there is no need to analyze all the constituent figures. It is enough to find a few of them. In addition, the formation is easy to read visually, as well as in terms of its interaction with Bollinger Bands and the impact on trading volumes.\n\n### Three pushes to high\nIn addition to the classic head and shoulders, you will often see a variation of this pattern, which Bollinger calls the three pushes to a high. It usually completes larger shapes. When analyzing this structure using Bollinger Bands, you can see the following patterns:\n\n- The first push goes beyond the upper bands.\n- The second push creates a new high and touches the upper level.\n- The third push may or may not form a new high. If a new extreme point is created, it will not be much higher than the previous one. In this case, the third push does not touch the upper Bollinger band.\n\nThe highest volumes are observed at the first stage of the development of the three pushes to a high. Then the activity gradually decreases and in the final stage reaches a low. Let's take a look at an example.\n\n[![LiteFinance: Three pushes to high](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_35.jpg?q=75&s=e5973d7accd748e7d2db853599afedf5)\n\nIn the EURUSD chart, I marked the direction of price movement with green lines. The peaks of the three pushes to a high are labeled with numbers. We will use them as serial numbers. The first push naturally crosses the upper Bollinger band. The second creates a new top. However, it is only slightly higher than the previous one. Because of this and as a result of the previous rapid upward movement, the second pattern is not realized.\n\nThe third spike is also not much stronger than the previous ones. Its high touches the Bollinger band, but the end point of the candlestick is below it. A gradual decrease in volumes from the beginning of the formation to its end confirms an early reversal. I marked this phenomenon in the chart with a blue line.\n\n## Bollinger Bands Strategies\n[![LiteFinance: Bollinger Bands Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-3.jpg?q=75&s=9f6e5479ec6787b20101b7fe5587c30b)\n\nIn this section, I have collected the most popular Bollinger Bands strategies. We will look at various methods within the day, in the lowest timeframes, learn how to squeeze the bands and use their signals in conjunction with other indicators. I will separately talk about the Bollinger Bands strategies, which involve trend following in the presence of a breakout of important levels and additional reversal signals.\n\n### Daily Trading with DBBs (Double Bollinger Bands)\n#### *Kathy Lien*\n[![LiteFinance: Kathy Lien](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Ms.Lin_37.jpg?q=75&s=e0d441af2509483dd4d5a3e398ef0571)\n\nThis method appeared as a result of the efforts of the exchange analyst Kathy Lien. In her book, The Little Book of Currency Trading. How to Make Big Profits in the World of Forex, she described an unusual technique involving the use of two Bollinger Bands of the same type in the same chart.\n\nTo understand what this is about, let's add them to the chart. The first indicator will be with a period of 20 candles and two standard deviations.\n\nFor the second indicator, we use slightly different Bollinger Band strategy settings: a 20-bar period and one standard deviation.\n\nI also recommend assigning its own color scheme for each indicator, so that it’s easier to compare their readings in the chart.\n\n[![LiteFinance: Kathy Lien](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_38.jpg?q=75&s=7fd13367e488c91fb9066ee5fa9298ec)\n\nThe final Bollinger indicator consists of five lines:\n\n- top (red) line with two standard deviations;\n- top (green) line with one deviation;\n- moving average (blue);\n- bottom (green) line with one deviation;\n- bottom (red) line with two deviations.\n\nAll bands, except the middle band of the moving average, form trading zones that we will use to open trades:\n\n- buy zone — between the upper red Bollinger band and the upper green line;\n- neutral zone — between the upper green and lower green line;\n- sell area is between the lower green and lower red line.\n\nThe price being in the buy zone indicates the strength of the current trend. This means that there is a high probability that the price moves will go up for some time. For trend trading, Ketty recommends opening long positions when the close of the candlestick hits the upper quarter of the double Bollinger indicator. In this case, the two bars preceding it should close in the neutral half. Keep a long position as long as the candles close within it.\n\nOn the other hand, if the price moves in the sell zone, it indicates the strength of the bearish trend. By analogy, here you should open short positions (provided the closing points of the two previous bars are in the neutral half) and keep them until the candle closes return to the neutral zone.\n\nFor an uptrend, we should identify the m tops and place a stop order at the lowest price of the first bar that broke the upper bands of the neutral zone. For a downtrend, the stop order position is determined by the high of the first bar that breaks the lower line of the neutral zone. The initial target is set at a distance of two stop losses. When the distance of one stop loss is passed, Kathy recommends moving it to breakeven. Then it should be gradually moved along with the potential target following the price moves and closed manually when the last candlestick closes in the neutral zone.\n\nAfter the price has entered the neutral zone, we can consider two possible scenarios:\n\n1. The price will move to one of the trading quarters — usually this happens when a trend reverses.\n2. The price will consolidate in the neutral zone — there will be a “calm before the storm”. You can prepare for a strong movement in either direction.\n\nThe price being in the neutral zone demonstrates uncertainty. You should refrain from entering the market and wait for the price to close in one of the quarters. Alternatively, you can go to a lower timeframe or trade short-term trades within the channel. In the latter case, the [Grid trading strategy](https:\/\/www.litefinance.org\/blog\/for-professionals\/grid-trading-a-complete-overview-of-forex-grid-trading-method\/), which I talked about in one of the previous materials, may come in handy.\n\nNow let's look at the classic strategy Double Bollinger Bands through an example.\n\n[![LiteFinance: Kathy Lien](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_39.jpg?q=75&s=05a27fa008ef00496d24ffa788d2ef6c)\n\nIn the chart, the bar marked with a blue oval closes in the upper quarter. A buy signal appears. Open a long position at the close of the candlestick at 1.17873 points (blue line in the chart). Set the stop loss at the low of the candle that has broken through the first upper line. It is marked with a red line in the chart. I’ve marked the target with a green line, it’s located at two stop loss lengths.\n\n[![LiteFinance: Kathy Lien](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_40.jpg?q=75&s=20c4918276448760caf9d114fe9acc64)\n\nIn the future, you can stop at the target level. But it is much better when the price grows to move the stop loss to the breakeven level, leave it at this position and wait for the signal to close the order or move it dynamically with the target.\n\nAs long as the price remains in the upper quarter, we leave the position open. In the chart above, the borders of this period are between the blue and orange ovals. Then a downtrend bar forms — see inside the orange oval. It closes in the neutral zone, which is a signal to take profit. The closing price is marked with a black line and is 1.18755 points. The resulting profit will be equal to 1.18755 - 1.17873 = 0.00882 points excluding spread.\n\nIf we had stuck with the option of moving the stop loss and target, the close would have occurred automatically at the 1.18877 level marked with a red line. In this case, net profit excluding spread would be 0.00886 points.\n\nIt is recommended to use the strategy of double Bollinger bands on trend instruments. You can use almost any timeframe — from M15 to D1.\n\nHere's what experienced traders think of the strategy:\n\n[![LiteFinance: Kathy Lien](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_comment_42.jpg?q=75&s=2b878118dd98e1be00aba06f82502ffa)\n\n### Bollinger Bands Scalping\n[This strategy](https:\/\/www.litefinance.org\/blog\/for-beginners\/trading-strategies\/scalping-forex\/) works on any exchange instruments. The recommended chart timeframe is M1 to M15.\n\nWe will receive the main signals from Bollinger Bands. We will use them to identify opportunities for opening and closing positions.\n\n[![LiteFinance: Bollinger Bands Scalping](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_44.jpg?q=75&s=82c0d1be5ddaee1a72b2d5c17eed6a4a)\n\nThe picture above shows how to set up the Bollinger Bands trading strategy. The parameters are standard — the period of the middle band of the moving average of 20 bars and two standard deviations.\n\nThe [RSI indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/rsi-relative-strength-index\/) is used as a signal filter.\n\n[![LiteFinance: Bollinger Bands Scalping](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_46.jpg?q=75&s=40dbafdb7ad4a34bccedcbb194ea44bf)\n\nI recommend using the 8 bar period for it. Go to the indicator settings, open the \"Parameters\" tab and set 8 under the \"Length\".\n\n[![LiteFinance: Bollinger Bands Scalping](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/RSI_settings_48.jpg?q=75&s=5677540d80b2fa60c9cc2e885d4d4808)\n\nWe leave the upper and lower limits as is — 30 and 70.\n\nTo open a long position, the following conditions must be met:\n\n1. the price candlestick touches or breaks the lower Bollinger band;\n2. RSI level is below 30;\n3. one of the following candles will close within the channel.\n\nThe stop loss is set just below the low level of the breakout candle. The gap should not be less than 10 points. The optimal ratio of take profit to stop loss when using this strategy is 0.6. Therefore, the minimum target should be at least 6 pips above the buy price.\n\nTo open a short position, the following conditions must be met:\n\n1. the candle touches or breaks the upper band;\n2. RSI level is above 70;\n3. enter when one of the following candles closes within the channel.\n\nSet stop losses and take profits similarly as with long positions.\n\nLet's consider the application of the strategy using an example.\n\n[![LiteFinance: Bollinger Bands Scalping](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_49.jpg?q=75&s=4a25aced35798c8c5e716d56b519ac69)\n\nIn the five-minute [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/) chart, a blue circle marks the area where one of the candles touches the lower band. At the same time, the RSI is below 30%, confirming a buy signal. We open a long position immediately after the close of the next upward candlestick within the channel. The opening price is 1.18805 points (green line). The stop loss is set below the low of the touch candle. Since there are several such bars in a row, we take the smallest low and set the stop loss just below it. Set the take profit slightly above the buy price so that it is about 60% of the stop loss.\n\n[![LiteFinance: Bollinger Bands Scalping](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_50.jpg?q=75&s=9d3392c87745a46738f75602e7006b8a)\n\nThe take profit is crossed on the next candlestick after the opening. Thus, the long position is automatically closed at the price of 1.18868 points. The profit from the trade is 1.18868 - 1.18805 = 0.00063 points.\n\n### Bollinger Band and Stochastic Strategy\nBollinger trading with the [Stochastic indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/stochastic-oscillator\/) is similar to the previous strategy using the RSI. We will use the bands to detect potential entry points, and the oscillator readings to filter signals. Unlike the previous one, this trading method is more like a channel strategy, with the only difference that the Bollinger channel will be used for trading decissions. Therefore, it is very important to pay special attention to setting the indicator bands. As an example, we will use standard parameters — a 20-bar moving average and a multiplier with a factor of 2. Your input data may be different. Depending on the trading instrument, timeframe and market peculiarities, select the period and multiplier in such a way that the moving average of the indicator shows the correct trend direction. At the same time, the price should not be outside the channel for longer than several candles.\n\n[![LiteFinance: Bollinger Band and Stochastic Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Stochastic_Oscillytor_53.jpg?q=75&s=60ab7d89afc54bc3e9b99de143f88d7f)\n\nTo add a Stochastic, click on the \"Indicators\" button in the upper part of the online terminal window. Select \"Stochastic Oscillator\" from the dropdown list.\n\n[![LiteFinance: Bollinger Band and Stochastic Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Stochastic_Oscillytor_settings_55.jpg?q=75&s=e61356a4a0384af1b1b3ffa0e63ba975)\n\nWe will use the following default parameters for the Stochastic: periods 5 for line K and 3 for line D, length 3. You can change the colors of the K and D lines, as well as the upper and lower limits in the \"Style\" tab. By default, K is orange and D is blue.\n\nConditions for opening a buy order:\n\n- the candlestick crosses or at least touches the lower band;\n- the oscillator shows oversold (less than 20%);\n- line K crosses D from bottom to top;\n- buy after the close of the signal candle.\n\nConditions for opening a sell order:\n\n- the candlestick crosses or at least touches the upper Bollinger band;\n- the oscillator shows overbought (more than 80%);\n- line K crosses D from top to bottom;\n- Sell when the signal candle closes.\n\nStop loss is set with an offset of at least 10-20 points from the low of the breakout candle in the case of a long position and the high in the case of a sell position. Set take profit on the opposite Bollinger band. When buying, take profit will be located on the upper bollinger band, and when selling — on the lower one.\n\nLet's consider the application of the strategy using an example.\n\n[![LiteFinance: Bollinger Band and Stochastic Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_56.jpg?q=75&s=3bf6c4bfa18b034d247a40e05f5e6c6a)\n\nIn the area of the chart marked with a blue oval, the candlestick crosses the lower band. Here line K crosses D, and the Stochastic itself shows oversold below the 20% level.\n\n[![LiteFinance: Bollinger Band and Stochastic Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_57.jpg?q=75&s=c7c062ccf209291bd5fe5e3324131806)\n\nAt the opening of the next candle, we enter the market with a buy position at 1.08752 points (green line). Set the stop order a little lower (red line).\n\n[![LiteFinance: Bollinger Band and Stochastic Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_58.jpg?q=75&s=c2efcd6b99216c37a50e0502fdc2fcfc)\n\nPlace the take profit on the upper Bollinger band. It is marked with a blue line in the chart. After a while, one of the candles reaches it and the order is automatically closed at a price of 1.09100 points. Thus, the profit from the trade is 1.09100 - 1.08752 = 0.00348 points.\n\nIf you are going to use this strategy on small timeframes, I recommend to monitor more stable trends additionally. This way you will avoid entering the market against powerful trends.\n\n### Using EMA and WMA instead of Simple Moving Average\nMany traders often ask: \"Can I use a weighted average or exponential instead of a moving average?\" In theory, any average is suitable for plotting BB. When trying to answer this question, John Bollinger himself did a comparative analysis of various averages and came to the conclusion that the classical moving average is the simplest and most accurate tool for constructing reference points.\n\nLet's compare the indications of moving averages using an example.\n\n[![LiteFinance: Using EMA and WMA instead of Simple Moving Average](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_59.jpg?q=75&s=cdc069dde51997e2f76d6abeb680350e)\n\nIn the chart, the blue middle band channel represents standard bands based on a 20-period moving average. The orange channel, in turn, was built on the basis of the 20-period EMA. As you can see, in times of high volatility, where the bands expand significantly, these methods give different results.\n\n[![LiteFinance: Using EMA and WMA instead of Simple Moving Average](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_60.jpg?q=75&s=72489b691d01c3fec2ed84c3cef6af08)\n\nAnd in this chart, the red channel marks the bands plotted by the WMA, and the blue one — by the middle line of the moving average. As you can see, in this case the differences are noticeable, especially at the extreme points.\n\nBoth examples show that using WMA and EMA instead of a moving average can give very unexpected results. Therefore, these averages are not recommended for Bollinger trading.\n\n### Bollinger Band Squeeze\nBollinger Band strategy is driven by volatility. Because of it, the bands widen or contract.\n\nTo determine the degree of compression, John created the BandWidth indicator. It determines volatility as a function of the average and works great on any time frame. BandWidth is calculated by the formula:\n\nBandWidth = (UB - LB) \/ μ\n\nUB — upper Bollinger line;\n\nLB — lower Bollinger line;\n\nμ — moving average value.\n\nYou can download Bollinger Bandwidth for MetaTrader 4 [here](https:\/\/www.mql5.com\/en\/market\/product\/4768).\n\nLet's look at the process of installing and setting up the indicator:\n\nDownload the archive from the link above and unpack it. We need the dinapoli-BandsBandwidth.mq4 file.\n\n[![LiteFinance: Bollinger Band Squeeze](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490)\n\nOpen the File tab in the MetaTrader4 top menu. Next, select the item \"Open Data Folder\".\n\n[![LiteFinance: Bollinger Band Squeeze](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_64.jpg?q=75&s=1c1480ca125e4d6c936ab2c64a2c8795)\n\nFile explorer will open with the target folder. In it, select the \"MQL4\" folder.\n\n[![LiteFinance: Bollinger Band Squeeze](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_66.jpg?q=75&s=6b359921bc938e0065f9fa2af34153e1)\n\nThen select the \"Indicators\" folder. Copy the unarchived BandsBandwidth.mq4 file to this directory. Restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/).\n\n[![LiteFinance: Bollinger Band Squeeze](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_68.jpg?q=75&s=f5987b7b40d35f9e5f55d9e804b28926)\n\nAt the top of the terminal, open the \"Insert\" tab, then go to the \"Indicators\" item. Click on the \"Custom\" item and select the name of the newly installed indicator. In our case, it’s BandWidth.\n\n[![LiteFinance: Bollinger Band Squeeze](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_70.jpg?q=75&s=75d3e116194cf0fd0003536d966eba9f)\n\nAfter that, the indicator window will appear. By clicking on the OK button, you launch the indicator with default settings.\n\n## Bollinger bands best settings\nYou can also change the indicator settings. Best Bollinger band strategy setting is:\n\n- Common — these are the technical settings for the indicator. They are best left as default.\n- Inputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings.\n- Colors — here you can set up the color, thickness and look of the indicator lines.\n- Levels — this item allows you to set levels. For example, the level, upon crossing which you need to buy, etc.\n\nLet's look at the indicator's application using an example.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_71.jpg?q=75&s=42e9aa07df1a0efb3809e9c9607fe4cc)\n\nThe Bollinger indicator is shown in the chart with red lines. At the bottom, the blue line shows BandWidth. The principle is simple: the higher the line, the greater the expansion; the lower the line the stronger the narrowing. With blue arrows, I marked the narrowing areas, which correspond to the minimum typical values in the BandWidth chart.\n\nThe Bollinger Bands Squeeze strategy shows good results during narrowing and expansion. It is a channel trading method. The idea is to open positions on a rebound from one of the levels. The strategy works well on any exchange instruments with a timeframe of M30 and higher.\n\nWe need:\n\n1. Bollinger Bands indicator with the following settings: 20 periods and two standard deviations.\n2. BandWidth indicator.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_73.jpg?q=75&s=60bc382b97c970ab20037239c2cc1471)\n\nTo add the Bollinger Bands indicator to the chart, open the \"Insert\" tab in the main menu, then \"Indicators\", \"Trend\" and in the submenu that opens, select Bollinger Bands.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_75.jpg?q=75&s=fecbd021c34eba2b610ce98288ea59f8)\n\nThis will open the settings window. In it, we will set the period equal to 20 bars and two standard deviations.\n\nAs John Bollinger argued, periods of low market activity are cyclically replaced by periods of high volatility where the bands widen. This statement is the essence of the Bollinger Squeeze strategy.\n\nThe signal for an early entry into the market is the narrowing of the BB. We will identify it using BandWidth, which demonstrates its lowest values during this period.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_76.jpg?q=75&s=e3e2c8f2a8ef312d81e4f8c16b95e989)\n\nIn the EURUSD chart, the blue arrows indicate a narrowing. Please note that the BandWidth is at its lowest during this period.\n\nThe next goal is to identify when the narrowing ends. The beginning of the movement is evidenced by the breakout of one of the Bollinger bands. For a bearish trend, this will be the crossing of the lower level, and for a bullish trend, it will be the crossing of the upper level.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_77.jpg?q=75&s=72f1bcf81434c4553bb0a1c678dc5810)\n\nIn the chart, I have marked the moment of the breakout of the lower level with a red arrow. This signal indicates the beginning of a bearish trend.\n\nYou can set the stop order, as in previous trading methods, at the high or low point of the breakout candle. The initial take profit must be at least twice the stop loss length. Since we are talking about trend trading decissions, it makes sense to use the trailing stop and wait for the signal of the trend end. This signal can be one of the patterns described in the analyst's book or another narrowing of the channel.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_78.jpg?q=75&s=b4cadccbb3b06b088ccda23753cee73c)\n\nThe next narrowing of the channel is marked by green arrows in the chart. It signals a reversal, which means it's time to close the short position.\n\n> **Important\\!** During the squeeze, one unusual phenomenon often happens that confuses most beginners. This is a false breakout that occurs in anticipation of the end of the squeeze. At this moment, the chart makes an intense but short-term movement. After that, it also reverses sharply and starts to move in the direction of the emerging trend. This phenomenon can also be used as a signal for the end of market consolidation.\n\nIn order not to be fooled by a false breakout, don’t jump to conclusions. Wait a bit until the movement develops so that there is no doubt that a new trend is forming. Experienced traders often derive additional profits from false breakouts. To do this, they open a position at the very beginning of the movement. After that, a trailing stop is set in such a way that it falls into the breakeven zone as soon as possible. Further moving of the stop order in the direction of the candlestick formation will give profit when triggered.\n\n### Bollinger Bounce\nThis strategy is suitable for trading opportunities on timeframes from M30 to H4. It is based on two popular tools: the Bollinger Bands indicator and the RSI. The essence of the trading system boils down to finding a price bounce, which is formed during the development of a trend.\n\n[![LiteFinance: Bollinger Bounce](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/indicator_setting_81.jpg?q=75&s=b250be1c0f49c39f7febf40320e534eb)\n\nFirst, let's add Bollinger Bands and RSI to the EURUSD chart of [LiteFinance online terminal](https:\/\/my.litefinance.org\/). To do this, click on the \"Indicators\" button at the top of the chart. Then, in the menu that opens, click on the \"Bollinger Bands (BB)\" and \"RSI\" links.\n\nNow let's move on to setting up the tools.\n\nFor Bollinger Bands trading strategy, we will use standard parameters: 20 bar period and 2 standard deviations.\n\nFor RSI, we will also leave the default settings:\n\n- length — 14;\n- limits — 30 and 70.\n\n[![LiteFinance: Bollinger Bounce](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_85.jpg?q=75&s=00d002b653ea7cfc38066093cf948096)\n\nLet's modify the RSI a little by adding a horizontal line at the 50 level.\n\nThe Bollinger Bounce strategy involves trading on developing trends. The direction of price movement does not matter. In an uptrend, we will look for the moment when the price action rolls back down, touches or almost touches the lower band. In a downtrend, on the contrary, we need a moment when several candles go up and stop at the border of the upper band and identify the m tops.\n\nNext comes the RSI. We will use it to understand how the instrument is strengthening or weakening in its value. In an upward trend and downward rollback, the signal is confirmed when the indicator line is within 30-50. Ideally, it goes up. Accordingly, in a downtrend and an upward rollback, the RSI should be between 50 and 70 and going down.\n\nIf the main trend is upward, we enter the market at the close of the subsequent bullish (white) candlestick. If the trend is downward, enter after the close of the bearish bar. If the movement is too strong and you are afraid to miss a significant part of the movement, you can move to the next smaller timeframe and wait for the bar to close on it.\n\nPlace stop loss a little behind the touch point of the Bollinger Band indicator. It is recommended to place take profit at the level of the opposite band.\n\nLet's see how the strategy works though an example.\n\n[![LiteFinance: Bollinger Bounce](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_86.jpg?q=75&s=e78f60ce1c73f98047f04406553c5f81)\n\nThe [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/) chart shows an uptrend. In the place of the supposed bounce, one of the bars touches the lower band (green oval area). In this area, the RSI moves in the direction of the trend and is located in the optimal range from 30 to 50 percent. Therefore, we can talk about a signal for the upcoming bounce.\n\n[![LiteFinance: Bollinger Bounce](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_87.jpg?q=75&s=3c3056b7a1b0c1c77baf85a031f2ad79)\n\nFollowing the touch candle, a bullish bar is formed, signaling the start of a bounce. At its final point, open a long position at 1.09042 points (green horizontal line). Set the stop loss (red line) slightly behind. Take profit is placed at the level of the upper band (blue line).\n\n[![LiteFinance: Bollinger Bounce](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_88.jpg?q=75&s=4aede2bc30e124fd6763ed289c4dc203)\n\nThe position closes by take profit (blue line) upon reaching the level of 1.10031 points. The profit from the trade was 1.10031 - 1.09042 = 0.00989 points.\n\n### Bollinger Band Breakout Strategy\nMany experts agree that strategies based on breakout signals are the most effective. The Bollinger Bands indicator is among the best indicators for tracking and predicting future impulses. This is noted by D. Rooney, technical analyst and trader with ten years of experience, winner of an award in writing trading systems.\n\n[![LiteFinance: Bollinger Band Breakout Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_comment_89.jpg?q=75&s=569b81eebad1dc4c796c23825491fb6f)\n\nOne such trading system is the Bollinger Band breakout strategy. It is equally effective on both 5-minute and weekly timeframes. This strategy is the complete opposite of the Bollinger Bands bounce strategy. The founder of breakout trading is Bruce Babcock, the author of the intuitive trading theory. John Bollinger liked his approach to trading volatility breakouts and decided to adapt it to his indicator.\n\nThe key to success is the correct choice of timing to enter the market, namely, the moments of lowest volatility. To determine the narrowing, we will use the already familiar BandWidth indicator. I’ve talked in detail about this tool, its installation and setting up in the section on narrowing.\n\nIf the BandWidth narrows, the trader should be prepared to see a breakout of one of the Bollinger Bands. We enter the market as soon as one of the candles closes above or below the line. The direction of the position coincides with the direction of the breakout. This means, if the upper band is crossed, we open a long position, and if the lower one is crossed — a short position.\n\nStop orders are placed just below the breakout candle. Then, at regular intervals, the stop loss is pulled up by the price movement distance. Such intervals will be different for each of the timeframes. In daily charts, the optimal nudge time would be the opening of trades at the beginning of the day. You can also use the trailing stop, which changes the stop loss value at the close of each candle.\n\nBreakout Strategy is almost identical to Bollinger Squeeze. But there is also a significant difference. It’s in an alternative parabolic way of exiting the market. In this case, the stop loss is set in the breakeven zone during the growth process. We exit the market when the opposite band is touched: for the bullish movement — the lower bands, and for the bearish — the upper band. Let’s look at this option through an example.\n\n[![LiteFinance: Bollinger Band Breakout Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_90.jpg?q=75&s=9241fd7d2e1e21d1f4672ea1a32d5109)\n\nFor the breakout strategy, I took the same chart that was used to demonstrate squeeze trading. The blue arrows indicate the narrowing area, the red one shows the candlestick crossing the lower level. When it closes, we enter a short position. With the blue line, I marked the entry price of 1.00002 points. And the red line is the initial stop loss.\n\n[![LiteFinance: Bollinger Band Breakout Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_91.jpg?q=75&s=4ac8ab44b357ebf0731473ed032c17bd)\n\nDuring the development of a bearish trend, we move the stop loss to the opening price (in reality you need to move it a little lower to compensate for the spread). The new stop loss is marked with a red line. I also left the original one intact for clarity. It is now marked with a semi-transparent red line.\n\nThe position is closed when the candlestick touches the upper Bollinger band. This event is marked with a red cross in the chart. The closing price is marked with a green line and is 1.09410. This trade should have brought us a profit of 1.09410 - 1.00002 = 0.09408 points.\n\n### Trend Trading Indicator Strategy\nThe essence of this approach boils down to predicting the birth of trends using price strength analysis. The analyst considers the ability of the chart to approach the upper band during an upward movement and the lower one during a downward movement as a sign of strength. Additionally, the strength is confirmed by the MFI readings.\n\nTo measure how close the price action is to one of the bands, we will use the Bollinger Bands %b indicator. I talked about it in detail in the section \"How the Bollinger Wave Indicator Works\".\n\nLet's look at the process of installing and setting up the indicator:\n\n1\\. Download the Bollinger Bands %b indicator from [here](http:\/\/www.mql5.com\/en\/code\/7165).\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490)\n\n2\\. Open the \"File\" tab in the top menu of MetaTrader4, select the \"Open Data Folder\" item.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_96.jpg?q=75&s=31d8e5b30d30bc5e3b8fd592a6db2faf)\n\n3\\. File explorer will open with the target folder. In it, select the \"MQL4\" folder.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_98.jpg?q=75&s=f48c057e6759a9ed91390d2d7aa67d82)\n\n4\\. Select the \"Indicators\" folder. Copy the unarchived Bollinger\\_Bands\\_3b.mq4 file to this directory and restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/).\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_100.jpg?q=75&s=a47821411cbbbd0b57c5e687e5da5ee5)\n\n5\\. At the top of the terminal, open the \"Insert\" tab, then go to the \"Indicators\" item. Next, click on the \"Custom\" item and select the name of the newly installed indicator — Bollinger\\_Bands\\_3b.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_ustanovka_indicatora_102.jpg?q=75&s=fa9f0c3193084e73ce655f7650cd4ef6)\n\n6\\. The indicator window will appear. By clicking on the OK button, you will launch the indicator with default settings.\n\nThe editable parameters of the tool are in the following tabs:\n\n- Common — technical settings for the indicator. They are best left as default.\n- Inputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings.\n- Colors — here you can set up the color, thickness and look of the indicator line. By default, it is bright yellow, so it is better to immediately change it to a more vivid color.\n- Levels — this item allows you to set levels. For example, a level, at the crossing of which you need to buy, etc. In the case of our strategy, it makes sense to add levels 0.8 and 0.2.\n- Visualization — here you can select the timeframes on which the indicator will be displayed.\n\nYou can download MFI from [here](https:\/\/www.mql5.com\/en\/code).\n\nThe installation principle for this instrument is the same as for Bollinger Bands %b. Most of the settings are the same as well.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_104.jpg?q=75&s=bb9b53b7f6c02d6b052a4d57a1e1fa0e)\n\nThe only difference is in the \"Inputs\" tab, where you can only change the period. For trend trading with MFI, it is recommended to set a period that is half the period of Bollinger Bands %b, which for us is 10 bars.\n\nThe tool itself is designed to measure the intensity with which funds are invested in a security’s price or withdrawn from it. Its full name reads as the Money Flow Index. Within the described trading system, we will only be interested in levels above 80 and below 20 signaling a potential market top and bottom.\n\nWe also need classic Bollinger Bands trading strategy with standard settings: 20 period and 2 standard deviations.\n\nConditions for opening a long position:\n\n- Bollinger Bands %b is in the range from 0.8 to 1.\n- The MFI chart is above 80.\n\nWe enter after the completion of the growing bar. Stop orders are set at the low price with a two candlestick offset, counting from the bar with an open position.\n\nConditions for opening a short position:\n\n- Bollinger Bands %b is in the range from 0 to 0.2.\n- The MFI chart is below 20.\n\nWe enter after the completion of the descending bar. Stop orders are set at the high of the candlestick with an offset of two bars from where the position was opened.\n\nIn the process of the market movement along the trend, the stop order should be moved to a break-even position. We take profit when one of the bars crosses the Bollinger Band opposite to the trend direction. For an upward movement this will be the lower Bollinger bands, and for a downward movement it will be the upper one.\n\nLet's look at an example.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_105.jpg?q=75&s=4bdb7fe36d01376c63c07d4e067eb13d)\n\nThe [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/) chart shows a downward trend movement. The blue arrows mark the candlestick in which the Bollinger Bands %b ranges from 0 to 0.2, and the MFI chart is just below 20. Both conditions for opening a short position are met.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_106.jpg?q=75&s=2b6a724c7b41a8a526810fa6067b6678)\n\nEnter the market at the close of this bar at 1.09731 points (blue line). Stop-loss is placed at the candlestick low with a two-bar offset from where the position was opened (red line).\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_107.jpg?q=75&s=364fdfc33b8e1ee2be30c3f7cd2d3217)\n\nWhen the trend develops, we move the stop loss to a breakeven position (red line). For clarity, I marked the initial stop level with a transparent red line.\n\nThen the price touches the upper band opposite the green cross. At this moment, we close the order at 1.09402 (green line). The total profit is 1.09731 - 1.09402 = 0.00329 points.\n\nSome traders prefer to use an alternate version of the trending strategy that uses [MACD](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/macd-indicator-forex-trading\/) instead of MFI. This indicator shows really good results on some instruments. So if you want to find the ideal trading method for several of the most commonly used currency pairs, it makes sense to test the strategy with both MFI and MACD.\n\n### Bollinger Bands Reversal Strategy\nThis strategy aims to predict trend reversals by comparing the touch of the Bollinger Bands with the behavior of indicators.\n\nFirst of all, we need a Bollinger indicator with standard settings. I’ve described earlier how to add it to the MT4\/MT5 chart.\n\nWe also need the MACD oscillator. It is available in MetaTrader by default.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_109.jpg?q=75&s=8eedf9a7ab940d4b02420c0fac1a6d3d)\n\nTo add this instrument to the chart, click on the \"Insert\" button, then \"Oscillators\" and select MACD in the drop-down list.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_110.jpg?q=75&s=895c9a0f8c54f44b3ca91a8b400d10d7)\n\nA new window with the settings will appear. The period of the fast EMA should be set at 21 bars, the slow one at 100 candles, and the signal line — at 9. You can do this in the \"Parameters\" tab.\n\nIn the \"Colors\" tab, you can change the colors of the histogram and signal line.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_112.jpg?q=75&s=68b3cbcfecfbfb54d434ceb0045e28f5)\n\nFor convenience, in the \"Levels\" tab, add a new value \"0\". The third indicator will be the Bollinger Bands %b, which is already familiar to us from the previous strategy. I have already described its installation and setting up. It is standard.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_115.jpg?q=75&s=b477edf71d65a0c1cc51618d808712a8)\n\nIn the trading process, we will need to determine the levels 0.95 and 0.05. So let's add them to the indicator chart.\n\nOpen a long position when the following conditions are met:\n\n1. The candlestick touches the lower Bollinger band;\n2. Bollinger Bands %b ranges from 0 to 0.05;\n3. MACD is above zero.\n\nOpen a short position if the following conditions are met:\n\n1. The candle touches the top band,\n2. Bollinger Bands %b ranges from 0.95 to 1,\n3. MACD is less than 0.\n\nPlace the stop loss at the extreme reversal point, and in the process of the new trend development, move it to the breakeven zone. A signal to close can be a narrowing, the appearance of conditions for the next reversal, or touching of the Bollinger Band opposite to the direction of the main movement.\n\nLet's look at the strategy using an example.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_116.jpg?q=75&s=8bd913294fdc085008944512ad35eff5)\n\nIn the chart, blue arrows mark the moment when one of the candles touches the upper band, Bollinger Bands %b is in the range from 0.95 to 1, and MACD is less than 0. This is a clear signal to enter the market.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_117.jpg?q=75&s=76fcc1974bc51ea3c2a042edd9af2c3d)\n\nAt the close of the bar, open a short position at a price of 1.10447 points (green line). Wait for the appearance of the high price values at the reversal in the vicinity of the candlestick and set a stop loss (red line) at this level.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_118.jpg?q=75&s=4e4381a7a61571bc997e13afaef01fb9)\n\nMove the stop order to the breakeven zone (red line). I’ve marked the previous stop loss value with a semi-transparent red line.\n\nThe development of the downtrend ends. The candlestick marked with a red cross crosses the upper border of the channel. After detecting the signal, close the position at a price of 1.09831 points (green line). The profit from the trade is 1.10447 - 1.09831 = 0.00616 points.\n\n## Bollinger Bands Screener\nFor effective profitable trading, it is important to always be on alert and monitor the market situation. While accessing the market is easy now even from a smartphone, novice traders often have problems with the choice of an instrument for trading.\n\nScreeners help you solve this problem — these are services for tracking trading instruments according to user-specified criteria. With their help, you can not only save time on market analysis, but also choose the best moments for entry and exit.\n\nOne of the best quality screeners is offered by tradingview.com.\n\n[![LiteFinance: Bollinger Bands Screener](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_screener_121.jpg?q=75&s=be1630023d9dad927ab1d79d3745689f)\n\nHere you can set up filters by technical and fundamental parameters.\n\nFor your convenience, in the upper part of the window there is a search bar for parameters by name. All filters are divided into three categories:\n\n- common;\n- fundamental;\n- technical.\n\nAs part of Bollinger trading, we are interested in technical filters.\n\n[![LiteFinance: Bollinger Bands Screener](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_screener_123.jpg?q=75&s=02d1af5c015d1cc88bb62797572fa1dd)\n\nIn particular, here you can select assets whose price action is located near a certain level of the upper or lower Bollinger band, such as a security’s price for example. In this case, you can set both standard parameters (higher or lower) and more complex ones: for example, higher or equal, crosses up and down. You can even configure the Bollinger indicator so that it will work with an alert and send trading signals if a specified condition is met.\n\n[![LiteFinance: Bollinger Bands Screener](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_skriner_125.jpg?q=75&s=c8d9c6065cdb9c6a630e32afa0eb4b90)\n\nYou can refine your search using other tools that we used in the described strategies. For example, you can use the RSI readings to select trading instruments for which you should enter the market right now.\n\n## Bollinger Bands Tips & Rules\n[![LiteFinance: Bollinger Bands Tips & Rules](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-4.jpg?q=75&s=faac801b313b948891eeb14d449d45fc)\n\nWhichever strategy you use, certain basic rules should always be followed when working with Bollinger Bands. They were deduced by the author of the indicator John Bollinger and listed in his book. I chose the most relevant ones and put them in a simpler language:\n\n- Bollinger Bands should be used in conjunction with other technical analysis tools.\n- You can use a variety of indicators with Bollinger Bands that determine momentum, market sentiment, activity, intermarket data, etc. The indicators used should not be connected to each other. For example, trend and price volatility are used in the calculation of the bands. Their use for additional confirmation of price action behavior is meaningless.\n- The default indicator parameters are applicable for most instruments, timeframes and trading methods. But this does not mean that you cannot use other settings. It is important that the middle band of the moving average always describes the medium-term trend well. If it lengthens or shortens, the number of standard deviations should also be increased or decreased. For example, for fifty periods it is better to use a ratio of 2.1, and for 10 periods — 1.9.\n- Bollinger Bands are good for confirming chart patterns such as triangles, double and triple tops and bottoms, head and shoulders, and other W-shaped bottoms and M-shaped tops.\n- With a directional price movement, it can often move along the upper line and in the case of a bearish trend — along the lower one.\n- Bars closing outside the bands are statistically more likely to indicate the continuation of the trend, rather than its end.\n- The price touching the band does not in itself signal a buy or sell. Therefore, it should be considered only in conjunction with the readings of other indicators.\n- The Moving Average in Bollinger Bands is not a substitute for strategies that involve SMA, EMA and other types of averages.\n- The Bollinger Bands %b indicator will help determine the position of the price relative to the Bollinger Bands.\n- The BandWidth indicator is recommended to be used together with Bollinger Bands. It helps identify the “calm before the storm” and signs of trend changes.\n- Bollinger Bands work on any timeframe and any market conditions. An important requirement for the correct use of the indicator is sufficient price activity and calibration of the parameter settings based on the history of its movement.\n- Bollinger Bands do not provide clear recommendations on their own. This indicator should improve your chances of avoiding bad trades.\n### Bollinger Bands PDF\nHere you can download a [quick guide to Bollinger Bands PDF with the secrets to using them](https:\/\/www.litefinance.org\/uploads\/documents\/pdf\/trading-blog\/Bollinger-Bands-Guide-and-Secrets-of-BB-Indicator-en.pdf?_t=1601453913).\n\nRemember these rules and always stick to them if you use Bollinger Bands in your trading method.\n\n## Bollinger Bands FAQ\nHow does the Bollinger indicator work?\n\nThe Bollinger Bands is a technical analysis tool that works on the basis of a moving average. The upper and lower levels are equidistant from the MA. The lag rate is calculated using the standard deviation multiplied by the specified factor. The latter depends on the length of the moving average. For example, for the MA with a period of 21 bars, it is recommended to use 2 standard deviations, and for one with a period of 10 bars — 1.9.\n\nHow to use the Bollinger indicator?\n\nThe indicator itself provides little information. Almost all trading systems use Bollinger Bands in conjunction with the readings of other indicators. These can be both classic RSI, MACD, Average True Range (ATR), as well as more complex volume indicators or entire trading systems. The only condition is that there is no connection between the calculation of the Bollinger Bands and additional indicators.\n\nWhat is the best setting for Bollinger bands?\n\nThe key nuance in setting up Bollinger Bands is maintaining the optimal ratio between the period of the moving average and the number of standard deviations. The classic version uses a 21 bar period and 2 deviations. If the period for some reason increases to 50 bars, you should use the ratio 2.1. And if it decreases to 10 bars, then 1.9.\n\nHow accurate are Bollinger Bands?\n\nThe Bollinger Bands indicator itself cannot provide accurate information about whether to open a position or close an existing one. They provide good forecasting accuracy when used with other indicators or in combination with several Bollinger Bands with different settings.\n\nHow do you master Bollinger bands?\n\nI think one of the simplest and at the same time effective methods is the trend following strategy. It is used for trading instruments that follow long-term steady trends. If we are talking about volatile currency pairs, a scalping strategy is better suited for them.\n\nHow do I use Bollinger Bands in intraday trading?\n\nIn intraday trading, I recommend using channel strategies in combination with Bollinger bands on small timeframes. If you are a beginner, it is recommended to consider trending strategies with a horizon of at least a few days. The Double Bollinger Bands strategy is great for this. It allows you to accurately identify the buy, sell and profit-taking zones. This will increase your trading discipline and help you avoid unnecessary mistakes at the very beginning.\n\nWhat do fundamental investors think about Bollinger Bands?\n\nOne of the most famous investors in the world Warren Buffett never mentioned that he uses Bollinger Bands. Lesser-known traders often stick to Bollinger's tools and rules. Experienced traders are captivated by the versatility of the indicator and good compatibility with any trading strategy. Bollinger Bands are often used as a confirmation filter for signals and help to figure things out when the market conditions are not obvious.\n\nAre the Bollinger Bands the most useful indicator?\n\nIt is difficult to gauge the usefulness of Bollinger Band indicators. Despite its relatively young age, this tool has become classic in technical analysis. Such a phenomenon cannot be an accident. You shouldn't overestimate the capabilities of the Bollinger Bands either. One thing is certain. This indicator needs to be tested with your trading strategy. This is the only way you can understand whether this indicator is useful to you or not.\n\nWhich are some good books on Bollinger Bands?\n\nBollinger on Bollinger Bands is the only book by the author of the instrument that describes Bollinger trading in detail.\n\nWhat does it mean when the Bollinger bands are narrow?\n\nThe narrowing of the bands indicates a decrease in volatility to a minimum. Bollinger believes that such situations occur cyclically. The narrowing is always followed by expansion, and expansion is always followed by narrowing. This pattern is used in some strategies to identify the beginning or end of a trend.\n## Conclusions on Bollinger Trading\nBollinger Bands, like most other technical indicators, are best not applied alone. However, they can become an integral part of your trading strategy and give a good result in combination with other trading signals. At first, you can use the above trading methods. If you are just starting out as a trader, it is best to first master the Bollinger Bands trending strategy on a large timeframe. You can get invaluable experience in trading the Bollinger Bands strategies mentioned in this article on a Litefinance demo account completely free of charge and without registering.\n\nThe Bollinger Band indicator can be compared to a seasoning. Eating it with a spoon will not bring great results, but it will make any dish tastier. When you gain experience and intuitively understand the indicator signals, try additional tools and different combinations of settings and indicators to maximize your profitability. The Bollinger Band indicator is perfect for almost any strategy\\!\n***\nP.S. Did you like my article? Share it in social networks: it will be the best \"thank you\" :)\n\n**Useful links:**\n\n- I recommend trying to trade with a reliable broker [here](https:\/\/my.litefinance.org\/registration?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands&utm_source=blog&utm_medium=article&utm_campaign=bonus). The system allows you to trade by yourself or copy successful traders from all across the globe.\n- Use my promo code BLOG to get a 50% deposit bonus on the LiteFinance platform. Simply enter this code in the appropriate field when [funding](https:\/\/my.litefinance.org\/deposit?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus) your trading account.\n- Telegram chat for traders: <https:\/\/t.me\/litefinancebrokerchat>. We are sharing the signals and trading experience.\n- Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders <https:\/\/t.me\/litefinance>\n\n[![Bollinger Bands Indicator in Forex Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/new-logo.jpg?q=75&w=1000&s=f06453fe08b2fcbd7d6fdbb8c5f87a17)\n\nThe content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014\/65\/EU.   \nAccording to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.\n\nRate this article:\n\n4\\.8\n\n( 124 rates )\n\n[Start Trading](https:\/\/my.litefinance.org\/registration?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands)\n\nCannot read us every day? Get the most popular posts to your email.\n\n### Written by\n[Michael Hypov](https:\/\/www.litefinance.org\/blog\/authors\/mikhail-hypov\/)\n\nTech analyst and crypto trader\n\nWhat should I read next?\n\n![Best Forex Trading Indicators Every Trader Should Use](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n09 Jul. 2024 16:59\n\n[Best Forex Trading Indicators Every Trader Should Use](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/)\n\nA beginner's guide to Forex Indicators: The best tools for trading.\n\n![Relative Strength Index: Calculator & Formula, Best Setting and Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n22 Aug. 2025 18:45\n\n[Relative Strength Index: Calculator & Formula, Best Setting and Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/rsi-relative-strength-index\/)\n\nLearn everything about the Relative Strength Index (RSI) indicator for Forex trading. Master how to use RSI in your FX trading strategy, including real-world examples and case studies showing how to apply RSI analysis for better entries and exits.\n\n![Moving Averages Guide: How to Use the EMA Indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n12 Mar. 2026 17:27\n\n[Moving Averages Guide: How to Use the EMA Indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/moving-averages-ema-indicator\/)\n\nHow the exponential moving average works and how to use it in trading.\n\n![Volume Weighted Average Price (VWAP)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n08 Nov. 2024 09:37\n\n[Volume Weighted Average Price (VWAP)](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/vwap-indicator-what-is-vwap-in-trading-and-how-to-use-it\/)\n\nWhat is the VWAP and how to use it in MT4 and other platforms? Find out the details about this technical indicator as well as strategies for using it on stock, Forex, and other markets.\n\n![How to Use Stochastic Oscillator: Trading Guide](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n12 Aug. 2025 13:36\n\n[How to Use Stochastic Oscillator: Trading Guide](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/stochastic-oscillator\/)\n\nA stochastic oscillator is one of the most frequently used and simple indicators. How to use it properly? Let’s find it out in this article\\!\n\n![Ichimoku Cloud Indicator in Forex: What are Ichimoku Strategy Best Settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n02 Nov. 2023 16:12\n\n[Ichimoku Cloud Indicator in Forex: What are Ichimoku Strategy Best Settings](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/ichimoku-cloud-indicator-in-forex-explained\/)\n\nUltimate Ichimoku guide by a professional trader. All signals described.\n\n![On Balance Volume: How to Use OBV Indicator Guide](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n09 Jul. 2024 17:06\n\n[On Balance Volume: How to Use OBV Indicator Guide](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/on-balance-volume-obv-indicator\/)\n\nThe OBV indicator in real trading. Working principles and trading signals.\n\n![ADX Indicator: Trading Guide for Average Directional Index](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n09 Jul. 2024 17:12\n\n[ADX Indicator: Trading Guide for Average Directional Index](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/adx-indicator-average-directional-index\/)\n\nThe ultimate guide to trading with the ADX indicator: description and real trading examples.\n\n![What is Fibonacci retracement? How to trade using this indicator?](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n09 Jul. 2024 17:10\n\n[What is Fibonacci retracement? How to trade using this indicator?](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/fibonacci-retracement\/)\n\nA detailed description of one of the main technical analysis tools.\n\n![MACD Indicator: What Is and How to Use in Forex Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n13 Aug. 2025 16:29\n\n[MACD Indicator: What Is and How to Use in Forex Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/macd-indicator-forex-trading\/)\n\nThe most complete guide to using the indicator: theory and practice.\n\n![Standard deviation indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n07 Mar. 2024 16:47\n\n[Standard deviation indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/standard-deviation-indicator\/)\n\nHow to use standard deviation in trading: determining the trend and strategy based on the indicator.\n\n![Parabolic SAR Indicator: Formula, Best Settings & Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n28 Mar. 2024 12:04\n\n[Parabolic SAR Indicator: Formula, Best Settings & Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/parabolic-sar-indicator\/)\n\nReview of the Parabolic SAR indicator: description, setup, and comprehensive strategies.\n\n![Keltner Channel Indicator: How It Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n24 Apr. 2024 16:32\n\n[Keltner Channel Indicator: How It Works](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/keltner-channel\/)\n\nWhat are Keltner Channels, and how is this indicator applied in the Forex market?\n\n![Average True Range – the ATR Indicator: improve your trading with volatility measure](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n26 Mar. 2024 16:06\n\n[Average True Range – the ATR Indicator: improve your trading with volatility measure](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/atr-indicator\/)\n\nThe use of the indicator in the currency and stock markets. A complete guide.\n\n![Williams Alligator Indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n26 Mar. 2024 16:45\n\n[Williams Alligator Indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/alligator-indicator\/)\n\nHow to use the indicator? 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Examples and recommendations.\n\n![Momentum Indicator for Trading Strategy 2026-2027: Full Guide with Charts and Examples](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n20 Dec. 2024 19:13\n\n[Momentum Indicator for Trading Strategy 2026-2027: Full Guide with Charts and Examples](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/momentum-indicator\/)\n\nWhat is the Momentum indicator, and how can it be used in trading? Answers by a practicing trader.\n\n![Forex Laguerre indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n11 May. 2022 16:26\n\n[Forex Laguerre indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/laguerre-indicator\/)\n\nHow to filter off market noise with the Laguerre polynomials. Calculation formula, application of MAs, and RSI. Description of Laguerre RSI parameters and forex trading strategies with Laguerre RSI indicator.\n\n![Forex Levels Indicators](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n23 May. 2022 10:44\n\n[Forex Levels Indicators](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/forex-levels-indicators\/)\n\nOverview of forex levels indicators: Trend Arrows, TT Rabbit, London Breakout. Definition, description, and settings for levels indicators. Examples of trading with levels indicators.\n\n![Arrow trend indicators: trading strategies and advantages](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n19 May. 2022 10:48\n\n[Arrow trend indicators: trading strategies and advantages](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/arrow-trend-indicators\/)\n\nArrow indicators for binary options are the tools for “the lazy”. In the Forex charts they indicate with arrows the potential points of the market entering.\n\n![How to use currency strength meter](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n07 Jan. 2025 16:01\n\n[How to use currency strength meter](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/currency-strength-meter\/)\n\nWhat is a currency strength indicator, and how does it work? Types, signals, and examples of use.\n\n![Commodity Channel Index (CCI) Indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n18 Apr. 2024 14:03\n\n[Commodity Channel Index (CCI) Indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/commodity-channel-index-cc\/)\n\nWhy and how traders should use the commodity channel indicator. Calculation formula and trading strategies.\n\n![Price Rate Of Change Indicator - Definition, Formula and the ROC Trading Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n18 Apr. 2024 12:00\n\n[Price Rate Of Change Indicator - Definition, Formula and the ROC Trading Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/price-rate-of-change\/)\n\nA complete guide to trading the rate of change (ROC) indicator with examples.\n\n![ADR Indicator: Complete Trading Guide and Strategies for 2026](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n15 Aug. 2025 12:00\n\n[ADR Indicator: Complete Trading Guide and Strategies for 2026](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/average-daily-range-adr-technical-indicator\/)\n\nWhat does the Average Daily Range mean? Calculation formula and use in trading.\n\n![Accumulation\/Distribution Indicator (A\/D) — How to Identify and Use It](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n30 Apr. 2024 17:20\n\n[Accumulation\/Distribution Indicator (A\/D) — How to Identify and Use It](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/accumulation-distribution-indicator\/)\n\nUnderstanding the accumulation\/distribution indicator: how to use it to make money from Forex trading.\n\n![Fractal Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n30 Apr. 2024 17:44\n\n[Fractal Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/fractal-trading\/)\n\nAdvanced fractal trading guide for beginner traders.\n\n![Guppy Multiple Moving Average (GMMA): Formulas & Trading Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n05 Mar. 2025 12:29\n\n[Guppy Multiple Moving Average (GMMA): Formulas & Trading Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/guppy-multiple-moving-average\/)\n\nLearn how the Guppy Multiple Moving Average (GMMA) indicator works and how to gain profits with it.\n\n![Accumulative Swing Index (ASI)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n06 Feb. 2025 17:26\n\n[Accumulative Swing Index (ASI)](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/accumulative-swing-index\/)\n\nThe ASI indicator helps identify market trends and distinguish between true and false breakouts.\n\n![The Best Volume Indicators for Informed and Profitable Forex Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n13 Aug. 2025 16:05\n\n[The Best Volume Indicators for Informed and Profitable Forex Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/best-forex-volume-indicators\/)\n\nReview of the best trading volume indicators in the Forex market.\n\n![Andrew's Pitchfork: Strategies, Rules and Technical Analysis](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n04 Feb. 2025 15:41\n\n[Andrew's Pitchfork: Strategies, Rules and Technical Analysis](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/andrew-pitckhfork\/)\n\nAndrews’ Pitchfork is an easy-to-use tool for analyzing trends and key levels on the chart.\n\n![Bulls and Bears Power Indicators: Enhance Your Trading Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n24 Jul. 2024 18:08\n\n[Bulls and Bears Power Indicators: Enhance Your Trading Strategy](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bulls-and-bears-power-indicators\/)\n\nRead about Bulls and Bears Power indicators, their formula, pros and cons, and trading strategies.\n\n![Awesome Oscillator Indicator - What Is It & How Does It Work?](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n11 Sep. 2024 18:27\n\n[Awesome Oscillator Indicator - What Is It & How Does It Work?](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/awesome-oscillator\/)\n\nDelve into the Awesome Oscillator’s formula, signals, and real-life examples of its application.\n\n![Chaikin Oscillator: What It Is, How It Works, and How to Use It in Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n15 Aug. 2025 16:03\n\n[Chaikin Oscillator: What It Is, How It Works, and How to Use It in Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/chaikin-oscillator\/)\n\nHow the Chaikin Oscillator works and how to use it for analyzing trends and trading volume.\n\n![How to Use DeMarker Indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n09 Jul. 2024 17:19\n\n[How to Use DeMarker Indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/demarker-indicator\/)\n\nWhat is the DeMarker (DeM) technical indicator? Learn how to use the DeMarker indicator in Forex and stock trading.\n\n![Advance-Decline Line Index Explained: Formula, Examples, and Trading Implications](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n15 Oct. 2024 17:42\n\n[Advance-Decline Line Index Explained: Formula, Examples, and Trading Implications](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/advance-decline-line\/)\n\nExplaining how the A\/D line indicator works and its purpose in analyzing market trends.\n\n![Directional Movement Index (DMI): Formula, Uses, and Trading Applications](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n06 Nov. 2024 17:12\n\n[Directional Movement Index (DMI): Formula, Uses, and Trading Applications](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/dmi-indicator\/)\n\nDMI indicator overview, comparison with the ADX, strengths, weaknesses, and usage examples.\n\n![Best Scalping Indicators on Forex](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n06 Feb. 2026 17:49\n\n[Best Scalping Indicators on Forex](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/best-indicators-for-scalping\/)\n\nReview of the best scalping indicators with practical examples of signals. Efficient combinations of indicators.\n\n![TTM Squeeze Indicator: How To Use It?](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n05 Dec. 2024 12:04\n\n[TTM Squeeze Indicator: How To Use It?](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/ttm-squeeze\/)\n\nDiscover the TTM Squeeze indicator and a trading system that generated 1,270% returns in 2020.\n\n![Technical Analysis Indicators: List and Description](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n24 Jan. 2025 13:53\n\n[Technical Analysis Indicators: List and Description](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/technical-indicators-list\/)\n\nReview of the best technical indicators for Forex: tips and strategies for successful trading on MetaTrader 4, MetaTrader 5, and other trading platforms.\n\n![SuperTrend Indicator: Mastering Market Trends and Trading Signals](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n24 Jan. 2025 15:32\n\n[SuperTrend Indicator: Mastering Market Trends and Trading Signals](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/supertrend-indicator\/)\n\nMaximize your returns with the SuperTrend indicator: signals, settings, and trading strategies.\n\n![Half Trend Indicator Explained: Forex Trading Tool Guide](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n28 Feb. 2025 13:08\n\n[Half Trend Indicator Explained: Forex Trading Tool Guide](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/half-trend-indicator\/)\n\nHalf Trend indicator: how it works, its features and application in Forex trading.\n\n![What Is the Arms Index (TRIN), and How Do You Calculate It?](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n13 Mar. 2025 12:42\n\n[What Is the Arms Index (TRIN), and How Do You Calculate It?](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/trin-arms-index\/)\n\nThis indicator shows the ratio of advancing stocks versus declining stocks on the market, thus helping with price forecasts.\n\n![Mastering the True Strength Index: A Comprehensive Guide for Traders](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n14 Apr. 2025 16:52\n\n[Mastering the True Strength Index: A Comprehensive Guide for Traders](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/true-strength-intex-tsi\/)\n\nTSI: a trend and momentum indicator. Learn how to set it up and apply it in your trading.\n\n![Donchian Channel Indicator – Trading Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n21 May. 2025 10:53\n\n[Donchian Channel Indicator – Trading Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/donchian-channel\/)\n\nEverything about the Donchian channel: how to use it, strategies, advantages, and drawbacks.\n\n![Schaff Trend Cycle: Advanced Market Analysis for Traders](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n10 Jul. 2025 13:35\n\n[Schaff Trend Cycle: Advanced Market Analysis for Traders](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/schaff-trend-cycle\/)\n\nExploring the STC indicator, a valuable tool for identifying trends and making profitable trades.\n\n![What is Anchored VWAP? Trading Strategies & Examples](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n20 Aug. 2025 16:44\n\n[What is Anchored VWAP? Trading Strategies & Examples](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/anchored-vwap\/)\n\nEverything about the Anchored VWAP indicator, strategies, and principles of its use in trading.\n\n![Smart Money in Trading: Strategies, Insights & Techniques](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n17 Sep. 2025 11:11\n\n[Smart Money in Trading: Strategies, Insights & Techniques](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/smart-money-concept\/)\n\nLearn how SMC strategies work in trading and how to apply them to enhance your trading performance.\n\n![A Guide to Xmaster Formula Indicator in Forex](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n25 Sep. 2025 17:57\n\n[A Guide to Xmaster Formula Indicator in Forex](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/xmaster-formula-indicator\/)\n\nThe Xmaster Formula trend oscillator: signals, advantages, disadvantages, and practical usage.\n\n![Best Entry and Exit Indicators Every Trader Should Know](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n29 Sep. 2025 17:11\n\n[Best Entry and Exit Indicators Every Trader Should Know](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/best-entry-exit-indicator\/)\n\nLearn how to spot entry and exit points using trend indicators, oscillators, and chart analysis.\n\n![What Is Simple Moving Average (SMA) and How to Use It in Stock Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n01 Oct. 2025 14:49\n\n[What Is Simple Moving Average (SMA) and How to Use It in Stock Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/what-is-simple-moving-average-indicator-sma\/)\n\nThe review offers a complete guide on how to use the SMA indicator in trading.\n\n![What Is Market Facilitation Index and How to Use BW Mfi Indicator in Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n07 Oct. 2025 16:58\n\n[What Is Market Facilitation Index and How to Use BW Mfi Indicator in Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/what-is-market-facilitation-index\/)\n\nThe essence and calculation formula of the market facilitation index indicator. Interpretation of its signals and examples of practical application.\n\n![What Is the Kelly Criterion in Trading and How to Use It for Investing](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n28 Oct. 2025 10:50\n\n[What Is the Kelly Criterion in Trading and How to Use It for Investing](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/kelly-criterion-trading\/)\n\nThis article provides a detailed overview of the Kelly Criterion and explains how to use it effectively in quantitative trading.\n\n![What Is Market Breadth and How Investors Use It?](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n07 Nov. 2025 14:41\n\n[What Is Market Breadth and How Investors Use It?](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/what-is-market-breadth\/)\n\nDetermining market breadth in the stock market. Indicators and their use in investment strategies.\n\n![RSI vs MACD: Which Trading Indicator Is Better and How to Combine Them](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n10 Nov. 2025 11:07\n\n[RSI vs MACD: Which Trading Indicator Is Better and How to Combine Them](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/rsi-vs-macd\/)\n\nHow to use RSI and MACD in trading.\n\n![What Is the McClellan Oscillator and How to Use It in Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n10 Nov. 2025 16:09\n\n[What Is the McClellan Oscillator and How to Use It in Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/what-is-mcclellan-oscillator\/)\n\nExplore the McClellan Oscillator as well as its formula and signals, and learn how to use it in trading.\n\n![What Is CVD Indicator and How to Use Cumulative Volume Delta in Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n04 Dec. 2025 15:11\n\n[What Is CVD Indicator and How to Use Cumulative Volume Delta in Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/cvd-indicator\/)\n\nThe cumulative volume delta CVD indicator: Practical examples of trend confirmation and trend reversal.\n\n![Best Indicators for Swing Trading: Ultimate Guide to Technical Analysis](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n08 Dec. 2025 13:30\n\n[Best Indicators for Swing Trading: Ultimate Guide to Technical Analysis](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/best-indicators-for-swing-trading\/)\n\nLearn how to generate profits using the most popular indicators for swing trading.\n\n![McGinley Dynamic Indicator: Trading Guide](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n14 Jan. 2026 16:15\n\n[McGinley Dynamic Indicator: Trading Guide](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/mcginley-dynamic-indicator\/)\n\nLearn all about the McGinley dynamic indicator and how to trade using it.\n\n![Coppock Curve Indicator Explained: Calculation, Formula, and Trading Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n20 Jan. 2026 09:36\n\n[Coppock Curve Indicator Explained: Calculation, Formula, and Trading Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/what-is-coppock-curve-indicator\/)\n\nThe Coppock Curve: calculation formula and effective long-term trading strategies.\n\n![Know Sure Thing (KST) Indicator: Trading Guide for Beginners](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n21 Jan. 2026 14:14\n\n[Know Sure Thing (KST) Indicator: Trading Guide for Beginners](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/know-sure-thing-kst-indicator\/)\n\nThe KST indicator: formula, interpretation, signals, and examples of trading strategies.\n\n![Ease of Movement Indicator: Trading with EOM](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n26 Jan. 2026 17:04\n\n[Ease of Movement Indicator: Trading with EOM](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/ease-of-movement-indicator\/)\n\nThe Ease of Movement indicator: principles, signals, and trading strategies.\n\n![Leading and Lagging Indicators in Trading: Key Differences](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4)\n\n12 Mar. 2026 14:02\n\n[Leading and Lagging Indicators in Trading: Key Differences](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/leading-and-lagging-indicators\/)\n\nDiscover leading and lagging indicators, their key differences, and their benefits and limitations.\n\nWhat’s next?\n\n[I’d like to test my new skills on a demo account without registration](https:\/\/my.litefinance.org\/trading\/chart)\n\n[Show me currency charts and real time price moves](https:\/\/my.litefinance.org\/trading?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands&type=currency)\n\n[I’d like to copy professional traders’ transactions onto my account](https:\/\/my.litefinance.org\/traders?type=profit)\n\n[I'm ready to open a trading account and make money from 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Indicator in Forex Strategies\n## Bollinger Bands Indicator in Forex Strategies\n![Michael Hypov](https:\/\/www.litefinance.org\/images\/blog\/authors\/Mikhail_Hyipov.jpg)\n\nAuthor\n\n[Michael Hypov](https:\/\/www.litefinance.org\/blog\/authors\/mikhail-hypov\/)\n\n![Jana Kane](https:\/\/www.litefinance.org\/images\/blog\/authors\/jana-kanne.jpg)\n\nReviewed by\n\n[Jana Kane](https:\/\/www.litefinance.org\/blog\/authors\/jana-kane\/)\n\nUpdated version\n\n09Jul.202416:51\n\n2025\\.11.14\n\n2024\\.07.09 Bollinger Bands Indicator in Forex Strategies\n\n[![Bollinger Bands Guide: Trading Strategies & Best Settings \\| LiteFinance](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/new-logo.jpg?q=75&w=1000&s=f06453fe08b2fcbd7d6fdbb8c5f87a17)](https:\/\/www.litefinance.org\/assets\/2d47d2c9\/images\/_loading-image-331w.png)\n\nMichael Hypovhttps:\/\/www.litefinance.org\/blog\/authors\/mikhail-hypov\/\n\n[![logo](https:\/\/www.litefinance.org\/assets\/2d47d2c9\/images\/header-logo-litefinance.png)](https:\/\/www.litefinance.org\/assets\/2d47d2c9\/images\/header-logo-litefinance.png)\n\nDear friends\\!\n\nIn this article, we will take a detailed look at Bollinger Bands, a classic indicator that many traders have been using for many years.\n\nI will tell you what are Bollinger Bands, what this tool does, how it works, how are Bollinger Bands calculated, how to use Bollinger Bands Forex strategies, and give you lots of other interesting information with examples.\n\nThe article covers the following subjects:\n\n- [What Bollinger Bands are: Definition and History](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h0)\n- [Bollinger Bands Formula & Calculations](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h1)\n- [How Bollinger Bands Indicator Works](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h2)\n- [Bollinger Bands Signals](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h3)\n- [Bollinger Bands Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h4)\n- [Bollinger bands best settings](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h5)\n- [Bollinger Bands Screener](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h6)\n- [Bollinger Bands Tips & Rules](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h7)\n- [Bollinger Bands FAQ](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h8)\n- [Conclusions on Bollinger Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bollinger-bands\/#h9)\n\nLet's get started with bollinger bands tutorial\\!\n\n## What Bollinger Bands are: Definition and History\nLet's dive into the history of the indicator. The very first mention of a tool similar to Bollinger Bands dates back to 1960.\n\nThe well-known trading analyst Wilfrid LeDoux used a trading channel based on two moving averages as technical indicators in his trading system. The first band was built based on the highs, and the second — on the lows. The signals in the LeDoux’s trading system were both the expansion leading to the bands expand accordingly, or the contraction of the channel itself where the bands contract, following the security’s price movement to shape within it.\n\n#### *John Bollinger*\n[![LiteFinance: John Bollinger](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Mr_Bollinger_3.jpg?q=75&s=b7d10d153739e94479825a77723c4490)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Mr_Bollinger_3.jpg?q=75&s=b7d10d153739e94479825a77723c4490)\n\nFunnily enough, at first John Bollinger did not even think about trading. He thought his future work would be on television. But while working as an operator at one of the Hollywood companies, he encountered some financial analysts and became interested in this occupation. Later, the future trader’s mother asked her son to help organize her investment portfolio.\n\nStarting then, Bollinger finally decided to be part of the world of stock trading. Combining his work as an operator at Financial News with training from experienced financiers, he quickly mastered trading and moved on to the position of financial analyst on the same channel. He did not become a TV star, but he gained fame thanks to successful trading ideas based on simple envelopes.\n\n*The envelope is one of the oldest technical analysis indicators. It was built on the basis of a simple moving average and two bands located at an equal distance from this center line.*\n\nBetween 1984 and 1991, John worked on his own trading system based on the LeDoux strategy and the envelope indicator. John's brainchild was named after its creator — the Bollinger Bands. This technical analysis tool developed was based on a middle band known as the moving average with so-called volatility bands plotted above and below. However, unlike envelopes, the offset is not by a certain number of points, but by a percentage.\n\n[![LiteFinance: John Bollinger](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_5.jpg?q=75&s=1a3666c9577a136941abf1b50bf33094)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_5.jpg?q=75&s=1a3666c9577a136941abf1b50bf33094)\n\nThe Bollinger Bands are shown in the [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/) chart.\n\nThe red lines are the upper and lower boundaries of the channels. They are plotted based on the percentage offset from the blue middle band of the moving average. The main purpose of BB indicator is to determine a sharp deviation from the average direction of the current trend.\n\n> Next, we will analyze the techniques for using the Bollinger indicator in detail. In order to study the material as efficiently as possible, I advise you to go to the LiteFinance [demo account](https:\/\/my.litefinance.org\/trading\/) right now (you do not need to register), open any trading instrument and apply the Bollinger bands to the chart. Skim the Bollinger Band chart and see how it reacts to price changes. If you encounter any difficulties, we will do it together below.\n\nThe Bollinger Bands indicator became widely known in comparison with other technical indicators after the mention in the book The New Commodity Trading Systems and Methods by Perry Kaufman published in 1987.\n\nThe author of the indicator spoke about his brainchild and Bollinger Bands strategies only in 2001, in the book Bollinger on Bollinger Bands. The article that you are now reading is written on the basis of materials from these two books. I have extracted from them the most relevant and useful information adapted for modern financial markets. Enjoy the article\\!\n\n## Bollinger Bands Formula & Calculations\n[![LiteFinance: Bollinger Bands Formula & Calculations](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-1.jpg?q=75&s=b2e98fb6593b5b76cd09d4238a777303)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-1.jpg?q=75&s=b2e98fb6593b5b76cd09d4238a777303)\n\nToday, in order to draw Bollinger Bands in a chart, you just need to select the required indicator from the list. Before, a trader had to gather it piece by piece. The process is as follows: take the moving average as the middle line (hereinafter the MA) and build the upper and lower bands: one above the center line by some percentage distance and one below it. The main issue was selecting the optimal interval for the MA and the deviation of these volatility bands (Bollinger levels) from it.\n\nThe author of the indicator looked for an effective way to select the interval for a long time.\n\n#### *Marc Chaikin*\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/stochastic-oscillator\/marc__circle.png?q=75&s=9b4b94490b7f932b922ec7dfd324ef31)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/stochastic-oscillator\/marc__circle.png?q=75&s=9b4b94490b7f932b922ec7dfd324ef31)\n\nFor some time he followed Marc Chaikin’s principles. Chaikin used a 21-day moving average for his bands offset up and down so that the resulting zone contains about 85% of last year's price data. However, he later realized that the key to success in establishing the width of trading bands is the degree of market volatility.\n\nTo determine the offset of the waves from the moving average, John used the formula for the root-mean-square or standard deviation. This variable is usually denoted as σ (sigma). To calculate the standard deviation, the average closing price is calculated for a specified period. The resulting value is subtracted from each point of this closing price dataset. As a result, you will have a list of deviations from the average price. Some of these typical values will have positive values, others will be negative. The general principle is that the range of deviations is in direct proportion to the degree of variability of the series. Simply put, in a volatile market, Bollinger bands expand, and in case of consolidation, they narrow.\n\nAt the next stage, we add up the list of data we have obtained. If we add negative and positive values, we end up with 0. To get a non-zero result, we need to get rid of negative values by squaring them. As a result, after adding up, we get the average absolute deviation. This amount is divided by the period for which the data was collected, and then we extract the root of the resulting value.\n\nWe get the following formula for calculating the square deviation:\n\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/new-Deviation_8.jpg?q=75&s=7824a4651b1be4c86e02dc69c8b8d13b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/new-Deviation_8.jpg?q=75&s=7824a4651b1be4c86e02dc69c8b8d13b)\n\nσ — standard deviation;\n\nx — closing price;\n\ni — order number of the bar;\n\nμ — moving average;\n\nN — total number of points (period).\n\nIf we translate all of the above from the math language into trading language, the obtained value of σ determines the area in which all candles close with a probability of 68.2% (if the indicator is based on closing levels) for the selected period. When the price breaks out of this area, it is outside the root-mean-square distribution — it becomes an anomaly in terms of mathematical statistics. What does this mean for the trader? We'll find out it out a bit later.\n\nAs for the choice of the optimal moving average period, the classic version of the Bollinger indicator uses a 20-period MA. This range is approximately equal to the number of trading days in a month. If for some reason the period has to be shortened, in order to obtain the optimal width of the band, you need to cut the number of standard deviations. If the period is lengthened, the number of standard deviations must be increased.\n\nThe need to adjust the calculation of the Bollinger Bands width may arise because of the peculiarities of the formula. After analyzing the largest markets, the author has derived the most convenient ratios for frequently used periods:\n\n|   |   |\n|---|---|\n| **Periods** | **Multiplier** |\n| 10 | 1,9 |\n| 20 | 2 |\n| 50 | 2,1 |\n\nLet me explain why you need these ratios. In most markets, when using 20 periods and 2 standard deviations, you can get coverage of 88-89%. As the period is shortened or lengthened, the coverage changes, which affects the analysis efficiency. To maintain coverage at 88-89%, Bollinger Bands should be plotted using a 1.9 ratio for a 10-bar period. This means you cut the band width from 2.0 to 1.9. With a period of 50 bars, respectively, you need to increase the width from 2.0 to 2.1.\n\nAfter selecting the multiplier and the period, you can calculate the Bollinger bands themselves.\n\nThe formula for the top band is as follows:\n\n*UB* *\\=* *μ* *\\+ (**m* *\\** *σ**),*\n\nFor the bottom band:\n\nLB = μ - (m \\* σ),\n\nUB — upper band;\n\nLB — lower band;\n\nμ — moving average value;\n\nσ — standard deviation value;\n\nm — factor.\n\nAs an example, let's calculate the value of one point of the upper Bollinger band. To simplify the calculations, let's take a period of 10 bars.\n\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_9.jpg?q=75&s=2b84d4985af193df36f687529e85adc9)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_9.jpg?q=75&s=2b84d4985af193df36f687529e85adc9)\n\nCandles entering the period are marked with a blue rectangle in the chart.\n\nFirst, let's identify the closing levels of these candles in points, starting with the most recent. For convenience, I have rounded ten thousandths to 0:\n\n1,18700;\n\n1,17700;\n\n1,16500;\n\n1,14200;\n\n1,13000;\n\n1,12400;\n\n1,12100;\n\n1,11700;\n\n1,12500;\n\n1,12900.\n\nTherefore, the moving average is:\n\n\\= (1,18700 + 1,17700 + 1,16500 + 1,14200 + 1,13000 + 1,12400 + 1,12100 + 1,11700 + 1,12500 + 1,12900)\/10 = 1,14200\n\nWe can now move on to calculating the standard deviation:\n\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/standard_deviation.jpg?q=75&s=0ac8306048818f4738994a20dfc7ca89)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/standard_deviation.jpg?q=75&s=0ac8306048818f4738994a20dfc7ca89)\n\nNow we know the value of the standard deviation and can calculate the point of the upper Bollinger band above the last bar (take the multiplier 1.9 from the table above):\n\n1,14200 + 1,9 \\* 0,02404 = 1,18768.\n\nKnowing the standard deviation, we can calculate other points and draw the top line along them. The points of the lower line are calculated similarly. As you can see, manual calculations are too cumbersome. To simplify the Bollinger Band calculation, you can use an Excel spreadsheet, which I will discuss below.\n\nNow let's talk about the allowed parameters. From my own experience, I can say that it makes no sense to use the Bollinger indicator with a period of less than 10 and more than 50. If such a need arises, you need to change the timeframe, for example, switch from a daily to a four-hour chart or vice versa. In the initial stages, I recommend limiting yourself to a period of 20-30 bars. The author himself believes that his indicator works best in this range.\n\nIn addition to the classic setting of this technical indicator, the use of Bollinger Bands varies since combined options are also possible to be implemented for better results. For example, a chart might contain two band indicators plotted using the same calculation period but with different ratios. In his book, the analyst gives an example of a chart with two volatility bands in 20 periods that differ in width by 1 and 2 standard deviations.\n\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_10.jpg?q=75&s=2410bb5a2bbbc65807cc0cf092657957)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_10.jpg?q=75&s=2410bb5a2bbbc65807cc0cf092657957)\n\nYou can see this tool in the picture above. Visually, these two technical indicators coincide at the moving average line but have different widths. A narrower channel is built with a factor of 1.0, and a wider one — with a factor of 2.0.\n\n[![LiteFinance: Marc Chaikin](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_12.jpg?q=75&s=e53ed30a1a797f47a2ed6e378d55b470)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_12.jpg?q=75&s=e53ed30a1a797f47a2ed6e378d55b470)\n\nThe second popular option for setting up the indicator is to plot BB of two different types. For example, one channel can be formed based on a moving average with a period of 20 bars and a width of 2 standard deviations. The second one has a period of 50 bars and a ratio of 2.1. If you think you already know how to use Bollinger Bands, you are wrong. All the fun is yet to come. Get a cup of tea and let's move on.\n\n### Bollinger Bands Excel Sheet\n[Here you can find the Bollinger Bands Excel Sheet](https:\/\/docs.google.com\/spreadsheets\/d\/1TfiWC5q9gVd_6T69ypexUwYNLgD1mWeF5xsR6tKnALY\/edit?usp=sharing). It is designed to accurately calculate Bollinger Bands at a specific point in time. This tool can also be used to experiment with inputs to calculate the MA or the multiplier.\n\n[![LiteFinance: Bollinger Bands Excel Sheet](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_calculator_eng_17.jpg?q=75&s=5b832886260a740e3399580b650a2935)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_calculator_eng_17.jpg?q=75&s=5b832886260a740e3399580b650a2935)\n\nIn order to use the table, you need to make a copy of it or download the Bollinger Bands calculator directly to your computer. The screenshot above shows the path: File \/ Make a copy or Download.\n\n[![LiteFinance: Bollinger Bands Excel Sheet](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_calculator_eng_19.jpg?q=75&s=55e7a4eaa8785e90bf5bdd92ca013895)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_calculator_eng_19.jpg?q=75&s=55e7a4eaa8785e90bf5bdd92ca013895)\n\nThe table is very simple. In column A, you fill in the purple cells. The formulas work for 50 cells, but there is no need to enter numbers in each one. Input values can be any numbers. For example:\n\n- closing levels;\n- opening levels;\n- bar highs;\n- bar lows;\n- weighted averages of each bar;\n- or any other numbers for your experiments.\n\nThe number of values corresponds to the calculated period. If 10 cells are filled in, the calculation will correspond to a moving average with a period of 10.\n\nIn column B, indicate the multiplier in the purple cell. The default ratio is 2, but you can enter any other number instead.\n\nColumns C, D and E contain the final result and a caption for the values:\n\n- standard deviation — σ;\n- upper band — UB;\n- moving average — μ;\n- lower band — LB.\n\n> **Important\\!** All calculations are done automatically. You do not need to enter data manually in the blue cells in column E.\n## How Bollinger Bands Indicator Works\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-2.jpg?q=75&s=3df11ee0373562b34f4ffd94360b0ba1)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-2.jpg?q=75&s=3df11ee0373562b34f4ffd94360b0ba1)\n\nWe already know that the Bollinger Bands indicator consists of three lines: a moving average, upper and lower bands. The latter are formed with an offset ranging from 1.9 to 2.1 standard deviations.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_22.jpg?q=75&s=8a581dbee104c9b054349d30fdf2529c)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_22.jpg?q=75&s=8a581dbee104c9b054349d30fdf2529c)\n\nSetting up Bollinger Bands is pretty straightforward even for beginners. There are only two relevant columns in the Parameters tab: \"Length\" or the period for which calculations will be made, and the \"Multiplier\" factor. It only makes sense to change other settings within the classic Bollinger Bands if you want to experiment. For example, changing the source from the closing price to the opening price changes the traditional approach to building the indicator, but it may show an unexpectedly interesting result on certain trading instruments.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_24.jpg?q=75&s=f8c89290192f83412f0e30b053cb8b37)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_24.jpg?q=75&s=f8c89290192f83412f0e30b053cb8b37)\n\nIn the second \"Style\" tab, you can set the color of the Bollinger bands, the moving average, and the chart area between them.\n\nJohn suggests using two indicators in the trading process:\n\n- %b allows you to determine exactly where the price data is in relation to the Bollinger Bands. This tool will be useful when developing a trading system that uses the relationship between price behavior and the behavior of the upper and lower bands.\n- BandWidth analyzes the current offset width. This metric is very useful for finding the start and end points of a trend, and BandWidth is an integral part of the squeeze technique. I will talk about it in detail a bit later.\n\nFirst, let's take a closer look at %b. This tool is calculated by the formula:\n\n%b = (Last price - LB) \/ (UB - LB).\n\n- UB — upper band;\n- LB — lower band.\n\nIf you look closely at this formula, you will understand that if the last price is located on the upper Bollinger bands, the calculation result will be 1. If it is located on the moving average, the %b value will be 0.5. And if the price falls and stops at the lower bands, the result of the above formula will be 0.\n\nIn this case, negative %b is possible if the price falls and breaks out of the lower Bollinger bands. This signal can be interpreted both as a sign that the asset is oversold and as a sign of a trend reversal.\n\nA value greater than 1 is possible if the price goes above the upper Bollinger bands. In this case, it will be a signal either about an overbought asset, or about a change from a bearish to a bullish trend.\n\nIn order to read these signals correctly, you need to use additional indicators as filters.\n\nThe Alligator indicator is often used for this purpose.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_25.jpg?q=75&s=bd3e43905c59c8d3ffb51c878c50dd1c)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_25.jpg?q=75&s=bd3e43905c59c8d3ffb51c878c50dd1c)\n\nIn the chart above we can easily identify the m tops, and we can see that the price has gone above the upper band, i.e. %b must be greater than 1 (highlighted in the graph with a green oval). At the same time, Alligator does not show any crossings between its lines (in a blue circle), which indicates an early sign of an overbought asset and a possible trend change.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_26.jpg?q=75&s=b017b00d7fbf8c93d34f0e986c6d3bc3)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_26.jpg?q=75&s=b017b00d7fbf8c93d34f0e986c6d3bc3)\n\nIn the next chart, the green oval marks an area where several candles in a row close below the lower band where we can identify the w bottoms, meaning that the %b will be less than 0. This can be both an oversold signal and a trend reversal signal. A little later, the Alligator lines cross, which confirms the trend change and lets us open a short position. We see that Alligator helps us correctly interpret the Bollinger signal.\n\n%b can also be used to identify shapes. We will talk about this later.\n\nNow let's move on to BandWidth, which analyzes — you guessed it — the current band width. It is determined by calculating the difference between the upper and lower bands and dividing the result by the moving average value. The formula looks like this:\n\nBandWidth = (UB - LB)\/μ\n\n- UB — upper band;\n- LB — lower band;\n- μ — moving average.\n\nThis signal is useful for detecting squeeze. In other words, it describes a situation when market low volatility has decreased to an abnormally lower level.\n\n> This situation can be described as the calm before the storm.\n\nBollinger noticed that most trends are born when BandWidth is at its lowest. The market’s low volatility is like the calm before bad weather. The emergence of a sharp expansion of Bollinger bands and a strong price movement in such a situation indicates the possible formation of a new strong trend.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_27.jpg?q=75&s=e840ae2605c73fca606285620e2cf807)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_27.jpg?q=75&s=e840ae2605c73fca606285620e2cf807)\n\nIn the chart, the green oval marks the moment when the Bollinger Bands narrow, i.e. the market volatility decreases to a local minimum. As you can see, a sharp upside breakout occurs after this, which is the start of a bullish trend.\n\nBandWidth will also be very useful in determining the end points of strong trends. Heavy movements provoke a significant increase in volatility and the bands widen. Because of this, the level of dispersion increases and the Bollinger Bands expand. In the case of a bullish strong trend, after the channel narrowing, we will see a strong fall of the lower Bollinger band downwards against the main trend. This phenomenon is an early signal of a bullish trend reversal.\n\n[![LiteFinance: How Bollinger Bands Indicator Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_28.jpg?q=75&s=26569f3b326fbf0cd221c4635e8a625f)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_28.jpg?q=75&s=26569f3b326fbf0cd221c4635e8a625f)\n\nThe [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/) chart shows Bollinger Bands at the time of the trend development. The green rectangle marks the area when the lower line begins to move down during the formation of an upward trend. After that, in the area marked with a blue rectangle, the lower band reverses and begins to move up. A signal about the end of the trend appears. And indeed, after a while there is a transition from a bullish trend to a bearish one.\n\n## Bollinger Bands Signals\nEarlier, we have already discussed the main signals of the Bollinger Bands. Their weak point is the need to filter and identify entry and exit points. The simplest solution to the first problem is a Bollinger filter.\n\nTo solve the second problem — identifying the entry and exit points — in most cases finding shapes is the solution. A shape is a pattern formed by the market movement and the price volatility or a sequence of such movements. They are fairly easy to recognize in the chart. At the same time, for a better understanding, beginners are recommended to use Bollinger Bands. They smooth out minor market fluctuations, making it possible to focus only on significant price data reversals. Often, shapes precede a reversal or are themselves part of a trend reversal. I will tell you about the two most common shapes — W and M.\n\nBefore we move on to examining the features of the shapes, have a look at their types.\n\n#### *W-bottoms*\n[![LiteFinance: W-bottoms](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/W_pattern_30.jpg?q=75&s=2751bf72c771b06039de255287459513)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/W_pattern_30.jpg?q=75&s=2751bf72c771b06039de255287459513)\n\n#### *M-tops*\n[![LiteFinance: M-tops](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/M_pattern_31.jpg?q=75&s=8a13394011411fdb7bbc13d8601e5597)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/M_pattern_31.jpg?q=75&s=8a13394011411fdb7bbc13d8601e5597)\n\nThe image above will help you understand what types of patterns m tops look like.\n\nThe meaning of each of the presented shapes is unique. You can read more about this in Arthur Merill’s work with the name MW Waves. Here we will just take a quick look at these patterns and discuss how to work with them.\n\nAll shapes can be grouped by to the signal the trader receives. Let's take a look how to read bollinger bands signals:\n\n- M15, M16, W14, W16 signal the formation of an uptrend.\n- M1, MZ, W1, W2 indicate the formation of a downtrend.\n- W6, W7, W9, W11, W13, W15, M2, M4, M6, M8, M10, M11 are reversal formations. These patterns indicate a trend reversal.\n- M13, W4 — in classical technical analysis these figures are called triangles. The direction of movement is determined by the side of the exit from the figure.\n- M5, W12 — in classic technical analysis, these are expanding triangles — the trend is determined after the breakout.\n- W6, W7, W9, W11, W13, W15 are most often part of the head and shoulders reversal formation.\n- M2, M4, M6, M8, M10, M11 are often components of the inverted head and shoulders pattern.\n- For the rest of the figures — M7, M9, M12, M14, W1, W3, W5, W8, W10 — signals are generated based on the general rules described below for W and M shapes.\n### W-Bottoms (Double Downs)\nW-bottom is the most common pattern of transition to the bullish market. It is rarely seen in its pure form and often has a variety of deviations from the ideal shape.\n\nBollinger developed a system for the psychological assessment of market sentiment based on the following pattern features:\n\n- Longer right side suggests that there is a sentiment of disappointment in the market. Many investors expect another retest of the lows, abandoning their positions and are extremely disappointed after the price soars up.\n- Equality of the lows on the left and right sides indicates a calm market. Investors make purchases after a repeat testing without much stress and soon get the expected profit.\n- If the low on the right side is lower than the low on the left, this situation is accompanied by fear and discomfort on the part of the masses of ordinary traders. Many of them went long at the previous low and ended up being kicked out of the market. Few of them will want to buy again, and the inflow of new money is limited to the formation of a new low point. The technical analyst Richard Wyckoff once called this phenomenon a spring, and this term is still used in the trading circles to this day.\n\nAs for the interaction of the W-bottom with the BB, in most cases the left side of the pattern will touch the lower line or cross it. The growth following the local low will again return the candles to the inner zone of the bands. In this case, the crossing of the middle line of the moving average indicator should occur.\n\nThe next move will be a second touch inside the lower Bollinger Band. It is important to pay attention here that the low in the considered strategy is determined by the lower Bollinger bands. If the first point crossed the band, and the second is formed within the channel, then the second low will be considered higher even if it is located lower in absolute terms.\n\nThe retest price must be greater than or equal to the price of the first low. This is one of the most important requirements. To check whether it is met, you can use the previously discussed %b indicator, which allows you to accurately measure the position of candles relative to Bollinger bands.\n\nAnother feature of W-bottoms is the presence of some smaller formations in their structure. A closer look at smaller timeframes reveals reversal signals. They form the beginning or end of the compound segments of a large figure.\n\nA W-bottom gives a clear signal of base formation. Therefore, these formations are often used to predict trend reversals and open positions.\n\n[![LiteFinance: W-Bottoms (Double Downs)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_32.jpg?q=75&s=ff917205603f012316daa37b6087ae55)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_32.jpg?q=75&s=ff917205603f012316daa37b6087ae55)\n\nThe chart depicts a growing W-bottom. This is a formation in which retesting occurs at a higher level. This is true only when analyzing the absolute location of the lows, i.e. the location relative to the coordinates of the chart. As for the Bollinger Bands, both low points cross the lower line at approximately the same distance. We can talk about the equality of the lows of the left and right sides and equilibrium in the market.\n\nAfter finding the W-bottom, you need to answer the question: \"When and what positions should I open?\" Experts recommend buying “strong” — wait for the moment when a bar with a volume and range above average is formed. This will be the signal to open a long position.\n\nThe stop order should be set below the last low point (below the right side of the formation). Later it should be moved up. You can do this by eye or according to your own rules. For beginners, I recommend starting with stop losses set off from local lows.\n\n### M-Tops\nWhile the most common base shape is a W-bottom, the tops can be double or triple in an M-top.\n\nThe most common case of a triple top is the head and shoulders pattern, which is well known in technical analysis. It shows rapid growth and small rollbacks. This rollback forms the left shoulder. It is followed by another period of growth, which forms a new high, which ends with an even larger rollback. Quite often, this rollback completes near the previous local low. It forms the so-called head.\n\nFollowing the head, the right shoulder is formed. It represents a failed growth with an amplitude less than the previous one (ideally ends around the peak of the left shoulder) and a subsequent fall in price setting a new low. The right shoulder may be followed by another minor growth, bringing prices back to the vicinity of the lows of the left and right shoulder. Many traders often refer to these lows as the neckline. It is usually followed by a complete fall.\n\n[![LiteFinance: M-Tops](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_33.jpg?q=75&s=127f709b1fbfaf45575307e34c9c76e1)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_33.jpg?q=75&s=127f709b1fbfaf45575307e34c9c76e1)\n\nThe chart depicts a head and shoulders formation. For clarity, I marked its outlines with green lines, and its components with numbers:\n\n1. left shoulder;\n2. head;\n3. right shoulder;\n4. backward movement before final decline.\n\nThis example clearly shows that in practice the head and shoulders are rarely formed as a perfect structure. Deviation of one or more parameters is considered acceptable.\n\nWhen analyzing a figure, I also recommend paying attention to volume. On the left side of the figure, especially in the head area, it is characterized by high values. At this point, news is published preceded by rumors and expectations. After passing the peak of the head, activity decreases. A small surge of optimism can be observed on the right shoulder or the last jump up.\n\nIn the chart, we see that at the moment of the formation of the right shoulder, traders are confused. Most of them argue that a reversal is inevitable. Therefore, the increase in volume occurs at the stage of the lowering of the right shoulder. In the first part of the last spike, the high volume can be explained by the struggle between bulls still hoping for growth and bears confident of the fall. After passing the peak, massive sales continue at the expense of traders, who at the last moment realized that further growth is impossible.\n\nAnalysis of the formation using Bollinger signals is even more interesting. In the ideal version, the left shoulder goes beyond the upper line. The right one misses it by a little. The neckline in the right shoulder often stops at the moving average, and the first decline is in the vicinity of the lower Bollinger band.\n\n[![LiteFinance: M-Tops](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_34.jpg?q=75&s=9c0fbc1c0f22a36211b9a51b5ef50a19)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_34.jpg?q=75&s=9c0fbc1c0f22a36211b9a51b5ef50a19)\n\nIn our graph above, only one condition is met strictly. Upon reaching its peak, the first shoulder is crossed by the Bollinger Wave indicator (blue arrow). The bands contract when the neckline is bounded by the lower band rather than the moving average. You can also say that the first decline stops at the lower line (red arrow). However, upon closer inspection, a slight overlap is noticeable. This once again confirms the fact that in real trading you will rarely come across perfect shapes.\n\nThe first part of the head and shoulders formation is ideally an M-top consisting of a left shoulder and a head. Most often it is expressed in the form of an M15 or M16 shape. The next part is also an M and it includes the head and right shoulder (possible shapes are M3, M4, M7 and M8). The last phase (right shoulder and reverse growth before the final decline) can be formed in the form of an M1 or M3 shape.\n\nM-tops are useful for identifying the tops of sustainable trends. In the process of their formation, there is a reversal of the price movement, which opens up opportunities for effective entry into the market. Even more useful is the analysis of the interaction of the head and shoulders with the BB. It allows you to recognize the pattern before it is fully formed, which means opening a position at one of the high points and increasing the final profit from the trade.\n\nAt the same time, starting from the right dip after the head, the structure has a downward slope. This means it can be analyzed using W shapes. Reverse growth often forms as W1 or W2 shapes.\n\nAs you analyze, you can get deep into the details by identifying each component of the M and W at the following levels. There should be five of them in total. But with traditional analysis, there is no need to analyze all the constituent figures. It is enough to find a few of them. In addition, the formation is easy to read visually, as well as in terms of its interaction with Bollinger Bands and the impact on trading volumes.\n\n### Three pushes to high\nIn addition to the classic head and shoulders, you will often see a variation of this pattern, which Bollinger calls the three pushes to a high. It usually completes larger shapes. When analyzing this structure using Bollinger Bands, you can see the following patterns:\n\n- The first push goes beyond the upper bands.\n- The second push creates a new high and touches the upper level.\n- The third push may or may not form a new high. If a new extreme point is created, it will not be much higher than the previous one. In this case, the third push does not touch the upper Bollinger band.\n\nThe highest volumes are observed at the first stage of the development of the three pushes to a high. Then the activity gradually decreases and in the final stage reaches a low. Let's take a look at an example.\n\n[![LiteFinance: Three pushes to high](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_35.jpg?q=75&s=e5973d7accd748e7d2db853599afedf5)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_35.jpg?q=75&s=e5973d7accd748e7d2db853599afedf5)\n\nIn the EURUSD chart, I marked the direction of price movement with green lines. The peaks of the three pushes to a high are labeled with numbers. We will use them as serial numbers. The first push naturally crosses the upper Bollinger band. The second creates a new top. However, it is only slightly higher than the previous one. Because of this and as a result of the previous rapid upward movement, the second pattern is not realized.\n\nThe third spike is also not much stronger than the previous ones. Its high touches the Bollinger band, but the end point of the candlestick is below it. A gradual decrease in volumes from the beginning of the formation to its end confirms an early reversal. I marked this phenomenon in the chart with a blue line.\n\n## Bollinger Bands Strategies\n[![LiteFinance: Bollinger Bands Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-3.jpg?q=75&s=9f6e5479ec6787b20101b7fe5587c30b)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-3.jpg?q=75&s=9f6e5479ec6787b20101b7fe5587c30b)\n\nIn this section, I have collected the most popular Bollinger Bands strategies. We will look at various methods within the day, in the lowest timeframes, learn how to squeeze the bands and use their signals in conjunction with other indicators. I will separately talk about the Bollinger Bands strategies, which involve trend following in the presence of a breakout of important levels and additional reversal signals.\n\n### Daily Trading with DBBs (Double Bollinger Bands)\n#### *Kathy Lien*\n[![LiteFinance: Kathy Lien](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Ms.Lin_37.jpg?q=75&s=e0d441af2509483dd4d5a3e398ef0571)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Ms.Lin_37.jpg?q=75&s=e0d441af2509483dd4d5a3e398ef0571)\n\nThis method appeared as a result of the efforts of the exchange analyst Kathy Lien. In her book, The Little Book of Currency Trading. How to Make Big Profits in the World of Forex, she described an unusual technique involving the use of two Bollinger Bands of the same type in the same chart.\n\nTo understand what this is about, let's add them to the chart. The first indicator will be with a period of 20 candles and two standard deviations.\n\nFor the second indicator, we use slightly different Bollinger Band strategy settings: a 20-bar period and one standard deviation.\n\nI also recommend assigning its own color scheme for each indicator, so that it’s easier to compare their readings in the chart.\n\n[![LiteFinance: Kathy Lien](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_38.jpg?q=75&s=7fd13367e488c91fb9066ee5fa9298ec)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_38.jpg?q=75&s=7fd13367e488c91fb9066ee5fa9298ec)\n\nThe final Bollinger indicator consists of five lines:\n\n- top (red) line with two standard deviations;\n- top (green) line with one deviation;\n- moving average (blue);\n- bottom (green) line with one deviation;\n- bottom (red) line with two deviations.\n\nAll bands, except the middle band of the moving average, form trading zones that we will use to open trades:\n\n- buy zone — between the upper red Bollinger band and the upper green line;\n- neutral zone — between the upper green and lower green line;\n- sell area is between the lower green and lower red line.\n\nThe price being in the buy zone indicates the strength of the current trend. This means that there is a high probability that the price moves will go up for some time. For trend trading, Ketty recommends opening long positions when the close of the candlestick hits the upper quarter of the double Bollinger indicator. In this case, the two bars preceding it should close in the neutral half. Keep a long position as long as the candles close within it.\n\nOn the other hand, if the price moves in the sell zone, it indicates the strength of the bearish trend. By analogy, here you should open short positions (provided the closing points of the two previous bars are in the neutral half) and keep them until the candle closes return to the neutral zone.\n\nFor an uptrend, we should identify the m tops and place a stop order at the lowest price of the first bar that broke the upper bands of the neutral zone. For a downtrend, the stop order position is determined by the high of the first bar that breaks the lower line of the neutral zone. The initial target is set at a distance of two stop losses. When the distance of one stop loss is passed, Kathy recommends moving it to breakeven. Then it should be gradually moved along with the potential target following the price moves and closed manually when the last candlestick closes in the neutral zone.\n\nAfter the price has entered the neutral zone, we can consider two possible scenarios:\n\n1. The price will move to one of the trading quarters — usually this happens when a trend reverses.\n2. The price will consolidate in the neutral zone — there will be a “calm before the storm”. You can prepare for a strong movement in either direction.\n\nThe price being in the neutral zone demonstrates uncertainty. You should refrain from entering the market and wait for the price to close in one of the quarters. Alternatively, you can go to a lower timeframe or trade short-term trades within the channel. In the latter case, the [Grid trading strategy](https:\/\/www.litefinance.org\/blog\/for-professionals\/grid-trading-a-complete-overview-of-forex-grid-trading-method\/), which I talked about in one of the previous materials, may come in handy.\n\nNow let's look at the classic strategy Double Bollinger Bands through an example.\n\n[![LiteFinance: Kathy Lien](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_39.jpg?q=75&s=05a27fa008ef00496d24ffa788d2ef6c)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_39.jpg?q=75&s=05a27fa008ef00496d24ffa788d2ef6c)\n\nIn the chart, the bar marked with a blue oval closes in the upper quarter. A buy signal appears. Open a long position at the close of the candlestick at 1.17873 points (blue line in the chart). Set the stop loss at the low of the candle that has broken through the first upper line. It is marked with a red line in the chart. I’ve marked the target with a green line, it’s located at two stop loss lengths.\n\n[![LiteFinance: Kathy Lien](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_40.jpg?q=75&s=20c4918276448760caf9d114fe9acc64)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_40.jpg?q=75&s=20c4918276448760caf9d114fe9acc64)\n\nIn the future, you can stop at the target level. But it is much better when the price grows to move the stop loss to the breakeven level, leave it at this position and wait for the signal to close the order or move it dynamically with the target.\n\nAs long as the price remains in the upper quarter, we leave the position open. In the chart above, the borders of this period are between the blue and orange ovals. Then a downtrend bar forms — see inside the orange oval. It closes in the neutral zone, which is a signal to take profit. The closing price is marked with a black line and is 1.18755 points. The resulting profit will be equal to 1.18755 - 1.17873 = 0.00882 points excluding spread.\n\nIf we had stuck with the option of moving the stop loss and target, the close would have occurred automatically at the 1.18877 level marked with a red line. In this case, net profit excluding spread would be 0.00886 points.\n\nIt is recommended to use the strategy of double Bollinger bands on trend instruments. You can use almost any timeframe — from M15 to D1.\n\nHere's what experienced traders think of the strategy:\n\n[![LiteFinance: Kathy Lien](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_comment_42.jpg?q=75&s=2b878118dd98e1be00aba06f82502ffa)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_comment_42.jpg?q=75&s=2b878118dd98e1be00aba06f82502ffa)\n\n### Bollinger Bands Scalping\n[This strategy](https:\/\/www.litefinance.org\/blog\/for-beginners\/trading-strategies\/scalping-forex\/) works on any exchange instruments. The recommended chart timeframe is M1 to M15.\n\nWe will receive the main signals from Bollinger Bands. We will use them to identify opportunities for opening and closing positions.\n\n[![LiteFinance: Bollinger Bands Scalping](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_44.jpg?q=75&s=82c0d1be5ddaee1a72b2d5c17eed6a4a)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_44.jpg?q=75&s=82c0d1be5ddaee1a72b2d5c17eed6a4a)\n\nThe picture above shows how to set up the Bollinger Bands trading strategy. The parameters are standard — the period of the middle band of the moving average of 20 bars and two standard deviations.\n\nThe [RSI indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/rsi-relative-strength-index\/) is used as a signal filter.\n\n[![LiteFinance: Bollinger Bands Scalping](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_46.jpg?q=75&s=40dbafdb7ad4a34bccedcbb194ea44bf)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_46.jpg?q=75&s=40dbafdb7ad4a34bccedcbb194ea44bf)\n\nI recommend using the 8 bar period for it. Go to the indicator settings, open the \"Parameters\" tab and set 8 under the \"Length\".\n\n[![LiteFinance: Bollinger Bands Scalping](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/RSI_settings_48.jpg?q=75&s=5677540d80b2fa60c9cc2e885d4d4808)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/RSI_settings_48.jpg?q=75&s=5677540d80b2fa60c9cc2e885d4d4808)\n\nWe leave the upper and lower limits as is — 30 and 70.\n\nTo open a long position, the following conditions must be met:\n\n1. the price candlestick touches or breaks the lower Bollinger band;\n2. RSI level is below 30;\n3. one of the following candles will close within the channel.\n\nThe stop loss is set just below the low level of the breakout candle. The gap should not be less than 10 points. The optimal ratio of take profit to stop loss when using this strategy is 0.6. Therefore, the minimum target should be at least 6 pips above the buy price.\n\nTo open a short position, the following conditions must be met:\n\n1. the candle touches or breaks the upper band;\n2. RSI level is above 70;\n3. enter when one of the following candles closes within the channel.\n\nSet stop losses and take profits similarly as with long positions.\n\nLet's consider the application of the strategy using an example.\n\n[![LiteFinance: Bollinger Bands Scalping](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_49.jpg?q=75&s=4a25aced35798c8c5e716d56b519ac69)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_49.jpg?q=75&s=4a25aced35798c8c5e716d56b519ac69)\n\nIn the five-minute [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/) chart, a blue circle marks the area where one of the candles touches the lower band. At the same time, the RSI is below 30%, confirming a buy signal. We open a long position immediately after the close of the next upward candlestick within the channel. The opening price is 1.18805 points (green line). The stop loss is set below the low of the touch candle. Since there are several such bars in a row, we take the smallest low and set the stop loss just below it. Set the take profit slightly above the buy price so that it is about 60% of the stop loss.\n\n[![LiteFinance: Bollinger Bands Scalping](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_50.jpg?q=75&s=9d3392c87745a46738f75602e7006b8a)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_50.jpg?q=75&s=9d3392c87745a46738f75602e7006b8a)\n\nThe take profit is crossed on the next candlestick after the opening. Thus, the long position is automatically closed at the price of 1.18868 points. The profit from the trade is 1.18868 - 1.18805 = 0.00063 points.\n\n### Bollinger Band and Stochastic Strategy\nBollinger trading with the [Stochastic indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/stochastic-oscillator\/) is similar to the previous strategy using the RSI. We will use the bands to detect potential entry points, and the oscillator readings to filter signals. Unlike the previous one, this trading method is more like a channel strategy, with the only difference that the Bollinger channel will be used for trading decissions. Therefore, it is very important to pay special attention to setting the indicator bands. As an example, we will use standard parameters — a 20-bar moving average and a multiplier with a factor of 2. Your input data may be different. Depending on the trading instrument, timeframe and market peculiarities, select the period and multiplier in such a way that the moving average of the indicator shows the correct trend direction. At the same time, the price should not be outside the channel for longer than several candles.\n\n[![LiteFinance: Bollinger Band and Stochastic Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Stochastic_Oscillytor_53.jpg?q=75&s=60ab7d89afc54bc3e9b99de143f88d7f)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Stochastic_Oscillytor_53.jpg?q=75&s=60ab7d89afc54bc3e9b99de143f88d7f)\n\nTo add a Stochastic, click on the \"Indicators\" button in the upper part of the online terminal window. Select \"Stochastic Oscillator\" from the dropdown list.\n\n[![LiteFinance: Bollinger Band and Stochastic Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Stochastic_Oscillytor_settings_55.jpg?q=75&s=e61356a4a0384af1b1b3ffa0e63ba975)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Stochastic_Oscillytor_settings_55.jpg?q=75&s=e61356a4a0384af1b1b3ffa0e63ba975)\n\nWe will use the following default parameters for the Stochastic: periods 5 for line K and 3 for line D, length 3. You can change the colors of the K and D lines, as well as the upper and lower limits in the \"Style\" tab. By default, K is orange and D is blue.\n\nConditions for opening a buy order:\n\n- the candlestick crosses or at least touches the lower band;\n- the oscillator shows oversold (less than 20%);\n- line K crosses D from bottom to top;\n- buy after the close of the signal candle.\n\nConditions for opening a sell order:\n\n- the candlestick crosses or at least touches the upper Bollinger band;\n- the oscillator shows overbought (more than 80%);\n- line K crosses D from top to bottom;\n- Sell when the signal candle closes.\n\nStop loss is set with an offset of at least 10-20 points from the low of the breakout candle in the case of a long position and the high in the case of a sell position. Set take profit on the opposite Bollinger band. When buying, take profit will be located on the upper bollinger band, and when selling — on the lower one.\n\nLet's consider the application of the strategy using an example.\n\n[![LiteFinance: Bollinger Band and Stochastic Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_56.jpg?q=75&s=3bf6c4bfa18b034d247a40e05f5e6c6a)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_56.jpg?q=75&s=3bf6c4bfa18b034d247a40e05f5e6c6a)\n\nIn the area of the chart marked with a blue oval, the candlestick crosses the lower band. Here line K crosses D, and the Stochastic itself shows oversold below the 20% level.\n\n[![LiteFinance: Bollinger Band and Stochastic Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_57.jpg?q=75&s=c7c062ccf209291bd5fe5e3324131806)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_57.jpg?q=75&s=c7c062ccf209291bd5fe5e3324131806)\n\nAt the opening of the next candle, we enter the market with a buy position at 1.08752 points (green line). Set the stop order a little lower (red line).\n\n[![LiteFinance: Bollinger Band and Stochastic Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_58.jpg?q=75&s=c2efcd6b99216c37a50e0502fdc2fcfc)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_58.jpg?q=75&s=c2efcd6b99216c37a50e0502fdc2fcfc)\n\nPlace the take profit on the upper Bollinger band. It is marked with a blue line in the chart. After a while, one of the candles reaches it and the order is automatically closed at a price of 1.09100 points. Thus, the profit from the trade is 1.09100 - 1.08752 = 0.00348 points.\n\nIf you are going to use this strategy on small timeframes, I recommend to monitor more stable trends additionally. This way you will avoid entering the market against powerful trends.\n\n### Using EMA and WMA instead of Simple Moving Average\nMany traders often ask: \"Can I use a weighted average or exponential instead of a moving average?\" In theory, any average is suitable for plotting BB. When trying to answer this question, John Bollinger himself did a comparative analysis of various averages and came to the conclusion that the classical moving average is the simplest and most accurate tool for constructing reference points.\n\nLet's compare the indications of moving averages using an example.\n\n[![LiteFinance: Using EMA and WMA instead of Simple Moving Average](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_59.jpg?q=75&s=cdc069dde51997e2f76d6abeb680350e)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_59.jpg?q=75&s=cdc069dde51997e2f76d6abeb680350e)\n\nIn the chart, the blue middle band channel represents standard bands based on a 20-period moving average. The orange channel, in turn, was built on the basis of the 20-period EMA. As you can see, in times of high volatility, where the bands expand significantly, these methods give different results.\n\n[![LiteFinance: Using EMA and WMA instead of Simple Moving Average](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_60.jpg?q=75&s=72489b691d01c3fec2ed84c3cef6af08)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_60.jpg?q=75&s=72489b691d01c3fec2ed84c3cef6af08)\n\nAnd in this chart, the red channel marks the bands plotted by the WMA, and the blue one — by the middle line of the moving average. As you can see, in this case the differences are noticeable, especially at the extreme points.\n\nBoth examples show that using WMA and EMA instead of a moving average can give very unexpected results. Therefore, these averages are not recommended for Bollinger trading.\n\n### Bollinger Band Squeeze\nBollinger Band strategy is driven by volatility. Because of it, the bands widen or contract.\n\nTo determine the degree of compression, John created the BandWidth indicator. It determines volatility as a function of the average and works great on any time frame. BandWidth is calculated by the formula:\n\nBandWidth = (UB - LB) \/ μ\n\nUB — upper Bollinger line;\n\nLB — lower Bollinger line;\n\nμ — moving average value.\n\nYou can download Bollinger Bandwidth for MetaTrader 4 [here](https:\/\/www.mql5.com\/en\/market\/product\/4768).\n\nLet's look at the process of installing and setting up the indicator:\n\nDownload the archive from the link above and unpack it. We need the dinapoli-BandsBandwidth.mq4 file.\n\n[![LiteFinance: Bollinger Band Squeeze](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490)\n\nOpen the File tab in the MetaTrader4 top menu. Next, select the item \"Open Data Folder\".\n\n[![LiteFinance: Bollinger Band Squeeze](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_64.jpg?q=75&s=1c1480ca125e4d6c936ab2c64a2c8795)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_64.jpg?q=75&s=1c1480ca125e4d6c936ab2c64a2c8795)\n\nFile explorer will open with the target folder. In it, select the \"MQL4\" folder.\n\n[![LiteFinance: Bollinger Band Squeeze](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_66.jpg?q=75&s=6b359921bc938e0065f9fa2af34153e1)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_66.jpg?q=75&s=6b359921bc938e0065f9fa2af34153e1)\n\nThen select the \"Indicators\" folder. Copy the unarchived BandsBandwidth.mq4 file to this directory. Restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/).\n\n[![LiteFinance: Bollinger Band Squeeze](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_68.jpg?q=75&s=f5987b7b40d35f9e5f55d9e804b28926)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_68.jpg?q=75&s=f5987b7b40d35f9e5f55d9e804b28926)\n\nAt the top of the terminal, open the \"Insert\" tab, then go to the \"Indicators\" item. Click on the \"Custom\" item and select the name of the newly installed indicator. In our case, it’s BandWidth.\n\n[![LiteFinance: Bollinger Band Squeeze](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_70.jpg?q=75&s=75d3e116194cf0fd0003536d966eba9f)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_70.jpg?q=75&s=75d3e116194cf0fd0003536d966eba9f)\n\nAfter that, the indicator window will appear. By clicking on the OK button, you launch the indicator with default settings.\n\n## Bollinger bands best settings\nYou can also change the indicator settings. Best Bollinger band strategy setting is:\n\n- Common — these are the technical settings for the indicator. They are best left as default.\n- Inputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings.\n- Colors — here you can set up the color, thickness and look of the indicator lines.\n- Levels — this item allows you to set levels. For example, the level, upon crossing which you need to buy, etc.\n\nLet's look at the indicator's application using an example.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_71.jpg?q=75&s=42e9aa07df1a0efb3809e9c9607fe4cc)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_71.jpg?q=75&s=42e9aa07df1a0efb3809e9c9607fe4cc)\n\nThe Bollinger indicator is shown in the chart with red lines. At the bottom, the blue line shows BandWidth. The principle is simple: the higher the line, the greater the expansion; the lower the line the stronger the narrowing. With blue arrows, I marked the narrowing areas, which correspond to the minimum typical values in the BandWidth chart.\n\nThe Bollinger Bands Squeeze strategy shows good results during narrowing and expansion. It is a channel trading method. The idea is to open positions on a rebound from one of the levels. The strategy works well on any exchange instruments with a timeframe of M30 and higher.\n\nWe need:\n\n1. Bollinger Bands indicator with the following settings: 20 periods and two standard deviations.\n2. BandWidth indicator.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_73.jpg?q=75&s=60bc382b97c970ab20037239c2cc1471)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_73.jpg?q=75&s=60bc382b97c970ab20037239c2cc1471)\n\nTo add the Bollinger Bands indicator to the chart, open the \"Insert\" tab in the main menu, then \"Indicators\", \"Trend\" and in the submenu that opens, select Bollinger Bands.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_75.jpg?q=75&s=fecbd021c34eba2b610ce98288ea59f8)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_75.jpg?q=75&s=fecbd021c34eba2b610ce98288ea59f8)\n\nThis will open the settings window. In it, we will set the period equal to 20 bars and two standard deviations.\n\nAs John Bollinger argued, periods of low market activity are cyclically replaced by periods of high volatility where the bands widen. This statement is the essence of the Bollinger Squeeze strategy.\n\nThe signal for an early entry into the market is the narrowing of the BB. We will identify it using BandWidth, which demonstrates its lowest values during this period.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_76.jpg?q=75&s=e3e2c8f2a8ef312d81e4f8c16b95e989)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_76.jpg?q=75&s=e3e2c8f2a8ef312d81e4f8c16b95e989)\n\nIn the EURUSD chart, the blue arrows indicate a narrowing. Please note that the BandWidth is at its lowest during this period.\n\nThe next goal is to identify when the narrowing ends. The beginning of the movement is evidenced by the breakout of one of the Bollinger bands. For a bearish trend, this will be the crossing of the lower level, and for a bullish trend, it will be the crossing of the upper level.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_77.jpg?q=75&s=72f1bcf81434c4553bb0a1c678dc5810)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_77.jpg?q=75&s=72f1bcf81434c4553bb0a1c678dc5810)\n\nIn the chart, I have marked the moment of the breakout of the lower level with a red arrow. This signal indicates the beginning of a bearish trend.\n\nYou can set the stop order, as in previous trading methods, at the high or low point of the breakout candle. The initial take profit must be at least twice the stop loss length. Since we are talking about trend trading decissions, it makes sense to use the trailing stop and wait for the signal of the trend end. This signal can be one of the patterns described in the analyst's book or another narrowing of the channel.\n\n[![LiteFinance: Bollinger bands best settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_78.jpg?q=75&s=b4cadccbb3b06b088ccda23753cee73c)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_78.jpg?q=75&s=b4cadccbb3b06b088ccda23753cee73c)\n\nThe next narrowing of the channel is marked by green arrows in the chart. It signals a reversal, which means it's time to close the short position.\n\n> **Important\\!** During the squeeze, one unusual phenomenon often happens that confuses most beginners. This is a false breakout that occurs in anticipation of the end of the squeeze. At this moment, the chart makes an intense but short-term movement. After that, it also reverses sharply and starts to move in the direction of the emerging trend. This phenomenon can also be used as a signal for the end of market consolidation.\n\nIn order not to be fooled by a false breakout, don’t jump to conclusions. Wait a bit until the movement develops so that there is no doubt that a new trend is forming. Experienced traders often derive additional profits from false breakouts. To do this, they open a position at the very beginning of the movement. After that, a trailing stop is set in such a way that it falls into the breakeven zone as soon as possible. Further moving of the stop order in the direction of the candlestick formation will give profit when triggered.\n\n### Bollinger Bounce\nThis strategy is suitable for trading opportunities on timeframes from M30 to H4. It is based on two popular tools: the Bollinger Bands indicator and the RSI. The essence of the trading system boils down to finding a price bounce, which is formed during the development of a trend.\n\n[![LiteFinance: Bollinger Bounce](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/indicator_setting_81.jpg?q=75&s=b250be1c0f49c39f7febf40320e534eb)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/indicator_setting_81.jpg?q=75&s=b250be1c0f49c39f7febf40320e534eb)\n\nFirst, let's add Bollinger Bands and RSI to the EURUSD chart of [LiteFinance online terminal](https:\/\/my.litefinance.org\/). To do this, click on the \"Indicators\" button at the top of the chart. Then, in the menu that opens, click on the \"Bollinger Bands (BB)\" and \"RSI\" links.\n\nNow let's move on to setting up the tools.\n\nFor Bollinger Bands trading strategy, we will use standard parameters: 20 bar period and 2 standard deviations.\n\nFor RSI, we will also leave the default settings:\n\n- length — 14;\n- limits — 30 and 70.\n\n[![LiteFinance: Bollinger Bounce](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_85.jpg?q=75&s=00d002b653ea7cfc38066093cf948096)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_85.jpg?q=75&s=00d002b653ea7cfc38066093cf948096)\n\nLet's modify the RSI a little by adding a horizontal line at the 50 level.\n\nThe Bollinger Bounce strategy involves trading on developing trends. The direction of price movement does not matter. In an uptrend, we will look for the moment when the price action rolls back down, touches or almost touches the lower band. In a downtrend, on the contrary, we need a moment when several candles go up and stop at the border of the upper band and identify the m tops.\n\nNext comes the RSI. We will use it to understand how the instrument is strengthening or weakening in its value. In an upward trend and downward rollback, the signal is confirmed when the indicator line is within 30-50. Ideally, it goes up. Accordingly, in a downtrend and an upward rollback, the RSI should be between 50 and 70 and going down.\n\nIf the main trend is upward, we enter the market at the close of the subsequent bullish (white) candlestick. If the trend is downward, enter after the close of the bearish bar. If the movement is too strong and you are afraid to miss a significant part of the movement, you can move to the next smaller timeframe and wait for the bar to close on it.\n\nPlace stop loss a little behind the touch point of the Bollinger Band indicator. It is recommended to place take profit at the level of the opposite band.\n\nLet's see how the strategy works though an example.\n\n[![LiteFinance: Bollinger Bounce](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_86.jpg?q=75&s=e78f60ce1c73f98047f04406553c5f81)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_86.jpg?q=75&s=e78f60ce1c73f98047f04406553c5f81)\n\nThe [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/) chart shows an uptrend. In the place of the supposed bounce, one of the bars touches the lower band (green oval area). In this area, the RSI moves in the direction of the trend and is located in the optimal range from 30 to 50 percent. Therefore, we can talk about a signal for the upcoming bounce.\n\n[![LiteFinance: Bollinger Bounce](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_87.jpg?q=75&s=3c3056b7a1b0c1c77baf85a031f2ad79)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_87.jpg?q=75&s=3c3056b7a1b0c1c77baf85a031f2ad79)\n\nFollowing the touch candle, a bullish bar is formed, signaling the start of a bounce. At its final point, open a long position at 1.09042 points (green horizontal line). Set the stop loss (red line) slightly behind. Take profit is placed at the level of the upper band (blue line).\n\n[![LiteFinance: Bollinger Bounce](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_88.jpg?q=75&s=4aede2bc30e124fd6763ed289c4dc203)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_88.jpg?q=75&s=4aede2bc30e124fd6763ed289c4dc203)\n\nThe position closes by take profit (blue line) upon reaching the level of 1.10031 points. The profit from the trade was 1.10031 - 1.09042 = 0.00989 points.\n\n### Bollinger Band Breakout Strategy\nMany experts agree that strategies based on breakout signals are the most effective. The Bollinger Bands indicator is among the best indicators for tracking and predicting future impulses. This is noted by D. Rooney, technical analyst and trader with ten years of experience, winner of an award in writing trading systems.\n\n[![LiteFinance: Bollinger Band Breakout Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_comment_89.jpg?q=75&s=569b81eebad1dc4c796c23825491fb6f)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_comment_89.jpg?q=75&s=569b81eebad1dc4c796c23825491fb6f)\n\nOne such trading system is the Bollinger Band breakout strategy. It is equally effective on both 5-minute and weekly timeframes. This strategy is the complete opposite of the Bollinger Bands bounce strategy. The founder of breakout trading is Bruce Babcock, the author of the intuitive trading theory. John Bollinger liked his approach to trading volatility breakouts and decided to adapt it to his indicator.\n\nThe key to success is the correct choice of timing to enter the market, namely, the moments of lowest volatility. To determine the narrowing, we will use the already familiar BandWidth indicator. I’ve talked in detail about this tool, its installation and setting up in the section on narrowing.\n\nIf the BandWidth narrows, the trader should be prepared to see a breakout of one of the Bollinger Bands. We enter the market as soon as one of the candles closes above or below the line. The direction of the position coincides with the direction of the breakout. This means, if the upper band is crossed, we open a long position, and if the lower one is crossed — a short position.\n\nStop orders are placed just below the breakout candle. Then, at regular intervals, the stop loss is pulled up by the price movement distance. Such intervals will be different for each of the timeframes. In daily charts, the optimal nudge time would be the opening of trades at the beginning of the day. You can also use the trailing stop, which changes the stop loss value at the close of each candle.\n\nBreakout Strategy is almost identical to Bollinger Squeeze. But there is also a significant difference. It’s in an alternative parabolic way of exiting the market. In this case, the stop loss is set in the breakeven zone during the growth process. We exit the market when the opposite band is touched: for the bullish movement — the lower bands, and for the bearish — the upper band. Let’s look at this option through an example.\n\n[![LiteFinance: Bollinger Band Breakout Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_90.jpg?q=75&s=9241fd7d2e1e21d1f4672ea1a32d5109)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_90.jpg?q=75&s=9241fd7d2e1e21d1f4672ea1a32d5109)\n\nFor the breakout strategy, I took the same chart that was used to demonstrate squeeze trading. The blue arrows indicate the narrowing area, the red one shows the candlestick crossing the lower level. When it closes, we enter a short position. With the blue line, I marked the entry price of 1.00002 points. And the red line is the initial stop loss.\n\n[![LiteFinance: Bollinger Band Breakout Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_91.jpg?q=75&s=4ac8ab44b357ebf0731473ed032c17bd)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_91.jpg?q=75&s=4ac8ab44b357ebf0731473ed032c17bd)\n\nDuring the development of a bearish trend, we move the stop loss to the opening price (in reality you need to move it a little lower to compensate for the spread). The new stop loss is marked with a red line. I also left the original one intact for clarity. It is now marked with a semi-transparent red line.\n\nThe position is closed when the candlestick touches the upper Bollinger band. This event is marked with a red cross in the chart. The closing price is marked with a green line and is 1.09410. This trade should have brought us a profit of 1.09410 - 1.00002 = 0.09408 points.\n\n### Trend Trading Indicator Strategy\nThe essence of this approach boils down to predicting the birth of trends using price strength analysis. The analyst considers the ability of the chart to approach the upper band during an upward movement and the lower one during a downward movement as a sign of strength. Additionally, the strength is confirmed by the MFI readings.\n\nTo measure how close the price action is to one of the bands, we will use the Bollinger Bands %b indicator. I talked about it in detail in the section \"How the Bollinger Wave Indicator Works\".\n\nLet's look at the process of installing and setting up the indicator:\n\n1\\. Download the Bollinger Bands %b indicator from [here](http:\/\/www.mql5.com\/en\/code\/7165).\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490)\n\n2\\. Open the \"File\" tab in the top menu of MetaTrader4, select the \"Open Data Folder\" item.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_96.jpg?q=75&s=31d8e5b30d30bc5e3b8fd592a6db2faf)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_settings_96.jpg?q=75&s=31d8e5b30d30bc5e3b8fd592a6db2faf)\n\n3\\. File explorer will open with the target folder. In it, select the \"MQL4\" folder.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_98.jpg?q=75&s=f48c057e6759a9ed91390d2d7aa67d82)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_98.jpg?q=75&s=f48c057e6759a9ed91390d2d7aa67d82)\n\n4\\. Select the \"Indicators\" folder. Copy the unarchived Bollinger\\_Bands\\_3b.mq4 file to this directory and restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/).\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_100.jpg?q=75&s=a47821411cbbbd0b57c5e687e5da5ee5)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_100.jpg?q=75&s=a47821411cbbbd0b57c5e687e5da5ee5)\n\n5\\. At the top of the terminal, open the \"Insert\" tab, then go to the \"Indicators\" item. Next, click on the \"Custom\" item and select the name of the newly installed indicator — Bollinger\\_Bands\\_3b.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_ustanovka_indicatora_102.jpg?q=75&s=fa9f0c3193084e73ce655f7650cd4ef6)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_ustanovka_indicatora_102.jpg?q=75&s=fa9f0c3193084e73ce655f7650cd4ef6)\n\n6\\. The indicator window will appear. By clicking on the OK button, you will launch the indicator with default settings.\n\nThe editable parameters of the tool are in the following tabs:\n\n- Common — technical settings for the indicator. They are best left as default.\n- Inputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings.\n- Colors — here you can set up the color, thickness and look of the indicator line. By default, it is bright yellow, so it is better to immediately change it to a more vivid color.\n- Levels — this item allows you to set levels. For example, a level, at the crossing of which you need to buy, etc. In the case of our strategy, it makes sense to add levels 0.8 and 0.2.\n- Visualization — here you can select the timeframes on which the indicator will be displayed.\n\nYou can download MFI from [here](https:\/\/www.mql5.com\/en\/code).\n\nThe installation principle for this instrument is the same as for Bollinger Bands %b. Most of the settings are the same as well.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_104.jpg?q=75&s=bb9b53b7f6c02d6b052a4d57a1e1fa0e)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_104.jpg?q=75&s=bb9b53b7f6c02d6b052a4d57a1e1fa0e)\n\nThe only difference is in the \"Inputs\" tab, where you can only change the period. For trend trading with MFI, it is recommended to set a period that is half the period of Bollinger Bands %b, which for us is 10 bars.\n\nThe tool itself is designed to measure the intensity with which funds are invested in a security’s price or withdrawn from it. Its full name reads as the Money Flow Index. Within the described trading system, we will only be interested in levels above 80 and below 20 signaling a potential market top and bottom.\n\nWe also need classic Bollinger Bands trading strategy with standard settings: 20 period and 2 standard deviations.\n\nConditions for opening a long position:\n\n- Bollinger Bands %b is in the range from 0.8 to 1.\n- The MFI chart is above 80.\n\nWe enter after the completion of the growing bar. Stop orders are set at the low price with a two candlestick offset, counting from the bar with an open position.\n\nConditions for opening a short position:\n\n- Bollinger Bands %b is in the range from 0 to 0.2.\n- The MFI chart is below 20.\n\nWe enter after the completion of the descending bar. Stop orders are set at the high of the candlestick with an offset of two bars from where the position was opened.\n\nIn the process of the market movement along the trend, the stop order should be moved to a break-even position. We take profit when one of the bars crosses the Bollinger Band opposite to the trend direction. For an upward movement this will be the lower Bollinger bands, and for a downward movement it will be the upper one.\n\nLet's look at an example.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_105.jpg?q=75&s=4bdb7fe36d01376c63c07d4e067eb13d)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_105.jpg?q=75&s=4bdb7fe36d01376c63c07d4e067eb13d)\n\nThe [EURUSD](https:\/\/www.litefinance.org\/trading\/trading-instruments\/currency\/eurusd\/) chart shows a downward trend movement. The blue arrows mark the candlestick in which the Bollinger Bands %b ranges from 0 to 0.2, and the MFI chart is just below 20. Both conditions for opening a short position are met.\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_106.jpg?q=75&s=2b6a724c7b41a8a526810fa6067b6678)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_106.jpg?q=75&s=2b6a724c7b41a8a526810fa6067b6678)\n\nEnter the market at the close of this bar at 1.09731 points (blue line). Stop-loss is placed at the candlestick low with a two-bar offset from where the position was opened (red line).\n\n[![LiteFinance: Trend Trading Indicator Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_107.jpg?q=75&s=364fdfc33b8e1ee2be30c3f7cd2d3217)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_107.jpg?q=75&s=364fdfc33b8e1ee2be30c3f7cd2d3217)\n\nWhen the trend develops, we move the stop loss to a breakeven position (red line). For clarity, I marked the initial stop level with a transparent red line.\n\nThen the price touches the upper band opposite the green cross. At this moment, we close the order at 1.09402 (green line). The total profit is 1.09731 - 1.09402 = 0.00329 points.\n\nSome traders prefer to use an alternate version of the trending strategy that uses [MACD](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/macd-indicator-forex-trading\/) instead of MFI. This indicator shows really good results on some instruments. So if you want to find the ideal trading method for several of the most commonly used currency pairs, it makes sense to test the strategy with both MFI and MACD.\n\n### Bollinger Bands Reversal Strategy\nThis strategy aims to predict trend reversals by comparing the touch of the Bollinger Bands with the behavior of indicators.\n\nFirst of all, we need a Bollinger indicator with standard settings. I’ve described earlier how to add it to the MT4\/MT5 chart.\n\nWe also need the MACD oscillator. It is available in MetaTrader by default.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_109.jpg?q=75&s=8eedf9a7ab940d4b02420c0fac1a6d3d)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_109.jpg?q=75&s=8eedf9a7ab940d4b02420c0fac1a6d3d)\n\nTo add this instrument to the chart, click on the \"Insert\" button, then \"Oscillators\" and select MACD in the drop-down list.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_110.jpg?q=75&s=895c9a0f8c54f44b3ca91a8b400d10d7)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_110.jpg?q=75&s=895c9a0f8c54f44b3ca91a8b400d10d7)\n\nA new window with the settings will appear. The period of the fast EMA should be set at 21 bars, the slow one at 100 candles, and the signal line — at 9. You can do this in the \"Parameters\" tab.\n\nIn the \"Colors\" tab, you can change the colors of the histogram and signal line.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_112.jpg?q=75&s=68b3cbcfecfbfb54d434ceb0045e28f5)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_112.jpg?q=75&s=68b3cbcfecfbfb54d434ceb0045e28f5)\n\nFor convenience, in the \"Levels\" tab, add a new value \"0\". The third indicator will be the Bollinger Bands %b, which is already familiar to us from the previous strategy. I have already described its installation and setting up. It is standard.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_115.jpg?q=75&s=b477edf71d65a0c1cc51618d808712a8)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/MT4_indicator_setup_115.jpg?q=75&s=b477edf71d65a0c1cc51618d808712a8)\n\nIn the trading process, we will need to determine the levels 0.95 and 0.05. So let's add them to the indicator chart.\n\nOpen a long position when the following conditions are met:\n\n1. The candlestick touches the lower Bollinger band;\n2. Bollinger Bands %b ranges from 0 to 0.05;\n3. MACD is above zero.\n\nOpen a short position if the following conditions are met:\n\n1. The candle touches the top band,\n2. Bollinger Bands %b ranges from 0.95 to 1,\n3. MACD is less than 0.\n\nPlace the stop loss at the extreme reversal point, and in the process of the new trend development, move it to the breakeven zone. A signal to close can be a narrowing, the appearance of conditions for the next reversal, or touching of the Bollinger Band opposite to the direction of the main movement.\n\nLet's look at the strategy using an example.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_116.jpg?q=75&s=8bd913294fdc085008944512ad35eff5)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_116.jpg?q=75&s=8bd913294fdc085008944512ad35eff5)\n\nIn the chart, blue arrows mark the moment when one of the candles touches the upper band, Bollinger Bands %b is in the range from 0.95 to 1, and MACD is less than 0. This is a clear signal to enter the market.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_117.jpg?q=75&s=76fcc1974bc51ea3c2a042edd9af2c3d)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_117.jpg?q=75&s=76fcc1974bc51ea3c2a042edd9af2c3d)\n\nAt the close of the bar, open a short position at a price of 1.10447 points (green line). Wait for the appearance of the high price values at the reversal in the vicinity of the candlestick and set a stop loss (red line) at this level.\n\n[![LiteFinance: Bollinger Bands Reversal Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_118.jpg?q=75&s=4e4381a7a61571bc997e13afaef01fb9)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_chart_118.jpg?q=75&s=4e4381a7a61571bc997e13afaef01fb9)\n\nMove the stop order to the breakeven zone (red line). I’ve marked the previous stop loss value with a semi-transparent red line.\n\nThe development of the downtrend ends. The candlestick marked with a red cross crosses the upper border of the channel. After detecting the signal, close the position at a price of 1.09831 points (green line). The profit from the trade is 1.10447 - 1.09831 = 0.00616 points.\n\n## Bollinger Bands Screener\nFor effective profitable trading, it is important to always be on alert and monitor the market situation. While accessing the market is easy now even from a smartphone, novice traders often have problems with the choice of an instrument for trading.\n\nScreeners help you solve this problem — these are services for tracking trading instruments according to user-specified criteria. With their help, you can not only save time on market analysis, but also choose the best moments for entry and exit.\n\nOne of the best quality screeners is offered by tradingview.com.\n\n[![LiteFinance: Bollinger Bands Screener](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_screener_121.jpg?q=75&s=be1630023d9dad927ab1d79d3745689f)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_screener_121.jpg?q=75&s=be1630023d9dad927ab1d79d3745689f)\n\nHere you can set up filters by technical and fundamental parameters.\n\nFor your convenience, in the upper part of the window there is a search bar for parameters by name. All filters are divided into three categories:\n\n- common;\n- fundamental;\n- technical.\n\nAs part of Bollinger trading, we are interested in technical filters.\n\n[![LiteFinance: Bollinger Bands Screener](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_screener_123.jpg?q=75&s=02d1af5c015d1cc88bb62797572fa1dd)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_screener_123.jpg?q=75&s=02d1af5c015d1cc88bb62797572fa1dd)\n\nIn particular, here you can select assets whose price action is located near a certain level of the upper or lower Bollinger band, such as a security’s price for example. In this case, you can set both standard parameters (higher or lower) and more complex ones: for example, higher or equal, crosses up and down. You can even configure the Bollinger indicator so that it will work with an alert and send trading signals if a specified condition is met.\n\n[![LiteFinance: Bollinger Bands Screener](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_skriner_125.jpg?q=75&s=c8d9c6065cdb9c6a630e32afa0eb4b90)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/Bollinger_bands_skriner_125.jpg?q=75&s=c8d9c6065cdb9c6a630e32afa0eb4b90)\n\nYou can refine your search using other tools that we used in the described strategies. For example, you can use the RSI readings to select trading instruments for which you should enter the market right now.\n\n## Bollinger Bands Tips & Rules\n[![LiteFinance: Bollinger Bands Tips & Rules](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-4.jpg?q=75&s=faac801b313b948891eeb14d449d45fc)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/bands-4.jpg?q=75&s=faac801b313b948891eeb14d449d45fc)\n\nWhichever strategy you use, certain basic rules should always be followed when working with Bollinger Bands. They were deduced by the author of the indicator John Bollinger and listed in his book. I chose the most relevant ones and put them in a simpler language:\n\n- Bollinger Bands should be used in conjunction with other technical analysis tools.\n- You can use a variety of indicators with Bollinger Bands that determine momentum, market sentiment, activity, intermarket data, etc. The indicators used should not be connected to each other. For example, trend and price volatility are used in the calculation of the bands. Their use for additional confirmation of price action behavior is meaningless.\n- The default indicator parameters are applicable for most instruments, timeframes and trading methods. But this does not mean that you cannot use other settings. It is important that the middle band of the moving average always describes the medium-term trend well. If it lengthens or shortens, the number of standard deviations should also be increased or decreased. For example, for fifty periods it is better to use a ratio of 2.1, and for 10 periods — 1.9.\n- Bollinger Bands are good for confirming chart patterns such as triangles, double and triple tops and bottoms, head and shoulders, and other W-shaped bottoms and M-shaped tops.\n- With a directional price movement, it can often move along the upper line and in the case of a bearish trend — along the lower one.\n- Bars closing outside the bands are statistically more likely to indicate the continuation of the trend, rather than its end.\n- The price touching the band does not in itself signal a buy or sell. Therefore, it should be considered only in conjunction with the readings of other indicators.\n- The Moving Average in Bollinger Bands is not a substitute for strategies that involve SMA, EMA and other types of averages.\n- The Bollinger Bands %b indicator will help determine the position of the price relative to the Bollinger Bands.\n- The BandWidth indicator is recommended to be used together with Bollinger Bands. It helps identify the “calm before the storm” and signs of trend changes.\n- Bollinger Bands work on any timeframe and any market conditions. An important requirement for the correct use of the indicator is sufficient price activity and calibration of the parameter settings based on the history of its movement.\n- Bollinger Bands do not provide clear recommendations on their own. This indicator should improve your chances of avoiding bad trades.\n### Bollinger Bands PDF\nHere you can download a [quick guide to Bollinger Bands PDF with the secrets to using them](https:\/\/www.litefinance.org\/uploads\/documents\/pdf\/trading-blog\/Bollinger-Bands-Guide-and-Secrets-of-BB-Indicator-en.pdf?_t=1601453913).\n\nRemember these rules and always stick to them if you use Bollinger Bands in your trading method.\n\n## Bollinger Bands FAQ\nHow does the Bollinger indicator work?\n\nThe Bollinger Bands is a technical analysis tool that works on the basis of a moving average. The upper and lower levels are equidistant from the MA. The lag rate is calculated using the standard deviation multiplied by the specified factor. The latter depends on the length of the moving average. For example, for the MA with a period of 21 bars, it is recommended to use 2 standard deviations, and for one with a period of 10 bars — 1.9.\n\nHow to use the Bollinger indicator?\n\nThe indicator itself provides little information. Almost all trading systems use Bollinger Bands in conjunction with the readings of other indicators. These can be both classic RSI, MACD, Average True Range (ATR), as well as more complex volume indicators or entire trading systems. The only condition is that there is no connection between the calculation of the Bollinger Bands and additional indicators.\n\nWhat is the best setting for Bollinger bands?\n\nThe key nuance in setting up Bollinger Bands is maintaining the optimal ratio between the period of the moving average and the number of standard deviations. The classic version uses a 21 bar period and 2 deviations. If the period for some reason increases to 50 bars, you should use the ratio 2.1. And if it decreases to 10 bars, then 1.9.\n\nHow accurate are Bollinger Bands?\n\nThe Bollinger Bands indicator itself cannot provide accurate information about whether to open a position or close an existing one. They provide good forecasting accuracy when used with other indicators or in combination with several Bollinger Bands with different settings.\n\nHow do you master Bollinger bands?\n\nI think one of the simplest and at the same time effective methods is the trend following strategy. It is used for trading instruments that follow long-term steady trends. If we are talking about volatile currency pairs, a scalping strategy is better suited for them.\n\nHow do I use Bollinger Bands in intraday trading?\n\nIn intraday trading, I recommend using channel strategies in combination with Bollinger bands on small timeframes. If you are a beginner, it is recommended to consider trending strategies with a horizon of at least a few days. The Double Bollinger Bands strategy is great for this. It allows you to accurately identify the buy, sell and profit-taking zones. This will increase your trading discipline and help you avoid unnecessary mistakes at the very beginning.\n\nWhat do fundamental investors think about Bollinger Bands?\n\nOne of the most famous investors in the world Warren Buffett never mentioned that he uses Bollinger Bands. Lesser-known traders often stick to Bollinger's tools and rules. Experienced traders are captivated by the versatility of the indicator and good compatibility with any trading strategy. Bollinger Bands are often used as a confirmation filter for signals and help to figure things out when the market conditions are not obvious.\n\nAre the Bollinger Bands the most useful indicator?\n\nIt is difficult to gauge the usefulness of Bollinger Band indicators. Despite its relatively young age, this tool has become classic in technical analysis. Such a phenomenon cannot be an accident. You shouldn't overestimate the capabilities of the Bollinger Bands either. One thing is certain. This indicator needs to be tested with your trading strategy. This is the only way you can understand whether this indicator is useful to you or not.\n\nWhich are some good books on Bollinger Bands?\n\nBollinger on Bollinger Bands is the only book by the author of the instrument that describes Bollinger trading in detail.\n\nWhat does it mean when the Bollinger bands are narrow?\n\nThe narrowing of the bands indicates a decrease in volatility to a minimum. Bollinger believes that such situations occur cyclically. The narrowing is always followed by expansion, and expansion is always followed by narrowing. This pattern is used in some strategies to identify the beginning or end of a trend.\n## Conclusions on Bollinger Trading\nBollinger Bands, like most other technical indicators, are best not applied alone. However, they can become an integral part of your trading strategy and give a good result in combination with other trading signals. At first, you can use the above trading methods. If you are just starting out as a trader, it is best to first master the Bollinger Bands trending strategy on a large timeframe. You can get invaluable experience in trading the Bollinger Bands strategies mentioned in this article on a Litefinance demo account completely free of charge and without registering.\n\nThe Bollinger Band indicator can be compared to a seasoning. Eating it with a spoon will not bring great results, but it will make any dish tastier. When you gain experience and intuitively understand the indicator signals, try additional tools and different combinations of settings and indicators to maximize your profitability. The Bollinger Band indicator is perfect for almost any strategy\\!\n***\nP.S. Did you like my article? Share it in social networks: it will be the best \"thank you\" :)\n\n**Useful links:**\n\n- I recommend trying to trade with a reliable broker [here](https:\/\/my.litefinance.org\/registration?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands&utm_source=blog&utm_medium=article&utm_campaign=bonus). The system allows you to trade by yourself or copy successful traders from all across the globe.\n- Use my promo code BLOG to get a 50% deposit bonus on the LiteFinance platform. Simply enter this code in the appropriate field when [funding](https:\/\/my.litefinance.org\/deposit?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus) your trading account.\n- Telegram chat for traders: <https:\/\/t.me\/litefinancebrokerchat>. We are sharing the signals and trading experience.\n- Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders <https:\/\/t.me\/litefinance>\n\n[![Bollinger Bands Indicator in Forex Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/new-logo.jpg?q=75&w=1000&s=f06453fe08b2fcbd7d6fdbb8c5f87a17)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Bollinger-bands\/new-logo.jpg?q=75&w=1000&s=f06453fe08b2fcbd7d6fdbb8c5f87a17)\n\nThe content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014\/65\/EU.   \nAccording to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.\n\nRate this article:\n\n4\\.8\n\n( 124 rates )\n\n[Start Trading](https:\/\/my.litefinance.org\/registration?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands)\n\nCannot read us every day? Get the most popular posts to your email.\n\n### Written by\n[Michael Hypov](https:\/\/www.litefinance.org\/blog\/authors\/mikhail-hypov\/)\n\nTech analyst and crypto trader\n\nWhat should I read next?\n\n![Best Forex Trading Indicators Every Trader Should Use](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Indicators_21-07-21\/ru\/indicators_22-07-21.png?q=75&w=120&s=730ba8f0ecc3f091593506ca98f898ad)\n\n09 Jul. 2024 16:59\n\n[Best Forex Trading Indicators Every Trader Should Use](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/)\n\nA beginner's guide to Forex Indicators: The best tools for trading.\n\n![Relative Strength Index: Calculator & Formula, Best Setting and Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/RSI-indicator\/rsi-indicator-forex-blog-preview.jpg?q=75&w=120&s=d7cac64a6349fab0859dd07a8755c170)\n\n22 Aug. 2025 18:45\n\n[Relative Strength Index: Calculator & Formula, Best Setting and Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/rsi-relative-strength-index\/)\n\nLearn everything about the Relative Strength Index (RSI) indicator for Forex trading. Master how to use RSI in your FX trading strategy, including real-world examples and case studies showing how to apply RSI analysis for better entries and exits.\n\n![Moving Averages Guide: How to Use the EMA Indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/ema-indicator-forex.png?q=75&w=120&s=c28536fa0a25018a7b3a75724b39f170)\n\n12 Mar. 2026 17:27\n\n[Moving Averages Guide: How to Use the EMA Indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/moving-averages-ema-indicator\/)\n\nHow the exponential moving average works and how to use it in trading.\n\n![Volume Weighted Average Price (VWAP)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/vwap-indikator\/2025-preview-vwap-indicator.jpg?q=75&w=120&s=cbed87da258f3c177d60e122f2343a81)\n\n08 Nov. 2024 09:37\n\n[Volume Weighted Average Price (VWAP)](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/vwap-indicator-what-is-vwap-in-trading-and-how-to-use-it\/)\n\nWhat is the VWAP and how to use it in MT4 and other platforms? Find out the details about this technical indicator as well as strategies for using it on stock, Forex, and other markets.\n\n![How to Use Stochastic Oscillator: Trading Guide](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/stochastic-oscillator\/upd\/stochastic-oscillator-0.jpg?q=75&w=120&s=52ed054e6b7b028f89df5196b24a1c2c)\n\n12 Aug. 2025 13:36\n\n[How to Use Stochastic Oscillator: Trading Guide](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/stochastic-oscillator\/)\n\nA stochastic oscillator is one of the most frequently used and simple indicators. How to use it properly? Let’s find it out in this article\\!\n\n![Ichimoku Cloud Indicator in Forex: What are Ichimoku Strategy Best Settings](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/ishimoku\/new_big_letters\/ichimoku-cloud-indicator-in-forex-explained.jpg?q=75&w=120&s=e97f2a4a28a0bda73a5d9efc300bc1da)\n\n02 Nov. 2023 16:12\n\n[Ichimoku Cloud Indicator in Forex: What are Ichimoku Strategy Best Settings](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/ichimoku-cloud-indicator-in-forex-explained\/)\n\nUltimate Ichimoku guide by a professional trader. All signals described.\n\n![On Balance Volume: How to Use OBV Indicator Guide](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/OBV\/2025-preview-obv.jpg?q=75&w=120&s=a6eae2606d01a45fd1952665895b4a30)\n\n09 Jul. 2024 17:06\n\n[On Balance Volume: How to Use OBV Indicator Guide](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/on-balance-volume-obv-indicator\/)\n\nThe OBV indicator in real trading. Working principles and trading signals.\n\n![ADX Indicator: Trading Guide for Average Directional Index](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/ADX-indicator\/adx-indicator-preview.jpg?q=75&w=120&s=a5284f813b427b7b3740faaf8086b4d7)\n\n09 Jul. 2024 17:12\n\n[ADX Indicator: Trading Guide for Average Directional Index](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/adx-indicator-average-directional-index\/)\n\nThe ultimate guide to trading with the ADX indicator: description and real trading examples.\n\n![What is Fibonacci retracement? How to trade using this indicator?](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/fibonacci\/preview_fibonacci_new.jpg?q=75&w=120&s=53233594a5eee9cdb76ae4b94d68cda7)\n\n09 Jul. 2024 17:10\n\n[What is Fibonacci retracement? How to trade using this indicator?](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/fibonacci-retracement\/)\n\nA detailed description of one of the main technical analysis tools.\n\n![MACD Indicator: What Is and How to Use in Forex Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/MCAD_indicators\/2025\/macd-indicator-0.jpg?q=75&w=120&s=ed31b7e79d1e707485db6bd1f173d198)\n\n13 Aug. 2025 16:29\n\n[MACD Indicator: What Is and How to Use in Forex Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/macd-indicator-forex-trading\/)\n\nThe most complete guide to using the indicator: theory and practice.\n\n![Standard deviation indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/Standard-Deviation\/indicator-standard-deviation.png?q=75&w=120&s=eeec043d15b9ebccf1afc34e7cd1044a)\n\n07 Mar. 2024 16:47\n\n[Standard deviation indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/standard-deviation-indicator\/)\n\nHow to use standard deviation in trading: determining the trend and strategy based on the indicator.\n\n![Parabolic SAR Indicator: Formula, Best Settings & Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/Parabolic_SAR_Indicator\/SAR-logo.jpg?q=75&w=120&s=8983f6e7e68fdc546a81d249de715bc0)\n\n28 Mar. 2024 12:04\n\n[Parabolic SAR Indicator: Formula, Best Settings & Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/parabolic-sar-indicator\/)\n\nReview of the Parabolic SAR indicator: description, setup, and comprehensive strategies.\n\n![Keltner Channel Indicator: How It Works](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/keltner-channel\/2025-preview-keltner-channel.jpg?q=75&w=120&s=d4ca0772885b72b1c7c4ac1f93c65b6e)\n\n24 Apr. 2024 16:32\n\n[Keltner Channel Indicator: How It Works](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/keltner-channel\/)\n\nWhat are Keltner Channels, and how is this indicator applied in the Forex market?\n\n![Average True Range – the ATR Indicator: improve your trading with volatility measure](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/ATR-indicator\/atr-indikator.jpg?q=75&w=120&s=42252e517d75b76fb2abfde57e402ebc)\n\n26 Mar. 2024 16:06\n\n[Average True Range – the ATR Indicator: improve your trading with volatility measure](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/atr-indicator\/)\n\nThe use of the indicator in the currency and stock markets. A complete guide.\n\n![Williams Alligator Indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/alligator-indicator\/alligator-indicator.png?q=75&w=120&s=aafd2edc3b49ed4d542663d91d8c3ebe)\n\n26 Mar. 2024 16:45\n\n[Williams Alligator Indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/alligator-indicator\/)\n\nHow to use the indicator? Setting up the indicator, principles of operation, and examples of strategies.\n\n![Three most effective trading indicators for Forex traders](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/3-most-effective-indicators\/three-most-effective-trading-indicators-for-forex-traders.jpg?q=75&w=120&s=1d5dd6ecc52e10d31c940c8502d2f5a8)\n\n19 Dec. 2024 15:21\n\n[Three most effective trading indicators for Forex traders](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/three-most-effective-trading-indicators-for-forex-traders\/)\n\nThree bests technical indicators in Forex and how to use them for profitable trading.\n\n![Best way of using Forex pivot point indicator in trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/Pivot-Point\/indicator-pivot-point.jpg?q=75&w=120&s=87acb29b0e41afa37cd03cdf751b66c7)\n\n27 Mar. 2024 14:39\n\n[Best way of using Forex pivot point indicator in trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/pivot-point\/)\n\nAn ultimate beginner guide to Pivot Points: set-up, settings, and trading strategies.\n\n![How to use Aroon Indicator – settings, strategy and formula](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/aroon_indicator\/Aroon_Logo.jpg?q=75&w=120&s=945dc50f440d4514dc52bdba189a9922)\n\n27 Mar. 2024 15:24\n\n[How to use Aroon Indicator – settings, strategy and formula](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/aroon-indicator\/)\n\nAroon indicator in simple words. Examples and recommendations.\n\n![Momentum Indicator for Trading Strategy 2026-2027: Full Guide with Charts and Examples](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/momentum-indicator\/momentum.jpg?q=75&w=120&s=a07121e17b702ccd5147193f9c2c4200)\n\n20 Dec. 2024 19:13\n\n[Momentum Indicator for Trading Strategy 2026-2027: Full Guide with Charts and Examples](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/momentum-indicator\/)\n\nWhat is the Momentum indicator, and how can it be used in trading? Answers by a practicing trader.\n\n![Forex Laguerre indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/september\/laguerre\/laguerre-indicator.jpg?q=75&w=120&s=b3f1b3bfbf737f6f4f9a5d661561843b)\n\n11 May. 2022 16:26\n\n[Forex Laguerre indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/laguerre-indicator\/)\n\nHow to filter off market noise with the Laguerre polynomials. Calculation formula, application of MAs, and RSI. Description of Laguerre RSI parameters and forex trading strategies with Laguerre RSI indicator.\n\n![Forex Levels Indicators](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/indikatory-urovnej-foreks\/indikatory-urovnej-foreks.jpg?q=75&w=120&s=6f8abf84c61eca6c314c44c3aa01d5a3)\n\n23 May. 2022 10:44\n\n[Forex Levels Indicators](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/forex-levels-indicators\/)\n\nOverview of forex levels indicators: Trend Arrows, TT Rabbit, London Breakout. Definition, description, and settings for levels indicators. Examples of trading with levels indicators.\n\n![Arrow trend indicators: trading strategies and advantages](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_previews_enlarged\/arrowindicators_e.jpg?q=75&w=120&s=120c4f854c29fe87ef99b26e5d6c0e95)\n\n19 May. 2022 10:48\n\n[Arrow trend indicators: trading strategies and advantages](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/arrow-trend-indicators\/)\n\nArrow indicators for binary options are the tools for “the lazy”. In the Forex charts they indicate with arrows the potential points of the market entering.\n\n![How to use currency strength meter](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/currency-strength-meter\/currency-strength-meter-preview.jpg?q=75&w=120&s=44ceb8829d1ac0088c93b27ab7824de9)\n\n07 Jan. 2025 16:01\n\n[How to use currency strength meter](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/currency-strength-meter\/)\n\nWhat is a currency strength indicator, and how does it work? Types, signals, and examples of use.\n\n![Commodity Channel Index (CCI) Indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/CCI-Index\/CCI.jpg?q=75&w=120&s=7cc1d103aebb1082f094712734e31bf5)\n\n18 Apr. 2024 14:03\n\n[Commodity Channel Index (CCI) Indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/commodity-channel-index-cc\/)\n\nWhy and how traders should use the commodity channel indicator. Calculation formula and trading strategies.\n\n![Price Rate Of Change Indicator - Definition, Formula and the ROC Trading Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/price-rate-of-change\/price-rate-of-change.jpg?q=75&w=120&s=7314a85efcca7794bb3acb0a5db82e62)\n\n18 Apr. 2024 12:00\n\n[Price Rate Of Change Indicator - Definition, Formula and the ROC Trading Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/price-rate-of-change\/)\n\nA complete guide to trading the rate of change (ROC) indicator with examples.\n\n![ADR Indicator: Complete Trading Guide and Strategies for 2026](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/average-daily-range\/average-daily-range.jpg?q=75&w=120&s=e0ee5f98f1b9edd14df59601e1d6cdeb)\n\n15 Aug. 2025 12:00\n\n[ADR Indicator: Complete Trading Guide and Strategies for 2026](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/average-daily-range-adr-technical-indicator\/)\n\nWhat does the Average Daily Range mean? Calculation formula and use in trading.\n\n![Accumulation\/Distribution Indicator (A\/D) — How to Identify and Use It](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/accumulation-distribution-indicator\/accumulation-distribution-indicator.jpg?q=75&w=120&s=3e809e25097221674f68de2a8a8de9bd)\n\n30 Apr. 2024 17:20\n\n[Accumulation\/Distribution Indicator (A\/D) — How to Identify and Use It](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/accumulation-distribution-indicator\/)\n\nUnderstanding the accumulation\/distribution indicator: how to use it to make money from Forex trading.\n\n![Fractal Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/fractals-indicator\/fractals-indicator.jpg?q=75&w=120&s=1b502d6e525fe600fa148920cea11a6b)\n\n30 Apr. 2024 17:44\n\n[Fractal Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/fractal-trading\/)\n\nAdvanced fractal trading guide for beginner traders.\n\n![Guppy Multiple Moving Average (GMMA): Formulas & Trading Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/guppy-multiple-moving-average\/05-03-25\/gmma-main.jpg?q=75&w=120&s=162d16a24f8fb05ea49502c4f1eee61b)\n\n05 Mar. 2025 12:29\n\n[Guppy Multiple Moving Average (GMMA): Formulas & Trading Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/guppy-multiple-moving-average\/)\n\nLearn how the Guppy Multiple Moving Average (GMMA) indicator works and how to gain profits with it.\n\n![Accumulative Swing Index (ASI)](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/accumulative-swing-index\/06-02-25\/asi-0.jpg?q=75&w=120&s=0d612379f47a05b8b95c0b08d6d7aaa5)\n\n06 Feb. 2025 17:26\n\n[Accumulative Swing Index (ASI)](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/accumulative-swing-index\/)\n\nThe ASI indicator helps identify market trends and distinguish between true and false breakouts.\n\n![The Best Volume Indicators for Informed and Profitable Forex Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/best-forex-volume-indicators\/1-fx-volume-indicators.jpg?q=75&w=120&s=f9eaf26b78283c6c5b59c537f6e2216d)\n\n13 Aug. 2025 16:05\n\n[The Best Volume Indicators for Informed and Profitable Forex Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/best-forex-volume-indicators\/)\n\nReview of the best trading volume indicators in the Forex market.\n\n![Andrew's Pitchfork: Strategies, Rules and Technical Analysis](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/andrew-pitckhfork\/new\/main-preview.jpg?q=75&w=120&s=c715c9f35d4e3e344768031fd361070f)\n\n04 Feb. 2025 15:41\n\n[Andrew's Pitchfork: Strategies, Rules and Technical Analysis](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/andrew-pitckhfork\/)\n\nAndrews’ Pitchfork is an easy-to-use tool for analyzing trends and key levels on the chart.\n\n![Bulls and Bears Power Indicators: Enhance Your Trading Strategy](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/bulls-and-bears-power-indicators\/new\/bulls-vs-bears-indicator.jpg?q=75&w=120&s=0d94fcd5fdbda4281e73e5e2b5c31782)\n\n24 Jul. 2024 18:08\n\n[Bulls and Bears Power Indicators: Enhance Your Trading Strategy](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/bulls-and-bears-power-indicators\/)\n\nRead about Bulls and Bears Power indicators, their formula, pros and cons, and trading strategies.\n\n![Awesome Oscillator Indicator - What Is It & How Does It Work?](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/awesome-oscillator-indicator\/new\/Awesome-Oscillator.jpg?q=75&w=120&s=41171821aaadcf1faf44b1e1e86ea960)\n\n11 Sep. 2024 18:27\n\n[Awesome Oscillator Indicator - What Is It & How Does It Work?](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/awesome-oscillator\/)\n\nDelve into the Awesome Oscillator’s formula, signals, and real-life examples of its application.\n\n![Chaikin Oscillator: What It Is, How It Works, and How to Use It in Trading](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/chaikin-oscillator-indicator\/chaikin-oscillator.jpg?q=75&w=120&s=b34dd2916ae592de364e4cb93ddbe41f)\n\n15 Aug. 2025 16:03\n\n[Chaikin Oscillator: What It Is, How It Works, and How to Use It in Trading](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/chaikin-oscillator\/)\n\nHow the Chaikin Oscillator works and how to use it for analyzing trends and trading volume.\n\n![How to Use DeMarker Indicator](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/demarker-indicator\/demarker-indicator.jpg?q=75&w=120&s=21f79ed584548c66e20bb3b38f8743d2)\n\n09 Jul. 2024 17:19\n\n[How to Use DeMarker Indicator](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/demarker-indicator\/)\n\nWhat is the DeMarker (DeM) technical indicator? Learn how to use the DeMarker indicator in Forex and stock trading.\n\n![Advance-Decline Line Index Explained: Formula, Examples, and Trading Implications](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/advance-decline-line\/advance-decline-line.jpg?q=75&w=120&s=0d2001f6f925e4d5a84a3a303665ec3e)\n\n15 Oct. 2024 17:42\n\n[Advance-Decline Line Index Explained: Formula, Examples, and Trading Implications](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/advance-decline-line\/)\n\nExplaining how the A\/D line indicator works and its purpose in analyzing market trends.\n\n![Directional Movement Index (DMI): Formula, Uses, and Trading Applications](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/dmi-indicator\/dmi-indicator.jpg?q=75&w=120&s=8c05317c8cfbbd580fc6dbe06c483302)\n\n06 Nov. 2024 17:12\n\n[Directional Movement Index (DMI): Formula, Uses, and Trading Applications](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/dmi-indicator\/)\n\nDMI indicator overview, comparison with the ADX, strengths, weaknesses, and usage examples.\n\n![Best Scalping Indicators on Forex](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/best-indicators-for-scalping\/best-indicators-for-scalping.jpg?q=75&w=120&s=56712f02d816d34bd0345edcc44f5865)\n\n06 Feb. 2026 17:49\n\n[Best Scalping Indicators on Forex](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/best-indicators-for-scalping\/)\n\nReview of the best scalping indicators with practical examples of signals. Efficient combinations of indicators.\n\n![TTM Squeeze Indicator: How To Use It?](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/ttm-squeeze\/ttm-squeeze.jpg?q=75&w=120&s=eb1521388e2d4d384d54ec5303b05651)\n\n05 Dec. 2024 12:04\n\n[TTM Squeeze Indicator: How To Use It?](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/ttm-squeeze\/)\n\nDiscover the TTM Squeeze indicator and a trading system that generated 1,270% returns in 2020.\n\n![Technical Analysis Indicators: List and Description](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/technical-indicators-list\/main.jpg?q=75&w=120&s=5d1204056172f2880906bd08e0c8cf84)\n\n24 Jan. 2025 13:53\n\n[Technical Analysis Indicators: List and Description](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/technical-indicators-list\/)\n\nReview of the best technical indicators for Forex: tips and strategies for successful trading on MetaTrader 4, MetaTrader 5, and other trading platforms.\n\n![SuperTrend Indicator: Mastering Market Trends and Trading Signals](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/SuperTrend-indicator\/supertrend-indicator.jpg?q=75&w=120&s=809456c2fbce1bd555c7f91ba42f26ad)\n\n24 Jan. 2025 15:32\n\n[SuperTrend Indicator: Mastering Market Trends and Trading Signals](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/supertrend-indicator\/)\n\nMaximize your returns with the SuperTrend indicator: signals, settings, and trading strategies.\n\n![Half Trend Indicator Explained: Forex Trading Tool Guide](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/half-trend-indicator\/half-trend-indicator.jpg?q=75&w=120&s=bda1a2b183910bc75fe8d634d8cf81ee)\n\n28 Feb. 2025 13:08\n\n[Half Trend Indicator Explained: Forex Trading Tool Guide](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/half-trend-indicator\/)\n\nHalf Trend indicator: how it works, its features and application in Forex trading.\n\n![What Is the Arms Index (TRIN), and How Do You Calculate It?](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/trin-arms-index\/trin-main.jpg?q=75&w=120&s=b951b37a09109962a79522b2f6123711)\n\n13 Mar. 2025 12:42\n\n[What Is the Arms Index (TRIN), and How Do You Calculate It?](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/trin-arms-index\/)\n\nThis indicator shows the ratio of advancing stocks versus declining stocks on the market, thus helping with price forecasts.\n\n![Mastering the True Strength Index: A Comprehensive Guide for Traders](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/true-strength-intex-tsi\/tsi-main.jpg?q=75&w=120&s=7a745be54c810abb0bd6f9064c4d0d4e)\n\n14 Apr. 2025 16:52\n\n[Mastering the True Strength Index: A Comprehensive Guide for Traders](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/true-strength-intex-tsi\/)\n\nTSI: a trend and momentum indicator. Learn how to set it up and apply it in your trading.\n\n![Donchian Channel Indicator – Trading Strategies](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/donchian-channel\/donchian-channel-main.jpg?q=75&w=120&s=4e24939529fcacde14ab726bc2006b0a)\n\n21 May. 2025 10:53\n\n[Donchian Channel Indicator – Trading Strategies](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/donchian-channel\/)\n\nEverything about the Donchian channel: how to use it, strategies, advantages, and drawbacks.\n\n![Schaff Trend Cycle: Advanced Market Analysis for Traders](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/schaff-trend-cycle-indicator\/schaff-trend-cycle-indicator-main.jpg?q=75&w=120&s=cdd513a2fddfd2b1765e640ecbd7e37b)\n\n10 Jul. 2025 13:35\n\n[Schaff Trend Cycle: Advanced Market Analysis for Traders](https:\/\/www.litefinance.org\/blog\/for-beginners\/best-technical-indicators\/schaff-trend-cycle\/)\n\nExploring the STC indicator, a valuable tool for identifying trends and making profitable trades.\n\n![What is Anchored VWAP? Trading Strategies & Examples](https:\/\/cdn.litemarkets.com\/cache\/uploads\/blog_post\/blog_posts\/anchored-vwap\/VWAP-main.jpg?q=75&w=120&s=b82f053882998560900f2c056d9d42c5)\n\n20 Aug. 2025 16:44\n\n[What is Anchored VWAP? 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In this article, we will take a detailed look at Bollinger Bands, a classic indicator that many traders have been using for many years. I will tell you what are Bollinger Bands, what this tool does, how it works, how are Bollinger Bands calculated, how to use Bollinger Bands Forex strategies, and give you lots of other interesting information with examples. The article covers the following subjects: What Bollinger Bands are: Definition and History Bollinger Bands Formula & Calculations How Bollinger Bands Indicator Works Bollinger Bands Signals Bollinger Bands Strategies Bollinger bands best settings Bollinger Bands Screener Bollinger Bands Tips & Rules Bollinger Bands FAQ Conclusions on Bollinger Trading Let's get started with bollinger bands tutorial! What Bollinger Bands are: Definition and History Let's dive into the history of the indicator. The very first mention of a tool similar to Bollinger Bands dates back to 1960. The well-known trading analyst Wilfrid LeDoux used a trading channel based on two moving averages as technical indicators in his trading system. The first band was built based on the highs, and the second — on the lows. The signals in the LeDoux’s trading system were both the expansion leading to the bands expand accordingly, or the contraction of the channel itself where the bands contract, following the security’s price movement to shape within it. John Bollinger Funnily enough, at first John Bollinger did not even think about trading. He thought his future work would be on television. But while working as an operator at one of the Hollywood companies, he encountered some financial analysts and became interested in this occupation. Later, the future trader’s mother asked her son to help organize her investment portfolio. Starting then, Bollinger finally decided to be part of the world of stock trading. Combining his work as an operator at Financial News with training from experienced financiers, he quickly mastered trading and moved on to the position of financial analyst on the same channel. He did not become a TV star, but he gained fame thanks to successful trading ideas based on simple envelopes. The envelope is one of the oldest technical analysis indicators. It was built on the basis of a simple moving average and two bands located at an equal distance from this center line. Between 1984 and 1991, John worked on his own trading system based on the LeDoux strategy and the envelope indicator. John's brainchild was named after its creator — the Bollinger Bands. This technical analysis tool developed was based on a middle band known as the moving average with so-called volatility bands plotted above and below. However, unlike envelopes, the offset is not by a certain number of points, but by a percentage. The Bollinger Bands are shown in the EURUSD chart. The red lines are the upper and lower boundaries of the channels. They are plotted based on the percentage offset from the blue middle band of the moving average. The main purpose of BB indicator is to determine a sharp deviation from the average direction of the current trend. Next, we will analyze the techniques for using the Bollinger indicator in detail. In order to study the material as efficiently as possible, I advise you to go to the LiteFinance demo account right now (you do not need to register), open any trading instrument and apply the Bollinger bands to the chart. Skim the Bollinger Band chart and see how it reacts to price changes. If you encounter any difficulties, we will do it together below. The Bollinger Bands indicator became widely known in comparison with other technical indicators after the mention in the book The New Commodity Trading Systems and Methods by Perry Kaufman published in 1987. The author of the indicator spoke about his brainchild and Bollinger Bands strategies only in 2001, in the book Bollinger on Bollinger Bands. The article that you are now reading is written on the basis of materials from these two books. I have extracted from them the most relevant and useful information adapted for modern financial markets. Enjoy the article! Bollinger Bands Formula & Calculations Today, in order to draw Bollinger Bands in a chart, you just need to select the required indicator from the list. Before, a trader had to gather it piece by piece. The process is as follows: take the moving average as the middle line (hereinafter the MA) and build the upper and lower bands: one above the center line by some percentage distance and one below it. The main issue was selecting the optimal interval for the MA and the deviation of these volatility bands (Bollinger levels) from it. The author of the indicator looked for an effective way to select the interval for a long time. Marc Chaikin For some time he followed Marc Chaikin’s principles. Chaikin used a 21-day moving average for his bands offset up and down so that the resulting zone contains about 85% of last year's price data. However, he later realized that the key to success in establishing the width of trading bands is the degree of market volatility. To determine the offset of the waves from the moving average, John used the formula for the root-mean-square or standard deviation. This variable is usually denoted as σ (sigma). To calculate the standard deviation, the average closing price is calculated for a specified period. The resulting value is subtracted from each point of this closing price dataset. As a result, you will have a list of deviations from the average price. Some of these typical values will have positive values, others will be negative. The general principle is that the range of deviations is in direct proportion to the degree of variability of the series. Simply put, in a volatile market, Bollinger bands expand, and in case of consolidation, they narrow. At the next stage, we add up the list of data we have obtained. If we add negative and positive values, we end up with 0. To get a non-zero result, we need to get rid of negative values by squaring them. As a result, after adding up, we get the average absolute deviation. This amount is divided by the period for which the data was collected, and then we extract the root of the resulting value. We get the following formula for calculating the square deviation: σ — standard deviation; x — closing price; i — order number of the bar; μ — moving average; N — total number of points (period). If we translate all of the above from the math language into trading language, the obtained value of σ determines the area in which all candles close with a probability of 68.2% (if the indicator is based on closing levels) for the selected period. When the price breaks out of this area, it is outside the root-mean-square distribution — it becomes an anomaly in terms of mathematical statistics. What does this mean for the trader? We'll find out it out a bit later. As for the choice of the optimal moving average period, the classic version of the Bollinger indicator uses a 20-period MA. This range is approximately equal to the number of trading days in a month. If for some reason the period has to be shortened, in order to obtain the optimal width of the band, you need to cut the number of standard deviations. If the period is lengthened, the number of standard deviations must be increased. The need to adjust the calculation of the Bollinger Bands width may arise because of the peculiarities of the formula. After analyzing the largest markets, the author has derived the most convenient ratios for frequently used periods: Periods Multiplier 10 1,9 20 2 50 2,1 Let me explain why you need these ratios. In most markets, when using 20 periods and 2 standard deviations, you can get coverage of 88-89%. As the period is shortened or lengthened, the coverage changes, which affects the analysis efficiency. To maintain coverage at 88-89%, Bollinger Bands should be plotted using a 1.9 ratio for a 10-bar period. This means you cut the band width from 2.0 to 1.9. With a period of 50 bars, respectively, you need to increase the width from 2.0 to 2.1. After selecting the multiplier and the period, you can calculate the Bollinger bands themselves. The formula for the top band is as follows: UB = μ + ( m * σ ), For the bottom band: LB = μ - (m * σ), UB — upper band; LB — lower band; μ — moving average value; σ — standard deviation value; m — factor. As an example, let's calculate the value of one point of the upper Bollinger band. To simplify the calculations, let's take a period of 10 bars. Candles entering the period are marked with a blue rectangle in the chart. First, let's identify the closing levels of these candles in points, starting with the most recent. For convenience, I have rounded ten thousandths to 0: 1,18700; 1,17700; 1,16500; 1,14200; 1,13000; 1,12400; 1,12100; 1,11700; 1,12500; 1,12900. Therefore, the moving average is: = (1,18700 + 1,17700 + 1,16500 + 1,14200 + 1,13000 + 1,12400 + 1,12100 + 1,11700 + 1,12500 + 1,12900)/10 = 1,14200 We can now move on to calculating the standard deviation: Now we know the value of the standard deviation and can calculate the point of the upper Bollinger band above the last bar (take the multiplier 1.9 from the table above): 1,14200 + 1,9 * 0,02404 = 1,18768. Knowing the standard deviation, we can calculate other points and draw the top line along them. The points of the lower line are calculated similarly. As you can see, manual calculations are too cumbersome. To simplify the Bollinger Band calculation, you can use an Excel spreadsheet, which I will discuss below. Now let's talk about the allowed parameters. From my own experience, I can say that it makes no sense to use the Bollinger indicator with a period of less than 10 and more than 50. If such a need arises, you need to change the timeframe, for example, switch from a daily to a four-hour chart or vice versa. In the initial stages, I recommend limiting yourself to a period of 20-30 bars. The author himself believes that his indicator works best in this range. In addition to the classic setting of this technical indicator, the use of Bollinger Bands varies since combined options are also possible to be implemented for better results. For example, a chart might contain two band indicators plotted using the same calculation period but with different ratios. In his book, the analyst gives an example of a chart with two volatility bands in 20 periods that differ in width by 1 and 2 standard deviations. You can see this tool in the picture above. Visually, these two technical indicators coincide at the moving average line but have different widths. A narrower channel is built with a factor of 1.0, and a wider one — with a factor of 2.0. The second popular option for setting up the indicator is to plot BB of two different types. For example, one channel can be formed based on a moving average with a period of 20 bars and a width of 2 standard deviations. The second one has a period of 50 bars and a ratio of 2.1. If you think you already know how to use Bollinger Bands, you are wrong. All the fun is yet to come. Get a cup of tea and let's move on. Bollinger Bands Excel Sheet Here you can find the Bollinger Bands Excel Sheet . It is designed to accurately calculate Bollinger Bands at a specific point in time. This tool can also be used to experiment with inputs to calculate the MA or the multiplier. In order to use the table, you need to make a copy of it or download the Bollinger Bands calculator directly to your computer. The screenshot above shows the path: File / Make a copy or Download. The table is very simple. In column A, you fill in the purple cells. The formulas work for 50 cells, but there is no need to enter numbers in each one. Input values can be any numbers. For example: closing levels; opening levels; bar highs; bar lows; weighted averages of each bar; or any other numbers for your experiments. The number of values corresponds to the calculated period. If 10 cells are filled in, the calculation will correspond to a moving average with a period of 10. In column B, indicate the multiplier in the purple cell. The default ratio is 2, but you can enter any other number instead. Columns C, D and E contain the final result and a caption for the values: standard deviation — σ; upper band — UB; moving average — μ; lower band — LB. Important! All calculations are done automatically. You do not need to enter data manually in the blue cells in column E. How Bollinger Bands Indicator Works We already know that the Bollinger Bands indicator consists of three lines: a moving average, upper and lower bands. The latter are formed with an offset ranging from 1.9 to 2.1 standard deviations. Setting up Bollinger Bands is pretty straightforward even for beginners. There are only two relevant columns in the Parameters tab: "Length" or the period for which calculations will be made, and the "Multiplier" factor. It only makes sense to change other settings within the classic Bollinger Bands if you want to experiment. For example, changing the source from the closing price to the opening price changes the traditional approach to building the indicator, but it may show an unexpectedly interesting result on certain trading instruments. In the second "Style" tab, you can set the color of the Bollinger bands, the moving average, and the chart area between them. John suggests using two indicators in the trading process: %b allows you to determine exactly where the price data is in relation to the Bollinger Bands. This tool will be useful when developing a trading system that uses the relationship between price behavior and the behavior of the upper and lower bands. BandWidth analyzes the current offset width. This metric is very useful for finding the start and end points of a trend, and BandWidth is an integral part of the squeeze technique. I will talk about it in detail a bit later. First, let's take a closer look at %b. This tool is calculated by the formula: %b = (Last price - LB) / (UB - LB). UB — upper band; LB — lower band. If you look closely at this formula, you will understand that if the last price is located on the upper Bollinger bands, the calculation result will be 1. If it is located on the moving average, the %b value will be 0.5. And if the price falls and stops at the lower bands, the result of the above formula will be 0. In this case, negative %b is possible if the price falls and breaks out of the lower Bollinger bands. This signal can be interpreted both as a sign that the asset is oversold and as a sign of a trend reversal. A value greater than 1 is possible if the price goes above the upper Bollinger bands. In this case, it will be a signal either about an overbought asset, or about a change from a bearish to a bullish trend. In order to read these signals correctly, you need to use additional indicators as filters. The Alligator indicator is often used for this purpose. In the chart above we can easily identify the m tops, and we can see that the price has gone above the upper band, i.e. %b must be greater than 1 (highlighted in the graph with a green oval). At the same time, Alligator does not show any crossings between its lines (in a blue circle), which indicates an early sign of an overbought asset and a possible trend change. In the next chart, the green oval marks an area where several candles in a row close below the lower band where we can identify the w bottoms, meaning that the %b will be less than 0. This can be both an oversold signal and a trend reversal signal. A little later, the Alligator lines cross, which confirms the trend change and lets us open a short position. We see that Alligator helps us correctly interpret the Bollinger signal. %b can also be used to identify shapes. We will talk about this later. Now let's move on to BandWidth, which analyzes — you guessed it — the current band width. It is determined by calculating the difference between the upper and lower bands and dividing the result by the moving average value. The formula looks like this: BandWidth = (UB - LB)/μ UB — upper band; LB — lower band; μ — moving average. This signal is useful for detecting squeeze. In other words, it describes a situation when market low volatility has decreased to an abnormally lower level. This situation can be described as the calm before the storm. Bollinger noticed that most trends are born when BandWidth is at its lowest. The market’s low volatility is like the calm before bad weather. The emergence of a sharp expansion of Bollinger bands and a strong price movement in such a situation indicates the possible formation of a new strong trend. In the chart, the green oval marks the moment when the Bollinger Bands narrow, i.e. the market volatility decreases to a local minimum. As you can see, a sharp upside breakout occurs after this, which is the start of a bullish trend. BandWidth will also be very useful in determining the end points of strong trends. Heavy movements provoke a significant increase in volatility and the bands widen. Because of this, the level of dispersion increases and the Bollinger Bands expand. In the case of a bullish strong trend, after the channel narrowing, we will see a strong fall of the lower Bollinger band downwards against the main trend. This phenomenon is an early signal of a bullish trend reversal. The EURUSD chart shows Bollinger Bands at the time of the trend development. The green rectangle marks the area when the lower line begins to move down during the formation of an upward trend. After that, in the area marked with a blue rectangle, the lower band reverses and begins to move up. A signal about the end of the trend appears. And indeed, after a while there is a transition from a bullish trend to a bearish one. Bollinger Bands Signals Earlier, we have already discussed the main signals of the Bollinger Bands. Their weak point is the need to filter and identify entry and exit points. The simplest solution to the first problem is a Bollinger filter. To solve the second problem — identifying the entry and exit points — in most cases finding shapes is the solution. A shape is a pattern formed by the market movement and the price volatility or a sequence of such movements. They are fairly easy to recognize in the chart. At the same time, for a better understanding, beginners are recommended to use Bollinger Bands. They smooth out minor market fluctuations, making it possible to focus only on significant price data reversals. Often, shapes precede a reversal or are themselves part of a trend reversal. I will tell you about the two most common shapes — W and M. Before we move on to examining the features of the shapes, have a look at their types. W-bottoms M-tops The image above will help you understand what types of patterns m tops look like. The meaning of each of the presented shapes is unique. You can read more about this in Arthur Merill’s work with the name MW Waves. Here we will just take a quick look at these patterns and discuss how to work with them. All shapes can be grouped by to the signal the trader receives. Let's take a look how to read bollinger bands signals: M15, M16, W14, W16 signal the formation of an uptrend. M1, MZ, W1, W2 indicate the formation of a downtrend. W6, W7, W9, W11, W13, W15, M2, M4, M6, M8, M10, M11 are reversal formations. These patterns indicate a trend reversal. M13, W4 — in classical technical analysis these figures are called triangles. The direction of movement is determined by the side of the exit from the figure. M5, W12 — in classic technical analysis, these are expanding triangles — the trend is determined after the breakout. W6, W7, W9, W11, W13, W15 are most often part of the head and shoulders reversal formation. M2, M4, M6, M8, M10, M11 are often components of the inverted head and shoulders pattern. For the rest of the figures — M7, M9, M12, M14, W1, W3, W5, W8, W10 — signals are generated based on the general rules described below for W and M shapes. W-Bottoms (Double Downs) W-bottom is the most common pattern of transition to the bullish market. It is rarely seen in its pure form and often has a variety of deviations from the ideal shape. Bollinger developed a system for the psychological assessment of market sentiment based on the following pattern features: Longer right side suggests that there is a sentiment of disappointment in the market. Many investors expect another retest of the lows, abandoning their positions and are extremely disappointed after the price soars up. Equality of the lows on the left and right sides indicates a calm market. Investors make purchases after a repeat testing without much stress and soon get the expected profit. If the low on the right side is lower than the low on the left, this situation is accompanied by fear and discomfort on the part of the masses of ordinary traders. Many of them went long at the previous low and ended up being kicked out of the market. Few of them will want to buy again, and the inflow of new money is limited to the formation of a new low point. The technical analyst Richard Wyckoff once called this phenomenon a spring, and this term is still used in the trading circles to this day. As for the interaction of the W-bottom with the BB, in most cases the left side of the pattern will touch the lower line or cross it. The growth following the local low will again return the candles to the inner zone of the bands. In this case, the crossing of the middle line of the moving average indicator should occur. The next move will be a second touch inside the lower Bollinger Band. It is important to pay attention here that the low in the considered strategy is determined by the lower Bollinger bands. If the first point crossed the band, and the second is formed within the channel, then the second low will be considered higher even if it is located lower in absolute terms. The retest price must be greater than or equal to the price of the first low. This is one of the most important requirements. To check whether it is met, you can use the previously discussed %b indicator, which allows you to accurately measure the position of candles relative to Bollinger bands. Another feature of W-bottoms is the presence of some smaller formations in their structure. A closer look at smaller timeframes reveals reversal signals. They form the beginning or end of the compound segments of a large figure. A W-bottom gives a clear signal of base formation. Therefore, these formations are often used to predict trend reversals and open positions. The chart depicts a growing W-bottom. This is a formation in which retesting occurs at a higher level. This is true only when analyzing the absolute location of the lows, i.e. the location relative to the coordinates of the chart. As for the Bollinger Bands, both low points cross the lower line at approximately the same distance. We can talk about the equality of the lows of the left and right sides and equilibrium in the market. After finding the W-bottom, you need to answer the question: "When and what positions should I open?" Experts recommend buying “strong” — wait for the moment when a bar with a volume and range above average is formed. This will be the signal to open a long position. The stop order should be set below the last low point (below the right side of the formation). Later it should be moved up. You can do this by eye or according to your own rules. For beginners, I recommend starting with stop losses set off from local lows. M-Tops While the most common base shape is a W-bottom, the tops can be double or triple in an M-top. The most common case of a triple top is the head and shoulders pattern, which is well known in technical analysis. It shows rapid growth and small rollbacks. This rollback forms the left shoulder. It is followed by another period of growth, which forms a new high, which ends with an even larger rollback. Quite often, this rollback completes near the previous local low. It forms the so-called head. Following the head, the right shoulder is formed. It represents a failed growth with an amplitude less than the previous one (ideally ends around the peak of the left shoulder) and a subsequent fall in price setting a new low. The right shoulder may be followed by another minor growth, bringing prices back to the vicinity of the lows of the left and right shoulder. Many traders often refer to these lows as the neckline. It is usually followed by a complete fall. The chart depicts a head and shoulders formation. For clarity, I marked its outlines with green lines, and its components with numbers: left shoulder; head; right shoulder; backward movement before final decline. This example clearly shows that in practice the head and shoulders are rarely formed as a perfect structure. Deviation of one or more parameters is considered acceptable. When analyzing a figure, I also recommend paying attention to volume. On the left side of the figure, especially in the head area, it is characterized by high values. At this point, news is published preceded by rumors and expectations. After passing the peak of the head, activity decreases. A small surge of optimism can be observed on the right shoulder or the last jump up. In the chart, we see that at the moment of the formation of the right shoulder, traders are confused. Most of them argue that a reversal is inevitable. Therefore, the increase in volume occurs at the stage of the lowering of the right shoulder. In the first part of the last spike, the high volume can be explained by the struggle between bulls still hoping for growth and bears confident of the fall. After passing the peak, massive sales continue at the expense of traders, who at the last moment realized that further growth is impossible. Analysis of the formation using Bollinger signals is even more interesting. In the ideal version, the left shoulder goes beyond the upper line. The right one misses it by a little. The neckline in the right shoulder often stops at the moving average, and the first decline is in the vicinity of the lower Bollinger band. In our graph above, only one condition is met strictly. Upon reaching its peak, the first shoulder is crossed by the Bollinger Wave indicator (blue arrow). The bands contract when the neckline is bounded by the lower band rather than the moving average. You can also say that the first decline stops at the lower line (red arrow). However, upon closer inspection, a slight overlap is noticeable. This once again confirms the fact that in real trading you will rarely come across perfect shapes. The first part of the head and shoulders formation is ideally an M-top consisting of a left shoulder and a head. Most often it is expressed in the form of an M15 or M16 shape. The next part is also an M and it includes the head and right shoulder (possible shapes are M3, M4, M7 and M8). The last phase (right shoulder and reverse growth before the final decline) can be formed in the form of an M1 or M3 shape. M-tops are useful for identifying the tops of sustainable trends. In the process of their formation, there is a reversal of the price movement, which opens up opportunities for effective entry into the market. Even more useful is the analysis of the interaction of the head and shoulders with the BB. It allows you to recognize the pattern before it is fully formed, which means opening a position at one of the high points and increasing the final profit from the trade. At the same time, starting from the right dip after the head, the structure has a downward slope. This means it can be analyzed using W shapes. Reverse growth often forms as W1 or W2 shapes. As you analyze, you can get deep into the details by identifying each component of the M and W at the following levels. There should be five of them in total. But with traditional analysis, there is no need to analyze all the constituent figures. It is enough to find a few of them. In addition, the formation is easy to read visually, as well as in terms of its interaction with Bollinger Bands and the impact on trading volumes. Three pushes to high In addition to the classic head and shoulders, you will often see a variation of this pattern, which Bollinger calls the three pushes to a high. It usually completes larger shapes. When analyzing this structure using Bollinger Bands, you can see the following patterns: The first push goes beyond the upper bands. The second push creates a new high and touches the upper level. The third push may or may not form a new high. If a new extreme point is created, it will not be much higher than the previous one. In this case, the third push does not touch the upper Bollinger band. The highest volumes are observed at the first stage of the development of the three pushes to a high. Then the activity gradually decreases and in the final stage reaches a low. Let's take a look at an example. In the EURUSD chart, I marked the direction of price movement with green lines. The peaks of the three pushes to a high are labeled with numbers. We will use them as serial numbers. The first push naturally crosses the upper Bollinger band. The second creates a new top. However, it is only slightly higher than the previous one. Because of this and as a result of the previous rapid upward movement, the second pattern is not realized. The third spike is also not much stronger than the previous ones. Its high touches the Bollinger band, but the end point of the candlestick is below it. A gradual decrease in volumes from the beginning of the formation to its end confirms an early reversal. I marked this phenomenon in the chart with a blue line. Bollinger Bands Strategies In this section, I have collected the most popular Bollinger Bands strategies. We will look at various methods within the day, in the lowest timeframes, learn how to squeeze the bands and use their signals in conjunction with other indicators. I will separately talk about the Bollinger Bands strategies, which involve trend following in the presence of a breakout of important levels and additional reversal signals. Daily Trading with DBBs (Double Bollinger Bands) Kathy Lien This method appeared as a result of the efforts of the exchange analyst Kathy Lien. In her book, The Little Book of Currency Trading. How to Make Big Profits in the World of Forex, she described an unusual technique involving the use of two Bollinger Bands of the same type in the same chart. To understand what this is about, let's add them to the chart. The first indicator will be with a period of 20 candles and two standard deviations. For the second indicator, we use slightly different Bollinger Band strategy settings: a 20-bar period and one standard deviation. I also recommend assigning its own color scheme for each indicator, so that it’s easier to compare their readings in the chart. The final Bollinger indicator consists of five lines: top (red) line with two standard deviations; top (green) line with one deviation; moving average (blue); bottom (green) line with one deviation; bottom (red) line with two deviations. All bands, except the middle band of the moving average, form trading zones that we will use to open trades: buy zone — between the upper red Bollinger band and the upper green line; neutral zone — between the upper green and lower green line; sell area is between the lower green and lower red line. The price being in the buy zone indicates the strength of the current trend. This means that there is a high probability that the price moves will go up for some time. For trend trading, Ketty recommends opening long positions when the close of the candlestick hits the upper quarter of the double Bollinger indicator. In this case, the two bars preceding it should close in the neutral half. Keep a long position as long as the candles close within it. On the other hand, if the price moves in the sell zone, it indicates the strength of the bearish trend. By analogy, here you should open short positions (provided the closing points of the two previous bars are in the neutral half) and keep them until the candle closes return to the neutral zone. For an uptrend, we should identify the m tops and place a stop order at the lowest price of the first bar that broke the upper bands of the neutral zone. For a downtrend, the stop order position is determined by the high of the first bar that breaks the lower line of the neutral zone. The initial target is set at a distance of two stop losses. When the distance of one stop loss is passed, Kathy recommends moving it to breakeven. Then it should be gradually moved along with the potential target following the price moves and closed manually when the last candlestick closes in the neutral zone. After the price has entered the neutral zone, we can consider two possible scenarios: The price will move to one of the trading quarters — usually this happens when a trend reverses. The price will consolidate in the neutral zone — there will be a “calm before the storm”. You can prepare for a strong movement in either direction. The price being in the neutral zone demonstrates uncertainty. You should refrain from entering the market and wait for the price to close in one of the quarters. Alternatively, you can go to a lower timeframe or trade short-term trades within the channel. In the latter case, the Grid trading strategy , which I talked about in one of the previous materials, may come in handy. Now let's look at the classic strategy Double Bollinger Bands through an example. In the chart, the bar marked with a blue oval closes in the upper quarter. A buy signal appears. Open a long position at the close of the candlestick at 1.17873 points (blue line in the chart). Set the stop loss at the low of the candle that has broken through the first upper line. It is marked with a red line in the chart. I’ve marked the target with a green line, it’s located at two stop loss lengths. In the future, you can stop at the target level. But it is much better when the price grows to move the stop loss to the breakeven level, leave it at this position and wait for the signal to close the order or move it dynamically with the target. As long as the price remains in the upper quarter, we leave the position open. In the chart above, the borders of this period are between the blue and orange ovals. Then a downtrend bar forms — see inside the orange oval. It closes in the neutral zone, which is a signal to take profit. The closing price is marked with a black line and is 1.18755 points. The resulting profit will be equal to 1.18755 - 1.17873 = 0.00882 points excluding spread. If we had stuck with the option of moving the stop loss and target, the close would have occurred automatically at the 1.18877 level marked with a red line. In this case, net profit excluding spread would be 0.00886 points. It is recommended to use the strategy of double Bollinger bands on trend instruments. You can use almost any timeframe — from M15 to D1. Here's what experienced traders think of the strategy: Bollinger Bands Scalping This strategy works on any exchange instruments. The recommended chart timeframe is M1 to M15. We will receive the main signals from Bollinger Bands. We will use them to identify opportunities for opening and closing positions. The picture above shows how to set up the Bollinger Bands trading strategy. The parameters are standard — the period of the middle band of the moving average of 20 bars and two standard deviations. The RSI indicator is used as a signal filter. I recommend using the 8 bar period for it. Go to the indicator settings, open the "Parameters" tab and set 8 under the "Length". We leave the upper and lower limits as is — 30 and 70. To open a long position, the following conditions must be met: the price candlestick touches or breaks the lower Bollinger band; RSI level is below 30; one of the following candles will close within the channel. The stop loss is set just below the low level of the breakout candle. The gap should not be less than 10 points. The optimal ratio of take profit to stop loss when using this strategy is 0.6. Therefore, the minimum target should be at least 6 pips above the buy price. To open a short position, the following conditions must be met: the candle touches or breaks the upper band; RSI level is above 70; enter when one of the following candles closes within the channel. Set stop losses and take profits similarly as with long positions. Let's consider the application of the strategy using an example. In the five-minute EURUSD chart, a blue circle marks the area where one of the candles touches the lower band. At the same time, the RSI is below 30%, confirming a buy signal. We open a long position immediately after the close of the next upward candlestick within the channel. The opening price is 1.18805 points (green line). The stop loss is set below the low of the touch candle. Since there are several such bars in a row, we take the smallest low and set the stop loss just below it. Set the take profit slightly above the buy price so that it is about 60% of the stop loss. The take profit is crossed on the next candlestick after the opening. Thus, the long position is automatically closed at the price of 1.18868 points. The profit from the trade is 1.18868 - 1.18805 = 0.00063 points. Bollinger Band and Stochastic Strategy Bollinger trading with the Stochastic indicator is similar to the previous strategy using the RSI. We will use the bands to detect potential entry points, and the oscillator readings to filter signals. Unlike the previous one, this trading method is more like a channel strategy, with the only difference that the Bollinger channel will be used for trading decissions. Therefore, it is very important to pay special attention to setting the indicator bands. As an example, we will use standard parameters — a 20-bar moving average and a multiplier with a factor of 2. Your input data may be different. Depending on the trading instrument, timeframe and market peculiarities, select the period and multiplier in such a way that the moving average of the indicator shows the correct trend direction. At the same time, the price should not be outside the channel for longer than several candles. To add a Stochastic, click on the "Indicators" button in the upper part of the online terminal window. Select "Stochastic Oscillator" from the dropdown list. We will use the following default parameters for the Stochastic: periods 5 for line K and 3 for line D, length 3. You can change the colors of the K and D lines, as well as the upper and lower limits in the "Style" tab. By default, K is orange and D is blue. Conditions for opening a buy order: the candlestick crosses or at least touches the lower band; the oscillator shows oversold (less than 20%); line K crosses D from bottom to top; buy after the close of the signal candle. Conditions for opening a sell order: the candlestick crosses or at least touches the upper Bollinger band; the oscillator shows overbought (more than 80%); line K crosses D from top to bottom; Sell when the signal candle closes. Stop loss is set with an offset of at least 10-20 points from the low of the breakout candle in the case of a long position and the high in the case of a sell position. Set take profit on the opposite Bollinger band. When buying, take profit will be located on the upper bollinger band, and when selling — on the lower one. Let's consider the application of the strategy using an example. In the area of the chart marked with a blue oval, the candlestick crosses the lower band. Here line K crosses D, and the Stochastic itself shows oversold below the 20% level. At the opening of the next candle, we enter the market with a buy position at 1.08752 points (green line). Set the stop order a little lower (red line). Place the take profit on the upper Bollinger band. It is marked with a blue line in the chart. After a while, one of the candles reaches it and the order is automatically closed at a price of 1.09100 points. Thus, the profit from the trade is 1.09100 - 1.08752 = 0.00348 points. If you are going to use this strategy on small timeframes, I recommend to monitor more stable trends additionally. This way you will avoid entering the market against powerful trends. Using EMA and WMA instead of Simple Moving Average Many traders often ask: "Can I use a weighted average or exponential instead of a moving average?" In theory, any average is suitable for plotting BB. When trying to answer this question, John Bollinger himself did a comparative analysis of various averages and came to the conclusion that the classical moving average is the simplest and most accurate tool for constructing reference points. Let's compare the indications of moving averages using an example. In the chart, the blue middle band channel represents standard bands based on a 20-period moving average. The orange channel, in turn, was built on the basis of the 20-period EMA. As you can see, in times of high volatility, where the bands expand significantly, these methods give different results. And in this chart, the red channel marks the bands plotted by the WMA, and the blue one — by the middle line of the moving average. As you can see, in this case the differences are noticeable, especially at the extreme points. Both examples show that using WMA and EMA instead of a moving average can give very unexpected results. Therefore, these averages are not recommended for Bollinger trading. Bollinger Band Squeeze Bollinger Band strategy is driven by volatility. Because of it, the bands widen or contract. To determine the degree of compression, John created the BandWidth indicator. It determines volatility as a function of the average and works great on any time frame. BandWidth is calculated by the formula: BandWidth = (UB - LB) / μ UB — upper Bollinger line; LB — lower Bollinger line; μ — moving average value. You can download Bollinger Bandwidth for MetaTrader 4 here . Let's look at the process of installing and setting up the indicator: Download the archive from the link above and unpack it. We need the dinapoli-BandsBandwidth.mq4 file. Open the File tab in the MetaTrader4 top menu. Next, select the item "Open Data Folder". File explorer will open with the target folder. In it, select the "MQL4" folder. Then select the "Indicators" folder. Copy the unarchived BandsBandwidth.mq4 file to this directory. Restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be EURUSD . At the top of the terminal, open the "Insert" tab, then go to the "Indicators" item. Click on the "Custom" item and select the name of the newly installed indicator. In our case, it’s BandWidth. After that, the indicator window will appear. By clicking on the OK button, you launch the indicator with default settings. Bollinger bands best settings You can also change the indicator settings. Best Bollinger band strategy setting is: Common — these are the technical settings for the indicator. They are best left as default. Inputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings. Colors — here you can set up the color, thickness and look of the indicator lines. Levels — this item allows you to set levels. For example, the level, upon crossing which you need to buy, etc. Let's look at the indicator's application using an example. The Bollinger indicator is shown in the chart with red lines. At the bottom, the blue line shows BandWidth. The principle is simple: the higher the line, the greater the expansion; the lower the line the stronger the narrowing. With blue arrows, I marked the narrowing areas, which correspond to the minimum typical values in the BandWidth chart. The Bollinger Bands Squeeze strategy shows good results during narrowing and expansion. It is a channel trading method. The idea is to open positions on a rebound from one of the levels. The strategy works well on any exchange instruments with a timeframe of M30 and higher. We need: Bollinger Bands indicator with the following settings: 20 periods and two standard deviations. BandWidth indicator. To add the Bollinger Bands indicator to the chart, open the "Insert" tab in the main menu, then "Indicators", "Trend" and in the submenu that opens, select Bollinger Bands. This will open the settings window. In it, we will set the period equal to 20 bars and two standard deviations. As John Bollinger argued, periods of low market activity are cyclically replaced by periods of high volatility where the bands widen. This statement is the essence of the Bollinger Squeeze strategy. The signal for an early entry into the market is the narrowing of the BB. We will identify it using BandWidth, which demonstrates its lowest values during this period. In the EURUSD chart, the blue arrows indicate a narrowing. Please note that the BandWidth is at its lowest during this period. The next goal is to identify when the narrowing ends. The beginning of the movement is evidenced by the breakout of one of the Bollinger bands. For a bearish trend, this will be the crossing of the lower level, and for a bullish trend, it will be the crossing of the upper level. In the chart, I have marked the moment of the breakout of the lower level with a red arrow. This signal indicates the beginning of a bearish trend. You can set the stop order, as in previous trading methods, at the high or low point of the breakout candle. The initial take profit must be at least twice the stop loss length. Since we are talking about trend trading decissions, it makes sense to use the trailing stop and wait for the signal of the trend end. This signal can be one of the patterns described in the analyst's book or another narrowing of the channel. The next narrowing of the channel is marked by green arrows in the chart. It signals a reversal, which means it's time to close the short position. Important! During the squeeze, one unusual phenomenon often happens that confuses most beginners. This is a false breakout that occurs in anticipation of the end of the squeeze. At this moment, the chart makes an intense but short-term movement. After that, it also reverses sharply and starts to move in the direction of the emerging trend. This phenomenon can also be used as a signal for the end of market consolidation. In order not to be fooled by a false breakout, don’t jump to conclusions. Wait a bit until the movement develops so that there is no doubt that a new trend is forming. Experienced traders often derive additional profits from false breakouts. To do this, they open a position at the very beginning of the movement. After that, a trailing stop is set in such a way that it falls into the breakeven zone as soon as possible. Further moving of the stop order in the direction of the candlestick formation will give profit when triggered. Bollinger Bounce This strategy is suitable for trading opportunities on timeframes from M30 to H4. It is based on two popular tools: the Bollinger Bands indicator and the RSI. The essence of the trading system boils down to finding a price bounce, which is formed during the development of a trend. First, let's add Bollinger Bands and RSI to the EURUSD chart of LiteFinance online terminal . To do this, click on the "Indicators" button at the top of the chart. Then, in the menu that opens, click on the "Bollinger Bands (BB)" and "RSI" links. Now let's move on to setting up the tools. For Bollinger Bands trading strategy, we will use standard parameters: 20 bar period and 2 standard deviations. For RSI, we will also leave the default settings: length — 14; limits — 30 and 70. Let's modify the RSI a little by adding a horizontal line at the 50 level. The Bollinger Bounce strategy involves trading on developing trends. The direction of price movement does not matter. In an uptrend, we will look for the moment when the price action rolls back down, touches or almost touches the lower band. In a downtrend, on the contrary, we need a moment when several candles go up and stop at the border of the upper band and identify the m tops. Next comes the RSI. We will use it to understand how the instrument is strengthening or weakening in its value. In an upward trend and downward rollback, the signal is confirmed when the indicator line is within 30-50. Ideally, it goes up. Accordingly, in a downtrend and an upward rollback, the RSI should be between 50 and 70 and going down. If the main trend is upward, we enter the market at the close of the subsequent bullish (white) candlestick. If the trend is downward, enter after the close of the bearish bar. If the movement is too strong and you are afraid to miss a significant part of the movement, you can move to the next smaller timeframe and wait for the bar to close on it. Place stop loss a little behind the touch point of the Bollinger Band indicator. It is recommended to place take profit at the level of the opposite band. Let's see how the strategy works though an example. The EURUSD chart shows an uptrend. In the place of the supposed bounce, one of the bars touches the lower band (green oval area). In this area, the RSI moves in the direction of the trend and is located in the optimal range from 30 to 50 percent. Therefore, we can talk about a signal for the upcoming bounce. Following the touch candle, a bullish bar is formed, signaling the start of a bounce. At its final point, open a long position at 1.09042 points (green horizontal line). Set the stop loss (red line) slightly behind. Take profit is placed at the level of the upper band (blue line). The position closes by take profit (blue line) upon reaching the level of 1.10031 points. The profit from the trade was 1.10031 - 1.09042 = 0.00989 points. Bollinger Band Breakout Strategy Many experts agree that strategies based on breakout signals are the most effective. The Bollinger Bands indicator is among the best indicators for tracking and predicting future impulses. This is noted by D. Rooney, technical analyst and trader with ten years of experience, winner of an award in writing trading systems. One such trading system is the Bollinger Band breakout strategy. It is equally effective on both 5-minute and weekly timeframes. This strategy is the complete opposite of the Bollinger Bands bounce strategy. The founder of breakout trading is Bruce Babcock, the author of the intuitive trading theory. John Bollinger liked his approach to trading volatility breakouts and decided to adapt it to his indicator. The key to success is the correct choice of timing to enter the market, namely, the moments of lowest volatility. To determine the narrowing, we will use the already familiar BandWidth indicator. I’ve talked in detail about this tool, its installation and setting up in the section on narrowing. If the BandWidth narrows, the trader should be prepared to see a breakout of one of the Bollinger Bands. We enter the market as soon as one of the candles closes above or below the line. The direction of the position coincides with the direction of the breakout. This means, if the upper band is crossed, we open a long position, and if the lower one is crossed — a short position. Stop orders are placed just below the breakout candle. Then, at regular intervals, the stop loss is pulled up by the price movement distance. Such intervals will be different for each of the timeframes. In daily charts, the optimal nudge time would be the opening of trades at the beginning of the day. You can also use the trailing stop, which changes the stop loss value at the close of each candle. Breakout Strategy is almost identical to Bollinger Squeeze. But there is also a significant difference. It’s in an alternative parabolic way of exiting the market. In this case, the stop loss is set in the breakeven zone during the growth process. We exit the market when the opposite band is touched: for the bullish movement — the lower bands, and for the bearish — the upper band. Let’s look at this option through an example. For the breakout strategy, I took the same chart that was used to demonstrate squeeze trading. The blue arrows indicate the narrowing area, the red one shows the candlestick crossing the lower level. When it closes, we enter a short position. With the blue line, I marked the entry price of 1.00002 points. And the red line is the initial stop loss. During the development of a bearish trend, we move the stop loss to the opening price (in reality you need to move it a little lower to compensate for the spread). The new stop loss is marked with a red line. I also left the original one intact for clarity. It is now marked with a semi-transparent red line. The position is closed when the candlestick touches the upper Bollinger band. This event is marked with a red cross in the chart. The closing price is marked with a green line and is 1.09410. This trade should have brought us a profit of 1.09410 - 1.00002 = 0.09408 points. Trend Trading Indicator Strategy The essence of this approach boils down to predicting the birth of trends using price strength analysis. The analyst considers the ability of the chart to approach the upper band during an upward movement and the lower one during a downward movement as a sign of strength. Additionally, the strength is confirmed by the MFI readings. To measure how close the price action is to one of the bands, we will use the Bollinger Bands %b indicator. I talked about it in detail in the section "How the Bollinger Wave Indicator Works". Let's look at the process of installing and setting up the indicator: 1. Download the Bollinger Bands %b indicator from here . 2. Open the "File" tab in the top menu of MetaTrader4, select the "Open Data Folder" item. 3. File explorer will open with the target folder. In it, select the "MQL4" folder. 4. Select the "Indicators" folder. Copy the unarchived Bollinger_Bands_3b.mq4 file to this directory and restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be EURUSD . 5. At the top of the terminal, open the "Insert" tab, then go to the "Indicators" item. Next, click on the "Custom" item and select the name of the newly installed indicator — Bollinger_Bands_3b. 6. The indicator window will appear. By clicking on the OK button, you will launch the indicator with default settings. The editable parameters of the tool are in the following tabs: Common — technical settings for the indicator. They are best left as default. Inputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings. Colors — here you can set up the color, thickness and look of the indicator line. By default, it is bright yellow, so it is better to immediately change it to a more vivid color. Levels — this item allows you to set levels. For example, a level, at the crossing of which you need to buy, etc. In the case of our strategy, it makes sense to add levels 0.8 and 0.2. Visualization — here you can select the timeframes on which the indicator will be displayed. You can download MFI from here . The installation principle for this instrument is the same as for Bollinger Bands %b. Most of the settings are the same as well. The only difference is in the "Inputs" tab, where you can only change the period. For trend trading with MFI, it is recommended to set a period that is half the period of Bollinger Bands %b, which for us is 10 bars. The tool itself is designed to measure the intensity with which funds are invested in a security’s price or withdrawn from it. Its full name reads as the Money Flow Index. Within the described trading system, we will only be interested in levels above 80 and below 20 signaling a potential market top and bottom. We also need classic Bollinger Bands trading strategy with standard settings: 20 period and 2 standard deviations. Conditions for opening a long position: Bollinger Bands %b is in the range from 0.8 to 1. The MFI chart is above 80. We enter after the completion of the growing bar. Stop orders are set at the low price with a two candlestick offset, counting from the bar with an open position. Conditions for opening a short position: Bollinger Bands %b is in the range from 0 to 0.2. The MFI chart is below 20. We enter after the completion of the descending bar. Stop orders are set at the high of the candlestick with an offset of two bars from where the position was opened. In the process of the market movement along the trend, the stop order should be moved to a break-even position. We take profit when one of the bars crosses the Bollinger Band opposite to the trend direction. For an upward movement this will be the lower Bollinger bands, and for a downward movement it will be the upper one. Let's look at an example. The EURUSD chart shows a downward trend movement. The blue arrows mark the candlestick in which the Bollinger Bands %b ranges from 0 to 0.2, and the MFI chart is just below 20. Both conditions for opening a short position are met. Enter the market at the close of this bar at 1.09731 points (blue line). Stop-loss is placed at the candlestick low with a two-bar offset from where the position was opened (red line). When the trend develops, we move the stop loss to a breakeven position (red line). For clarity, I marked the initial stop level with a transparent red line. Then the price touches the upper band opposite the green cross. At this moment, we close the order at 1.09402 (green line). The total profit is 1.09731 - 1.09402 = 0.00329 points. Some traders prefer to use an alternate version of the trending strategy that uses MACD instead of MFI. This indicator shows really good results on some instruments. So if you want to find the ideal trading method for several of the most commonly used currency pairs, it makes sense to test the strategy with both MFI and MACD. Bollinger Bands Reversal Strategy This strategy aims to predict trend reversals by comparing the touch of the Bollinger Bands with the behavior of indicators. First of all, we need a Bollinger indicator with standard settings. I’ve described earlier how to add it to the MT4/MT5 chart. We also need the MACD oscillator. It is available in MetaTrader by default. To add this instrument to the chart, click on the "Insert" button, then "Oscillators" and select MACD in the drop-down list. A new window with the settings will appear. The period of the fast EMA should be set at 21 bars, the slow one at 100 candles, and the signal line — at 9. You can do this in the "Parameters" tab. In the "Colors" tab, you can change the colors of the histogram and signal line. For convenience, in the "Levels" tab, add a new value "0". The third indicator will be the Bollinger Bands %b, which is already familiar to us from the previous strategy. I have already described its installation and setting up. It is standard. In the trading process, we will need to determine the levels 0.95 and 0.05. So let's add them to the indicator chart. Open a long position when the following conditions are met: The candlestick touches the lower Bollinger band; Bollinger Bands %b ranges from 0 to 0.05; MACD is above zero. Open a short position if the following conditions are met: The candle touches the top band, Bollinger Bands %b ranges from 0.95 to 1, MACD is less than 0. Place the stop loss at the extreme reversal point, and in the process of the new trend development, move it to the breakeven zone. A signal to close can be a narrowing, the appearance of conditions for the next reversal, or touching of the Bollinger Band opposite to the direction of the main movement. Let's look at the strategy using an example. In the chart, blue arrows mark the moment when one of the candles touches the upper band, Bollinger Bands %b is in the range from 0.95 to 1, and MACD is less than 0. This is a clear signal to enter the market. At the close of the bar, open a short position at a price of 1.10447 points (green line). Wait for the appearance of the high price values at the reversal in the vicinity of the candlestick and set a stop loss (red line) at this level. Move the stop order to the breakeven zone (red line). I’ve marked the previous stop loss value with a semi-transparent red line. The development of the downtrend ends. The candlestick marked with a red cross crosses the upper border of the channel. After detecting the signal, close the position at a price of 1.09831 points (green line). The profit from the trade is 1.10447 - 1.09831 = 0.00616 points. Bollinger Bands Screener For effective profitable trading, it is important to always be on alert and monitor the market situation. While accessing the market is easy now even from a smartphone, novice traders often have problems with the choice of an instrument for trading. Screeners help you solve this problem — these are services for tracking trading instruments according to user-specified criteria. With their help, you can not only save time on market analysis, but also choose the best moments for entry and exit. One of the best quality screeners is offered by tradingview.com. Here you can set up filters by technical and fundamental parameters. For your convenience, in the upper part of the window there is a search bar for parameters by name. All filters are divided into three categories: common; fundamental; technical. As part of Bollinger trading, we are interested in technical filters. In particular, here you can select assets whose price action is located near a certain level of the upper or lower Bollinger band, such as a security’s price for example. In this case, you can set both standard parameters (higher or lower) and more complex ones: for example, higher or equal, crosses up and down. You can even configure the Bollinger indicator so that it will work with an alert and send trading signals if a specified condition is met. You can refine your search using other tools that we used in the described strategies. For example, you can use the RSI readings to select trading instruments for which you should enter the market right now. Bollinger Bands Tips & Rules Whichever strategy you use, certain basic rules should always be followed when working with Bollinger Bands. They were deduced by the author of the indicator John Bollinger and listed in his book. I chose the most relevant ones and put them in a simpler language: Bollinger Bands should be used in conjunction with other technical analysis tools. You can use a variety of indicators with Bollinger Bands that determine momentum, market sentiment, activity, intermarket data, etc. The indicators used should not be connected to each other. For example, trend and price volatility are used in the calculation of the bands. Their use for additional confirmation of price action behavior is meaningless. The default indicator parameters are applicable for most instruments, timeframes and trading methods. But this does not mean that you cannot use other settings. It is important that the middle band of the moving average always describes the medium-term trend well. If it lengthens or shortens, the number of standard deviations should also be increased or decreased. For example, for fifty periods it is better to use a ratio of 2.1, and for 10 periods — 1.9. Bollinger Bands are good for confirming chart patterns such as triangles, double and triple tops and bottoms, head and shoulders, and other W-shaped bottoms and M-shaped tops. With a directional price movement, it can often move along the upper line and in the case of a bearish trend — along the lower one. Bars closing outside the bands are statistically more likely to indicate the continuation of the trend, rather than its end. The price touching the band does not in itself signal a buy or sell. Therefore, it should be considered only in conjunction with the readings of other indicators. The Moving Average in Bollinger Bands is not a substitute for strategies that involve SMA, EMA and other types of averages. The Bollinger Bands %b indicator will help determine the position of the price relative to the Bollinger Bands. The BandWidth indicator is recommended to be used together with Bollinger Bands. It helps identify the “calm before the storm” and signs of trend changes. Bollinger Bands work on any timeframe and any market conditions. An important requirement for the correct use of the indicator is sufficient price activity and calibration of the parameter settings based on the history of its movement. Bollinger Bands do not provide clear recommendations on their own. This indicator should improve your chances of avoiding bad trades. Bollinger Bands PDF Here you can download a quick guide to Bollinger Bands PDF with the secrets to using them . Remember these rules and always stick to them if you use Bollinger Bands in your trading method. Bollinger Bands FAQ How does the Bollinger indicator work? The Bollinger Bands is a technical analysis tool that works on the basis of a moving average. The upper and lower levels are equidistant from the MA. The lag rate is calculated using the standard deviation multiplied by the specified factor. The latter depends on the length of the moving average. For example, for the MA with a period of 21 bars, it is recommended to use 2 standard deviations, and for one with a period of 10 bars — 1.9. How to use the Bollinger indicator? The indicator itself provides little information. Almost all trading systems use Bollinger Bands in conjunction with the readings of other indicators. These can be both classic RSI, MACD, Average True Range (ATR), as well as more complex volume indicators or entire trading systems. The only condition is that there is no connection between the calculation of the Bollinger Bands and additional indicators. What is the best setting for Bollinger bands? The key nuance in setting up Bollinger Bands is maintaining the optimal ratio between the period of the moving average and the number of standard deviations. The classic version uses a 21 bar period and 2 deviations. If the period for some reason increases to 50 bars, you should use the ratio 2.1. And if it decreases to 10 bars, then 1.9. How accurate are Bollinger Bands? The Bollinger Bands indicator itself cannot provide accurate information about whether to open a position or close an existing one. They provide good forecasting accuracy when used with other indicators or in combination with several Bollinger Bands with different settings. How do you master Bollinger bands? I think one of the simplest and at the same time effective methods is the trend following strategy. It is used for trading instruments that follow long-term steady trends. If we are talking about volatile currency pairs, a scalping strategy is better suited for them. How do I use Bollinger Bands in intraday trading? In intraday trading, I recommend using channel strategies in combination with Bollinger bands on small timeframes. If you are a beginner, it is recommended to consider trending strategies with a horizon of at least a few days. The Double Bollinger Bands strategy is great for this. It allows you to accurately identify the buy, sell and profit-taking zones. This will increase your trading discipline and help you avoid unnecessary mistakes at the very beginning. What do fundamental investors think about Bollinger Bands? One of the most famous investors in the world Warren Buffett never mentioned that he uses Bollinger Bands. Lesser-known traders often stick to Bollinger's tools and rules. Experienced traders are captivated by the versatility of the indicator and good compatibility with any trading strategy. Bollinger Bands are often used as a confirmation filter for signals and help to figure things out when the market conditions are not obvious. Are the Bollinger Bands the most useful indicator? It is difficult to gauge the usefulness of Bollinger Band indicators. Despite its relatively young age, this tool has become classic in technical analysis. Such a phenomenon cannot be an accident. You shouldn't overestimate the capabilities of the Bollinger Bands either. One thing is certain. This indicator needs to be tested with your trading strategy. This is the only way you can understand whether this indicator is useful to you or not. Which are some good books on Bollinger Bands? Bollinger on Bollinger Bands is the only book by the author of the instrument that describes Bollinger trading in detail. What does it mean when the Bollinger bands are narrow? The narrowing of the bands indicates a decrease in volatility to a minimum. Bollinger believes that such situations occur cyclically. The narrowing is always followed by expansion, and expansion is always followed by narrowing. This pattern is used in some strategies to identify the beginning or end of a trend. Conclusions on Bollinger Trading Bollinger Bands, like most other technical indicators, are best not applied alone. However, they can become an integral part of your trading strategy and give a good result in combination with other trading signals. At first, you can use the above trading methods. If you are just starting out as a trader, it is best to first master the Bollinger Bands trending strategy on a large timeframe. You can get invaluable experience in trading the Bollinger Bands strategies mentioned in this article on a Litefinance demo account completely free of charge and without registering. The Bollinger Band indicator can be compared to a seasoning. Eating it with a spoon will not bring great results, but it will make any dish tastier. When you gain experience and intuitively understand the indicator signals, try additional tools and different combinations of settings and indicators to maximize your profitability. The Bollinger Band indicator is perfect for almost any strategy! P.S. Did you like my article? Share it in social networks: it will be the best "thank you" :) Useful links: I recommend trying to trade with a reliable broker here . The system allows you to trade by yourself or copy successful traders from all across the globe. Use my promo code BLOG to get a 50% deposit bonus on the LiteFinance platform. Simply enter this code in the appropriate field when funding your trading account. Telegram chat for traders: https://t.me/litefinancebrokerchat . We are sharing the signals and trading experience. Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders https://t.me/litefinance The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU. According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent. Rate this article: 4.8 ( 124 rates ) Start Trading Cannot read us every day? Get the most popular posts to your email. 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Delve into the Awesome Oscillator’s formula, signals, and real-life examples of its application. 15 Aug. 2025 16:03 Chaikin Oscillator: What It Is, How It Works, and How to Use It in Trading How the Chaikin Oscillator works and how to use it for analyzing trends and trading volume. 09 Jul. 2024 17:19 How to Use DeMarker Indicator What is the DeMarker (DeM) technical indicator? Learn how to use the DeMarker indicator in Forex and stock trading. 15 Oct. 2024 17:42 Advance-Decline Line Index Explained: Formula, Examples, and Trading Implications Explaining how the A/D line indicator works and its purpose in analyzing market trends. 06 Nov. 2024 17:12 Directional Movement Index (DMI): Formula, Uses, and Trading Applications DMI indicator overview, comparison with the ADX, strengths, weaknesses, and usage examples. 06 Feb. 2026 17:49 Best Scalping Indicators on Forex Review of the best scalping indicators with practical examples of signals. Efficient combinations of indicators. 05 Dec. 2024 12:04 TTM Squeeze Indicator: How To Use It? Discover the TTM Squeeze indicator and a trading system that generated 1,270% returns in 2020. 24 Jan. 2025 13:53 Technical Analysis Indicators: List and Description Review of the best technical indicators for Forex: tips and strategies for successful trading on MetaTrader 4, MetaTrader 5, and other trading platforms. 24 Jan. 2025 15:32 SuperTrend Indicator: Mastering Market Trends and Trading Signals Maximize your returns with the SuperTrend indicator: signals, settings, and trading strategies. 28 Feb. 2025 13:08 Half Trend Indicator Explained: Forex Trading Tool Guide Half Trend indicator: how it works, its features and application in Forex trading. 13 Mar. 2025 12:42 What Is the Arms Index (TRIN), and How Do You Calculate It? This indicator shows the ratio of advancing stocks versus declining stocks on the market, thus helping with price forecasts. 14 Apr. 2025 16:52 Mastering the True Strength Index: A Comprehensive Guide for Traders TSI: a trend and momentum indicator. Learn how to set it up and apply it in your trading. 21 May. 2025 10:53 Donchian Channel Indicator – Trading Strategies Everything about the Donchian channel: how to use it, strategies, advantages, and drawbacks. 10 Jul. 2025 13:35 Schaff Trend Cycle: Advanced Market Analysis for Traders Exploring the STC indicator, a valuable tool for identifying trends and making profitable trades. 20 Aug. 2025 16:44 What is Anchored VWAP? Trading Strategies & Examples Everything about the Anchored VWAP indicator, strategies, and principles of its use in trading. 17 Sep. 2025 11:11 Smart Money in Trading: Strategies, Insights & Techniques Learn how SMC strategies work in trading and how to apply them to enhance your trading performance. 25 Sep. 2025 17:57 A Guide to Xmaster Formula Indicator in Forex The Xmaster Formula trend oscillator: signals, advantages, disadvantages, and practical usage. 29 Sep. 2025 17:11 Best Entry and Exit Indicators Every Trader Should Know Learn how to spot entry and exit points using trend indicators, oscillators, and chart analysis. 01 Oct. 2025 14:49 What Is Simple Moving Average (SMA) and How to Use It in Stock Trading The review offers a complete guide on how to use the SMA indicator in trading. 07 Oct. 2025 16:58 What Is Market Facilitation Index and How to Use BW Mfi Indicator in Trading The essence and calculation formula of the market facilitation index indicator. 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In this article, we will take a detailed look at Bollinger Bands, a classic indicator that many traders have been using for many years. I will tell you what are Bollinger Bands, what this tool does, how it works, how are Bollinger Bands calculated, how to use Bollinger Bands Forex strategies, and give you lots of other interesting information with examples. The article covers the following subjects: - [What Bollinger Bands are: Definition and History](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h0) - [Bollinger Bands Formula & Calculations](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h1) - [How Bollinger Bands Indicator Works](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h2) - [Bollinger Bands Signals](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h3) - [Bollinger Bands Strategies](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h4) - [Bollinger bands best settings](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h5) - [Bollinger Bands Screener](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h6) - [Bollinger Bands Tips & Rules](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h7) - [Bollinger Bands FAQ](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h8) - [Conclusions on Bollinger Trading](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h9) Let's get started with bollinger bands tutorial\! ## What Bollinger Bands are: Definition and History Let's dive into the history of the indicator. The very first mention of a tool similar to Bollinger Bands dates back to 1960. The well-known trading analyst Wilfrid LeDoux used a trading channel based on two moving averages as technical indicators in his trading system. The first band was built based on the highs, and the second — on the lows. The signals in the LeDoux’s trading system were both the expansion leading to the bands expand accordingly, or the contraction of the channel itself where the bands contract, following the security’s price movement to shape within it. #### John Bollinger [![LiteFinance: John Bollinger](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Mr_Bollinger_3.jpg?q=75&s=b7d10d153739e94479825a77723c4490) Funnily enough, at first John Bollinger did not even think about trading. He thought his future work would be on television. But while working as an operator at one of the Hollywood companies, he encountered some financial analysts and became interested in this occupation. Later, the future trader’s mother asked her son to help organize her investment portfolio. Starting then, Bollinger finally decided to be part of the world of stock trading. Combining his work as an operator at Financial News with training from experienced financiers, he quickly mastered trading and moved on to the position of financial analyst on the same channel. He did not become a TV star, but he gained fame thanks to successful trading ideas based on simple envelopes. The envelope is one of the oldest technical analysis indicators. It was built on the basis of a simple moving average and two bands located at an equal distance from this center line. Between 1984 and 1991, John worked on his own trading system based on the LeDoux strategy and the envelope indicator. John's brainchild was named after its creator — the Bollinger Bands. This technical analysis tool developed was based on a middle band known as the moving average with so-called volatility bands plotted above and below. However, unlike envelopes, the offset is not by a certain number of points, but by a percentage. [![LiteFinance: John Bollinger](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_5.jpg?q=75&s=1a3666c9577a136941abf1b50bf33094) The Bollinger Bands are shown in the [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/) chart. The red lines are the upper and lower boundaries of the channels. They are plotted based on the percentage offset from the blue middle band of the moving average. The main purpose of BB indicator is to determine a sharp deviation from the average direction of the current trend. > Next, we will analyze the techniques for using the Bollinger indicator in detail. In order to study the material as efficiently as possible, I advise you to go to the LiteFinance [demo account](https://my.litefinance.org/trading/) right now (you do not need to register), open any trading instrument and apply the Bollinger bands to the chart. Skim the Bollinger Band chart and see how it reacts to price changes. If you encounter any difficulties, we will do it together below. The Bollinger Bands indicator became widely known in comparison with other technical indicators after the mention in the book The New Commodity Trading Systems and Methods by Perry Kaufman published in 1987. The author of the indicator spoke about his brainchild and Bollinger Bands strategies only in 2001, in the book Bollinger on Bollinger Bands. The article that you are now reading is written on the basis of materials from these two books. I have extracted from them the most relevant and useful information adapted for modern financial markets. Enjoy the article\! ## Bollinger Bands Formula & Calculations [![LiteFinance: Bollinger Bands Formula & Calculations](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-1.jpg?q=75&s=b2e98fb6593b5b76cd09d4238a777303) Today, in order to draw Bollinger Bands in a chart, you just need to select the required indicator from the list. Before, a trader had to gather it piece by piece. The process is as follows: take the moving average as the middle line (hereinafter the MA) and build the upper and lower bands: one above the center line by some percentage distance and one below it. The main issue was selecting the optimal interval for the MA and the deviation of these volatility bands (Bollinger levels) from it. The author of the indicator looked for an effective way to select the interval for a long time. #### Marc Chaikin [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/stochastic-oscillator/marc__circle.png?q=75&s=9b4b94490b7f932b922ec7dfd324ef31) For some time he followed Marc Chaikin’s principles. Chaikin used a 21-day moving average for his bands offset up and down so that the resulting zone contains about 85% of last year's price data. However, he later realized that the key to success in establishing the width of trading bands is the degree of market volatility. To determine the offset of the waves from the moving average, John used the formula for the root-mean-square or standard deviation. This variable is usually denoted as σ (sigma). To calculate the standard deviation, the average closing price is calculated for a specified period. The resulting value is subtracted from each point of this closing price dataset. As a result, you will have a list of deviations from the average price. Some of these typical values will have positive values, others will be negative. The general principle is that the range of deviations is in direct proportion to the degree of variability of the series. Simply put, in a volatile market, Bollinger bands expand, and in case of consolidation, they narrow. At the next stage, we add up the list of data we have obtained. If we add negative and positive values, we end up with 0. To get a non-zero result, we need to get rid of negative values by squaring them. As a result, after adding up, we get the average absolute deviation. This amount is divided by the period for which the data was collected, and then we extract the root of the resulting value. We get the following formula for calculating the square deviation: [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/new-Deviation_8.jpg?q=75&s=7824a4651b1be4c86e02dc69c8b8d13b) σ — standard deviation; x — closing price; i — order number of the bar; μ — moving average; N — total number of points (period). If we translate all of the above from the math language into trading language, the obtained value of σ determines the area in which all candles close with a probability of 68.2% (if the indicator is based on closing levels) for the selected period. When the price breaks out of this area, it is outside the root-mean-square distribution — it becomes an anomaly in terms of mathematical statistics. What does this mean for the trader? We'll find out it out a bit later. As for the choice of the optimal moving average period, the classic version of the Bollinger indicator uses a 20-period MA. This range is approximately equal to the number of trading days in a month. If for some reason the period has to be shortened, in order to obtain the optimal width of the band, you need to cut the number of standard deviations. If the period is lengthened, the number of standard deviations must be increased. The need to adjust the calculation of the Bollinger Bands width may arise because of the peculiarities of the formula. After analyzing the largest markets, the author has derived the most convenient ratios for frequently used periods: \| \| \| \|---\|---\| \| Periods \| Multiplier \| \| 10 \| 1,9 \| \| 20 \| 2 \| \| 50 \| 2,1 \| Let me explain why you need these ratios. In most markets, when using 20 periods and 2 standard deviations, you can get coverage of 88-89%. As the period is shortened or lengthened, the coverage changes, which affects the analysis efficiency. To maintain coverage at 88-89%, Bollinger Bands should be plotted using a 1.9 ratio for a 10-bar period. This means you cut the band width from 2.0 to 1.9. With a period of 50 bars, respectively, you need to increase the width from 2.0 to 2.1. After selecting the multiplier and the period, you can calculate the Bollinger bands themselves. The formula for the top band is as follows: UB \= μ \+ (m \* σ), For the bottom band: LB = μ - (m \* σ), UB — upper band; LB — lower band; μ — moving average value; σ — standard deviation value; m — factor. As an example, let's calculate the value of one point of the upper Bollinger band. To simplify the calculations, let's take a period of 10 bars. [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_9.jpg?q=75&s=2b84d4985af193df36f687529e85adc9) Candles entering the period are marked with a blue rectangle in the chart. First, let's identify the closing levels of these candles in points, starting with the most recent. For convenience, I have rounded ten thousandths to 0: 1,18700; 1,17700; 1,16500; 1,14200; 1,13000; 1,12400; 1,12100; 1,11700; 1,12500; 1,12900. Therefore, the moving average is: \= (1,18700 + 1,17700 + 1,16500 + 1,14200 + 1,13000 + 1,12400 + 1,12100 + 1,11700 + 1,12500 + 1,12900)/10 = 1,14200 We can now move on to calculating the standard deviation: [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/standard_deviation.jpg?q=75&s=0ac8306048818f4738994a20dfc7ca89) Now we know the value of the standard deviation and can calculate the point of the upper Bollinger band above the last bar (take the multiplier 1.9 from the table above): 1,14200 + 1,9 \* 0,02404 = 1,18768. Knowing the standard deviation, we can calculate other points and draw the top line along them. The points of the lower line are calculated similarly. As you can see, manual calculations are too cumbersome. To simplify the Bollinger Band calculation, you can use an Excel spreadsheet, which I will discuss below. Now let's talk about the allowed parameters. From my own experience, I can say that it makes no sense to use the Bollinger indicator with a period of less than 10 and more than 50. If such a need arises, you need to change the timeframe, for example, switch from a daily to a four-hour chart or vice versa. In the initial stages, I recommend limiting yourself to a period of 20-30 bars. The author himself believes that his indicator works best in this range. In addition to the classic setting of this technical indicator, the use of Bollinger Bands varies since combined options are also possible to be implemented for better results. For example, a chart might contain two band indicators plotted using the same calculation period but with different ratios. In his book, the analyst gives an example of a chart with two volatility bands in 20 periods that differ in width by 1 and 2 standard deviations. [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_10.jpg?q=75&s=2410bb5a2bbbc65807cc0cf092657957) You can see this tool in the picture above. Visually, these two technical indicators coincide at the moving average line but have different widths. A narrower channel is built with a factor of 1.0, and a wider one — with a factor of 2.0. [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_12.jpg?q=75&s=e53ed30a1a797f47a2ed6e378d55b470) The second popular option for setting up the indicator is to plot BB of two different types. For example, one channel can be formed based on a moving average with a period of 20 bars and a width of 2 standard deviations. The second one has a period of 50 bars and a ratio of 2.1. If you think you already know how to use Bollinger Bands, you are wrong. All the fun is yet to come. Get a cup of tea and let's move on. ### Bollinger Bands Excel Sheet [Here you can find the Bollinger Bands Excel Sheet](https://docs.google.com/spreadsheets/d/1TfiWC5q9gVd_6T69ypexUwYNLgD1mWeF5xsR6tKnALY/edit?usp=sharing). It is designed to accurately calculate Bollinger Bands at a specific point in time. This tool can also be used to experiment with inputs to calculate the MA or the multiplier. [![LiteFinance: Bollinger Bands Excel Sheet](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_calculator_eng_17.jpg?q=75&s=5b832886260a740e3399580b650a2935) In order to use the table, you need to make a copy of it or download the Bollinger Bands calculator directly to your computer. The screenshot above shows the path: File / Make a copy or Download. [![LiteFinance: Bollinger Bands Excel Sheet](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_calculator_eng_19.jpg?q=75&s=55e7a4eaa8785e90bf5bdd92ca013895) The table is very simple. In column A, you fill in the purple cells. The formulas work for 50 cells, but there is no need to enter numbers in each one. Input values can be any numbers. For example: - closing levels; - opening levels; - bar highs; - bar lows; - weighted averages of each bar; - or any other numbers for your experiments. The number of values corresponds to the calculated period. If 10 cells are filled in, the calculation will correspond to a moving average with a period of 10. In column B, indicate the multiplier in the purple cell. The default ratio is 2, but you can enter any other number instead. Columns C, D and E contain the final result and a caption for the values: - standard deviation — σ; - upper band — UB; - moving average — μ; - lower band — LB. > Important\! All calculations are done automatically. You do not need to enter data manually in the blue cells in column E. ## How Bollinger Bands Indicator Works [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-2.jpg?q=75&s=3df11ee0373562b34f4ffd94360b0ba1) We already know that the Bollinger Bands indicator consists of three lines: a moving average, upper and lower bands. The latter are formed with an offset ranging from 1.9 to 2.1 standard deviations. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_22.jpg?q=75&s=8a581dbee104c9b054349d30fdf2529c) Setting up Bollinger Bands is pretty straightforward even for beginners. There are only two relevant columns in the Parameters tab: "Length" or the period for which calculations will be made, and the "Multiplier" factor. It only makes sense to change other settings within the classic Bollinger Bands if you want to experiment. For example, changing the source from the closing price to the opening price changes the traditional approach to building the indicator, but it may show an unexpectedly interesting result on certain trading instruments. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_24.jpg?q=75&s=f8c89290192f83412f0e30b053cb8b37) In the second "Style" tab, you can set the color of the Bollinger bands, the moving average, and the chart area between them. John suggests using two indicators in the trading process: - %b allows you to determine exactly where the price data is in relation to the Bollinger Bands. This tool will be useful when developing a trading system that uses the relationship between price behavior and the behavior of the upper and lower bands. - BandWidth analyzes the current offset width. This metric is very useful for finding the start and end points of a trend, and BandWidth is an integral part of the squeeze technique. I will talk about it in detail a bit later. First, let's take a closer look at %b. This tool is calculated by the formula: %b = (Last price - LB) / (UB - LB). - UB — upper band; - LB — lower band. If you look closely at this formula, you will understand that if the last price is located on the upper Bollinger bands, the calculation result will be 1. If it is located on the moving average, the %b value will be 0.5. And if the price falls and stops at the lower bands, the result of the above formula will be 0. In this case, negative %b is possible if the price falls and breaks out of the lower Bollinger bands. This signal can be interpreted both as a sign that the asset is oversold and as a sign of a trend reversal. A value greater than 1 is possible if the price goes above the upper Bollinger bands. In this case, it will be a signal either about an overbought asset, or about a change from a bearish to a bullish trend. In order to read these signals correctly, you need to use additional indicators as filters. The Alligator indicator is often used for this purpose. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_25.jpg?q=75&s=bd3e43905c59c8d3ffb51c878c50dd1c) In the chart above we can easily identify the m tops, and we can see that the price has gone above the upper band, i.e. %b must be greater than 1 (highlighted in the graph with a green oval). At the same time, Alligator does not show any crossings between its lines (in a blue circle), which indicates an early sign of an overbought asset and a possible trend change. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_26.jpg?q=75&s=b017b00d7fbf8c93d34f0e986c6d3bc3) In the next chart, the green oval marks an area where several candles in a row close below the lower band where we can identify the w bottoms, meaning that the %b will be less than 0. This can be both an oversold signal and a trend reversal signal. A little later, the Alligator lines cross, which confirms the trend change and lets us open a short position. We see that Alligator helps us correctly interpret the Bollinger signal. %b can also be used to identify shapes. We will talk about this later. Now let's move on to BandWidth, which analyzes — you guessed it — the current band width. It is determined by calculating the difference between the upper and lower bands and dividing the result by the moving average value. The formula looks like this: BandWidth = (UB - LB)/μ - UB — upper band; - LB — lower band; - μ — moving average. This signal is useful for detecting squeeze. In other words, it describes a situation when market low volatility has decreased to an abnormally lower level. > This situation can be described as the calm before the storm. Bollinger noticed that most trends are born when BandWidth is at its lowest. The market’s low volatility is like the calm before bad weather. The emergence of a sharp expansion of Bollinger bands and a strong price movement in such a situation indicates the possible formation of a new strong trend. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_27.jpg?q=75&s=e840ae2605c73fca606285620e2cf807) In the chart, the green oval marks the moment when the Bollinger Bands narrow, i.e. the market volatility decreases to a local minimum. As you can see, a sharp upside breakout occurs after this, which is the start of a bullish trend. BandWidth will also be very useful in determining the end points of strong trends. Heavy movements provoke a significant increase in volatility and the bands widen. Because of this, the level of dispersion increases and the Bollinger Bands expand. In the case of a bullish strong trend, after the channel narrowing, we will see a strong fall of the lower Bollinger band downwards against the main trend. This phenomenon is an early signal of a bullish trend reversal. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_28.jpg?q=75&s=26569f3b326fbf0cd221c4635e8a625f) The [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/) chart shows Bollinger Bands at the time of the trend development. The green rectangle marks the area when the lower line begins to move down during the formation of an upward trend. After that, in the area marked with a blue rectangle, the lower band reverses and begins to move up. A signal about the end of the trend appears. And indeed, after a while there is a transition from a bullish trend to a bearish one. ## Bollinger Bands Signals Earlier, we have already discussed the main signals of the Bollinger Bands. Their weak point is the need to filter and identify entry and exit points. The simplest solution to the first problem is a Bollinger filter. To solve the second problem — identifying the entry and exit points — in most cases finding shapes is the solution. A shape is a pattern formed by the market movement and the price volatility or a sequence of such movements. They are fairly easy to recognize in the chart. At the same time, for a better understanding, beginners are recommended to use Bollinger Bands. They smooth out minor market fluctuations, making it possible to focus only on significant price data reversals. Often, shapes precede a reversal or are themselves part of a trend reversal. I will tell you about the two most common shapes — W and M. Before we move on to examining the features of the shapes, have a look at their types. #### W-bottoms [![LiteFinance: W-bottoms](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/W_pattern_30.jpg?q=75&s=2751bf72c771b06039de255287459513) #### M-tops [![LiteFinance: M-tops](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/M_pattern_31.jpg?q=75&s=8a13394011411fdb7bbc13d8601e5597) The image above will help you understand what types of patterns m tops look like. The meaning of each of the presented shapes is unique. You can read more about this in Arthur Merill’s work with the name MW Waves. Here we will just take a quick look at these patterns and discuss how to work with them. All shapes can be grouped by to the signal the trader receives. Let's take a look how to read bollinger bands signals: - M15, M16, W14, W16 signal the formation of an uptrend. - M1, MZ, W1, W2 indicate the formation of a downtrend. - W6, W7, W9, W11, W13, W15, M2, M4, M6, M8, M10, M11 are reversal formations. These patterns indicate a trend reversal. - M13, W4 — in classical technical analysis these figures are called triangles. The direction of movement is determined by the side of the exit from the figure. - M5, W12 — in classic technical analysis, these are expanding triangles — the trend is determined after the breakout. - W6, W7, W9, W11, W13, W15 are most often part of the head and shoulders reversal formation. - M2, M4, M6, M8, M10, M11 are often components of the inverted head and shoulders pattern. - For the rest of the figures — M7, M9, M12, M14, W1, W3, W5, W8, W10 — signals are generated based on the general rules described below for W and M shapes. ### W-Bottoms (Double Downs) W-bottom is the most common pattern of transition to the bullish market. It is rarely seen in its pure form and often has a variety of deviations from the ideal shape. Bollinger developed a system for the psychological assessment of market sentiment based on the following pattern features: - Longer right side suggests that there is a sentiment of disappointment in the market. Many investors expect another retest of the lows, abandoning their positions and are extremely disappointed after the price soars up. - Equality of the lows on the left and right sides indicates a calm market. Investors make purchases after a repeat testing without much stress and soon get the expected profit. - If the low on the right side is lower than the low on the left, this situation is accompanied by fear and discomfort on the part of the masses of ordinary traders. Many of them went long at the previous low and ended up being kicked out of the market. Few of them will want to buy again, and the inflow of new money is limited to the formation of a new low point. The technical analyst Richard Wyckoff once called this phenomenon a spring, and this term is still used in the trading circles to this day. As for the interaction of the W-bottom with the BB, in most cases the left side of the pattern will touch the lower line or cross it. The growth following the local low will again return the candles to the inner zone of the bands. In this case, the crossing of the middle line of the moving average indicator should occur. The next move will be a second touch inside the lower Bollinger Band. It is important to pay attention here that the low in the considered strategy is determined by the lower Bollinger bands. If the first point crossed the band, and the second is formed within the channel, then the second low will be considered higher even if it is located lower in absolute terms. The retest price must be greater than or equal to the price of the first low. This is one of the most important requirements. To check whether it is met, you can use the previously discussed %b indicator, which allows you to accurately measure the position of candles relative to Bollinger bands. Another feature of W-bottoms is the presence of some smaller formations in their structure. A closer look at smaller timeframes reveals reversal signals. They form the beginning or end of the compound segments of a large figure. A W-bottom gives a clear signal of base formation. Therefore, these formations are often used to predict trend reversals and open positions. [![LiteFinance: W-Bottoms (Double Downs)](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_32.jpg?q=75&s=ff917205603f012316daa37b6087ae55) The chart depicts a growing W-bottom. This is a formation in which retesting occurs at a higher level. This is true only when analyzing the absolute location of the lows, i.e. the location relative to the coordinates of the chart. As for the Bollinger Bands, both low points cross the lower line at approximately the same distance. We can talk about the equality of the lows of the left and right sides and equilibrium in the market. After finding the W-bottom, you need to answer the question: "When and what positions should I open?" Experts recommend buying “strong” — wait for the moment when a bar with a volume and range above average is formed. This will be the signal to open a long position. The stop order should be set below the last low point (below the right side of the formation). Later it should be moved up. You can do this by eye or according to your own rules. For beginners, I recommend starting with stop losses set off from local lows. ### M-Tops While the most common base shape is a W-bottom, the tops can be double or triple in an M-top. The most common case of a triple top is the head and shoulders pattern, which is well known in technical analysis. It shows rapid growth and small rollbacks. This rollback forms the left shoulder. It is followed by another period of growth, which forms a new high, which ends with an even larger rollback. Quite often, this rollback completes near the previous local low. It forms the so-called head. Following the head, the right shoulder is formed. It represents a failed growth with an amplitude less than the previous one (ideally ends around the peak of the left shoulder) and a subsequent fall in price setting a new low. The right shoulder may be followed by another minor growth, bringing prices back to the vicinity of the lows of the left and right shoulder. Many traders often refer to these lows as the neckline. It is usually followed by a complete fall. [![LiteFinance: M-Tops](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_33.jpg?q=75&s=127f709b1fbfaf45575307e34c9c76e1) The chart depicts a head and shoulders formation. For clarity, I marked its outlines with green lines, and its components with numbers: 1. left shoulder; 2. head; 3. right shoulder; 4. backward movement before final decline. This example clearly shows that in practice the head and shoulders are rarely formed as a perfect structure. Deviation of one or more parameters is considered acceptable. When analyzing a figure, I also recommend paying attention to volume. On the left side of the figure, especially in the head area, it is characterized by high values. At this point, news is published preceded by rumors and expectations. After passing the peak of the head, activity decreases. A small surge of optimism can be observed on the right shoulder or the last jump up. In the chart, we see that at the moment of the formation of the right shoulder, traders are confused. Most of them argue that a reversal is inevitable. Therefore, the increase in volume occurs at the stage of the lowering of the right shoulder. In the first part of the last spike, the high volume can be explained by the struggle between bulls still hoping for growth and bears confident of the fall. After passing the peak, massive sales continue at the expense of traders, who at the last moment realized that further growth is impossible. Analysis of the formation using Bollinger signals is even more interesting. In the ideal version, the left shoulder goes beyond the upper line. The right one misses it by a little. The neckline in the right shoulder often stops at the moving average, and the first decline is in the vicinity of the lower Bollinger band. [![LiteFinance: M-Tops](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_34.jpg?q=75&s=9c0fbc1c0f22a36211b9a51b5ef50a19) In our graph above, only one condition is met strictly. Upon reaching its peak, the first shoulder is crossed by the Bollinger Wave indicator (blue arrow). The bands contract when the neckline is bounded by the lower band rather than the moving average. You can also say that the first decline stops at the lower line (red arrow). However, upon closer inspection, a slight overlap is noticeable. This once again confirms the fact that in real trading you will rarely come across perfect shapes. The first part of the head and shoulders formation is ideally an M-top consisting of a left shoulder and a head. Most often it is expressed in the form of an M15 or M16 shape. The next part is also an M and it includes the head and right shoulder (possible shapes are M3, M4, M7 and M8). The last phase (right shoulder and reverse growth before the final decline) can be formed in the form of an M1 or M3 shape. M-tops are useful for identifying the tops of sustainable trends. In the process of their formation, there is a reversal of the price movement, which opens up opportunities for effective entry into the market. Even more useful is the analysis of the interaction of the head and shoulders with the BB. It allows you to recognize the pattern before it is fully formed, which means opening a position at one of the high points and increasing the final profit from the trade. At the same time, starting from the right dip after the head, the structure has a downward slope. This means it can be analyzed using W shapes. Reverse growth often forms as W1 or W2 shapes. As you analyze, you can get deep into the details by identifying each component of the M and W at the following levels. There should be five of them in total. But with traditional analysis, there is no need to analyze all the constituent figures. It is enough to find a few of them. In addition, the formation is easy to read visually, as well as in terms of its interaction with Bollinger Bands and the impact on trading volumes. ### Three pushes to high In addition to the classic head and shoulders, you will often see a variation of this pattern, which Bollinger calls the three pushes to a high. It usually completes larger shapes. When analyzing this structure using Bollinger Bands, you can see the following patterns: - The first push goes beyond the upper bands. - The second push creates a new high and touches the upper level. - The third push may or may not form a new high. If a new extreme point is created, it will not be much higher than the previous one. In this case, the third push does not touch the upper Bollinger band. The highest volumes are observed at the first stage of the development of the three pushes to a high. Then the activity gradually decreases and in the final stage reaches a low. Let's take a look at an example. [![LiteFinance: Three pushes to high](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_35.jpg?q=75&s=e5973d7accd748e7d2db853599afedf5) In the EURUSD chart, I marked the direction of price movement with green lines. The peaks of the three pushes to a high are labeled with numbers. We will use them as serial numbers. The first push naturally crosses the upper Bollinger band. The second creates a new top. However, it is only slightly higher than the previous one. Because of this and as a result of the previous rapid upward movement, the second pattern is not realized. The third spike is also not much stronger than the previous ones. Its high touches the Bollinger band, but the end point of the candlestick is below it. A gradual decrease in volumes from the beginning of the formation to its end confirms an early reversal. I marked this phenomenon in the chart with a blue line. ## Bollinger Bands Strategies [![LiteFinance: Bollinger Bands Strategies](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-3.jpg?q=75&s=9f6e5479ec6787b20101b7fe5587c30b) In this section, I have collected the most popular Bollinger Bands strategies. We will look at various methods within the day, in the lowest timeframes, learn how to squeeze the bands and use their signals in conjunction with other indicators. I will separately talk about the Bollinger Bands strategies, which involve trend following in the presence of a breakout of important levels and additional reversal signals. ### Daily Trading with DBBs (Double Bollinger Bands) #### Kathy Lien [![LiteFinance: Kathy Lien](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Ms.Lin_37.jpg?q=75&s=e0d441af2509483dd4d5a3e398ef0571) This method appeared as a result of the efforts of the exchange analyst Kathy Lien. In her book, The Little Book of Currency Trading. How to Make Big Profits in the World of Forex, she described an unusual technique involving the use of two Bollinger Bands of the same type in the same chart. To understand what this is about, let's add them to the chart. The first indicator will be with a period of 20 candles and two standard deviations. For the second indicator, we use slightly different Bollinger Band strategy settings: a 20-bar period and one standard deviation. I also recommend assigning its own color scheme for each indicator, so that it’s easier to compare their readings in the chart. [![LiteFinance: Kathy Lien](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_38.jpg?q=75&s=7fd13367e488c91fb9066ee5fa9298ec) The final Bollinger indicator consists of five lines: - top (red) line with two standard deviations; - top (green) line with one deviation; - moving average (blue); - bottom (green) line with one deviation; - bottom (red) line with two deviations. All bands, except the middle band of the moving average, form trading zones that we will use to open trades: - buy zone — between the upper red Bollinger band and the upper green line; - neutral zone — between the upper green and lower green line; - sell area is between the lower green and lower red line. The price being in the buy zone indicates the strength of the current trend. This means that there is a high probability that the price moves will go up for some time. For trend trading, Ketty recommends opening long positions when the close of the candlestick hits the upper quarter of the double Bollinger indicator. In this case, the two bars preceding it should close in the neutral half. Keep a long position as long as the candles close within it. On the other hand, if the price moves in the sell zone, it indicates the strength of the bearish trend. By analogy, here you should open short positions (provided the closing points of the two previous bars are in the neutral half) and keep them until the candle closes return to the neutral zone. For an uptrend, we should identify the m tops and place a stop order at the lowest price of the first bar that broke the upper bands of the neutral zone. For a downtrend, the stop order position is determined by the high of the first bar that breaks the lower line of the neutral zone. The initial target is set at a distance of two stop losses. When the distance of one stop loss is passed, Kathy recommends moving it to breakeven. Then it should be gradually moved along with the potential target following the price moves and closed manually when the last candlestick closes in the neutral zone. After the price has entered the neutral zone, we can consider two possible scenarios: 1. The price will move to one of the trading quarters — usually this happens when a trend reverses. 2. The price will consolidate in the neutral zone — there will be a “calm before the storm”. You can prepare for a strong movement in either direction. The price being in the neutral zone demonstrates uncertainty. You should refrain from entering the market and wait for the price to close in one of the quarters. Alternatively, you can go to a lower timeframe or trade short-term trades within the channel. In the latter case, the [Grid trading strategy](https://www.litefinance.org/blog/for-professionals/grid-trading-a-complete-overview-of-forex-grid-trading-method/), which I talked about in one of the previous materials, may come in handy. Now let's look at the classic strategy Double Bollinger Bands through an example. [![LiteFinance: Kathy Lien](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_39.jpg?q=75&s=05a27fa008ef00496d24ffa788d2ef6c) In the chart, the bar marked with a blue oval closes in the upper quarter. A buy signal appears. Open a long position at the close of the candlestick at 1.17873 points (blue line in the chart). Set the stop loss at the low of the candle that has broken through the first upper line. It is marked with a red line in the chart. I’ve marked the target with a green line, it’s located at two stop loss lengths. [![LiteFinance: Kathy Lien](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_40.jpg?q=75&s=20c4918276448760caf9d114fe9acc64) In the future, you can stop at the target level. But it is much better when the price grows to move the stop loss to the breakeven level, leave it at this position and wait for the signal to close the order or move it dynamically with the target. As long as the price remains in the upper quarter, we leave the position open. In the chart above, the borders of this period are between the blue and orange ovals. Then a downtrend bar forms — see inside the orange oval. It closes in the neutral zone, which is a signal to take profit. The closing price is marked with a black line and is 1.18755 points. The resulting profit will be equal to 1.18755 - 1.17873 = 0.00882 points excluding spread. If we had stuck with the option of moving the stop loss and target, the close would have occurred automatically at the 1.18877 level marked with a red line. In this case, net profit excluding spread would be 0.00886 points. It is recommended to use the strategy of double Bollinger bands on trend instruments. You can use almost any timeframe — from M15 to D1. Here's what experienced traders think of the strategy: [![LiteFinance: Kathy Lien](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_comment_42.jpg?q=75&s=2b878118dd98e1be00aba06f82502ffa) ### Bollinger Bands Scalping [This strategy](https://www.litefinance.org/blog/for-beginners/trading-strategies/scalping-forex/) works on any exchange instruments. The recommended chart timeframe is M1 to M15. We will receive the main signals from Bollinger Bands. We will use them to identify opportunities for opening and closing positions. [![LiteFinance: Bollinger Bands Scalping](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_44.jpg?q=75&s=82c0d1be5ddaee1a72b2d5c17eed6a4a) The picture above shows how to set up the Bollinger Bands trading strategy. The parameters are standard — the period of the middle band of the moving average of 20 bars and two standard deviations. The [RSI indicator](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/rsi-relative-strength-index/) is used as a signal filter. [![LiteFinance: Bollinger Bands Scalping](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_46.jpg?q=75&s=40dbafdb7ad4a34bccedcbb194ea44bf) I recommend using the 8 bar period for it. Go to the indicator settings, open the "Parameters" tab and set 8 under the "Length". [![LiteFinance: Bollinger Bands Scalping](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/RSI_settings_48.jpg?q=75&s=5677540d80b2fa60c9cc2e885d4d4808) We leave the upper and lower limits as is — 30 and 70. To open a long position, the following conditions must be met: 1. the price candlestick touches or breaks the lower Bollinger band; 2. RSI level is below 30; 3. one of the following candles will close within the channel. The stop loss is set just below the low level of the breakout candle. The gap should not be less than 10 points. The optimal ratio of take profit to stop loss when using this strategy is 0.6. Therefore, the minimum target should be at least 6 pips above the buy price. To open a short position, the following conditions must be met: 1. the candle touches or breaks the upper band; 2. RSI level is above 70; 3. enter when one of the following candles closes within the channel. Set stop losses and take profits similarly as with long positions. Let's consider the application of the strategy using an example. [![LiteFinance: Bollinger Bands Scalping](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_49.jpg?q=75&s=4a25aced35798c8c5e716d56b519ac69) In the five-minute [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/) chart, a blue circle marks the area where one of the candles touches the lower band. At the same time, the RSI is below 30%, confirming a buy signal. We open a long position immediately after the close of the next upward candlestick within the channel. The opening price is 1.18805 points (green line). The stop loss is set below the low of the touch candle. Since there are several such bars in a row, we take the smallest low and set the stop loss just below it. Set the take profit slightly above the buy price so that it is about 60% of the stop loss. [![LiteFinance: Bollinger Bands Scalping](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_50.jpg?q=75&s=9d3392c87745a46738f75602e7006b8a) The take profit is crossed on the next candlestick after the opening. Thus, the long position is automatically closed at the price of 1.18868 points. The profit from the trade is 1.18868 - 1.18805 = 0.00063 points. ### Bollinger Band and Stochastic Strategy Bollinger trading with the [Stochastic indicator](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/stochastic-oscillator/) is similar to the previous strategy using the RSI. We will use the bands to detect potential entry points, and the oscillator readings to filter signals. Unlike the previous one, this trading method is more like a channel strategy, with the only difference that the Bollinger channel will be used for trading decissions. Therefore, it is very important to pay special attention to setting the indicator bands. As an example, we will use standard parameters — a 20-bar moving average and a multiplier with a factor of 2. Your input data may be different. Depending on the trading instrument, timeframe and market peculiarities, select the period and multiplier in such a way that the moving average of the indicator shows the correct trend direction. At the same time, the price should not be outside the channel for longer than several candles. [![LiteFinance: Bollinger Band and Stochastic Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Stochastic_Oscillytor_53.jpg?q=75&s=60ab7d89afc54bc3e9b99de143f88d7f) To add a Stochastic, click on the "Indicators" button in the upper part of the online terminal window. Select "Stochastic Oscillator" from the dropdown list. [![LiteFinance: Bollinger Band and Stochastic Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Stochastic_Oscillytor_settings_55.jpg?q=75&s=e61356a4a0384af1b1b3ffa0e63ba975) We will use the following default parameters for the Stochastic: periods 5 for line K and 3 for line D, length 3. You can change the colors of the K and D lines, as well as the upper and lower limits in the "Style" tab. By default, K is orange and D is blue. Conditions for opening a buy order: - the candlestick crosses or at least touches the lower band; - the oscillator shows oversold (less than 20%); - line K crosses D from bottom to top; - buy after the close of the signal candle. Conditions for opening a sell order: - the candlestick crosses or at least touches the upper Bollinger band; - the oscillator shows overbought (more than 80%); - line K crosses D from top to bottom; - Sell when the signal candle closes. Stop loss is set with an offset of at least 10-20 points from the low of the breakout candle in the case of a long position and the high in the case of a sell position. Set take profit on the opposite Bollinger band. When buying, take profit will be located on the upper bollinger band, and when selling — on the lower one. Let's consider the application of the strategy using an example. [![LiteFinance: Bollinger Band and Stochastic Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_56.jpg?q=75&s=3bf6c4bfa18b034d247a40e05f5e6c6a) In the area of the chart marked with a blue oval, the candlestick crosses the lower band. Here line K crosses D, and the Stochastic itself shows oversold below the 20% level. [![LiteFinance: Bollinger Band and Stochastic Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_57.jpg?q=75&s=c7c062ccf209291bd5fe5e3324131806) At the opening of the next candle, we enter the market with a buy position at 1.08752 points (green line). Set the stop order a little lower (red line). [![LiteFinance: Bollinger Band and Stochastic Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_58.jpg?q=75&s=c2efcd6b99216c37a50e0502fdc2fcfc) Place the take profit on the upper Bollinger band. It is marked with a blue line in the chart. After a while, one of the candles reaches it and the order is automatically closed at a price of 1.09100 points. Thus, the profit from the trade is 1.09100 - 1.08752 = 0.00348 points. If you are going to use this strategy on small timeframes, I recommend to monitor more stable trends additionally. This way you will avoid entering the market against powerful trends. ### Using EMA and WMA instead of Simple Moving Average Many traders often ask: "Can I use a weighted average or exponential instead of a moving average?" In theory, any average is suitable for plotting BB. When trying to answer this question, John Bollinger himself did a comparative analysis of various averages and came to the conclusion that the classical moving average is the simplest and most accurate tool for constructing reference points. Let's compare the indications of moving averages using an example. [![LiteFinance: Using EMA and WMA instead of Simple Moving Average](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_59.jpg?q=75&s=cdc069dde51997e2f76d6abeb680350e) In the chart, the blue middle band channel represents standard bands based on a 20-period moving average. The orange channel, in turn, was built on the basis of the 20-period EMA. As you can see, in times of high volatility, where the bands expand significantly, these methods give different results. [![LiteFinance: Using EMA and WMA instead of Simple Moving Average](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_60.jpg?q=75&s=72489b691d01c3fec2ed84c3cef6af08) And in this chart, the red channel marks the bands plotted by the WMA, and the blue one — by the middle line of the moving average. As you can see, in this case the differences are noticeable, especially at the extreme points. Both examples show that using WMA and EMA instead of a moving average can give very unexpected results. Therefore, these averages are not recommended for Bollinger trading. ### Bollinger Band Squeeze Bollinger Band strategy is driven by volatility. Because of it, the bands widen or contract. To determine the degree of compression, John created the BandWidth indicator. It determines volatility as a function of the average and works great on any time frame. BandWidth is calculated by the formula: BandWidth = (UB - LB) / μ UB — upper Bollinger line; LB — lower Bollinger line; μ — moving average value. You can download Bollinger Bandwidth for MetaTrader 4 [here](https://www.mql5.com/en/market/product/4768). Let's look at the process of installing and setting up the indicator: Download the archive from the link above and unpack it. We need the dinapoli-BandsBandwidth.mq4 file. [![LiteFinance: Bollinger Band Squeeze](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490) Open the File tab in the MetaTrader4 top menu. Next, select the item "Open Data Folder". [![LiteFinance: Bollinger Band Squeeze](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_64.jpg?q=75&s=1c1480ca125e4d6c936ab2c64a2c8795) File explorer will open with the target folder. In it, select the "MQL4" folder. [![LiteFinance: Bollinger Band Squeeze](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_66.jpg?q=75&s=6b359921bc938e0065f9fa2af34153e1) Then select the "Indicators" folder. Copy the unarchived BandsBandwidth.mq4 file to this directory. Restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/). [![LiteFinance: Bollinger Band Squeeze](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_68.jpg?q=75&s=f5987b7b40d35f9e5f55d9e804b28926) At the top of the terminal, open the "Insert" tab, then go to the "Indicators" item. Click on the "Custom" item and select the name of the newly installed indicator. In our case, it’s BandWidth. [![LiteFinance: Bollinger Band Squeeze](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_70.jpg?q=75&s=75d3e116194cf0fd0003536d966eba9f) After that, the indicator window will appear. By clicking on the OK button, you launch the indicator with default settings. ## Bollinger bands best settings You can also change the indicator settings. Best Bollinger band strategy setting is: - Common — these are the technical settings for the indicator. They are best left as default. - Inputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings. - Colors — here you can set up the color, thickness and look of the indicator lines. - Levels — this item allows you to set levels. For example, the level, upon crossing which you need to buy, etc. Let's look at the indicator's application using an example. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_71.jpg?q=75&s=42e9aa07df1a0efb3809e9c9607fe4cc) The Bollinger indicator is shown in the chart with red lines. At the bottom, the blue line shows BandWidth. The principle is simple: the higher the line, the greater the expansion; the lower the line the stronger the narrowing. With blue arrows, I marked the narrowing areas, which correspond to the minimum typical values in the BandWidth chart. The Bollinger Bands Squeeze strategy shows good results during narrowing and expansion. It is a channel trading method. The idea is to open positions on a rebound from one of the levels. The strategy works well on any exchange instruments with a timeframe of M30 and higher. We need: 1. Bollinger Bands indicator with the following settings: 20 periods and two standard deviations. 2. BandWidth indicator. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_73.jpg?q=75&s=60bc382b97c970ab20037239c2cc1471) To add the Bollinger Bands indicator to the chart, open the "Insert" tab in the main menu, then "Indicators", "Trend" and in the submenu that opens, select Bollinger Bands. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_75.jpg?q=75&s=fecbd021c34eba2b610ce98288ea59f8) This will open the settings window. In it, we will set the period equal to 20 bars and two standard deviations. As John Bollinger argued, periods of low market activity are cyclically replaced by periods of high volatility where the bands widen. This statement is the essence of the Bollinger Squeeze strategy. The signal for an early entry into the market is the narrowing of the BB. We will identify it using BandWidth, which demonstrates its lowest values during this period. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_76.jpg?q=75&s=e3e2c8f2a8ef312d81e4f8c16b95e989) In the EURUSD chart, the blue arrows indicate a narrowing. Please note that the BandWidth is at its lowest during this period. The next goal is to identify when the narrowing ends. The beginning of the movement is evidenced by the breakout of one of the Bollinger bands. For a bearish trend, this will be the crossing of the lower level, and for a bullish trend, it will be the crossing of the upper level. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_77.jpg?q=75&s=72f1bcf81434c4553bb0a1c678dc5810) In the chart, I have marked the moment of the breakout of the lower level with a red arrow. This signal indicates the beginning of a bearish trend. You can set the stop order, as in previous trading methods, at the high or low point of the breakout candle. The initial take profit must be at least twice the stop loss length. Since we are talking about trend trading decissions, it makes sense to use the trailing stop and wait for the signal of the trend end. This signal can be one of the patterns described in the analyst's book or another narrowing of the channel. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_78.jpg?q=75&s=b4cadccbb3b06b088ccda23753cee73c) The next narrowing of the channel is marked by green arrows in the chart. It signals a reversal, which means it's time to close the short position. > Important\! During the squeeze, one unusual phenomenon often happens that confuses most beginners. This is a false breakout that occurs in anticipation of the end of the squeeze. At this moment, the chart makes an intense but short-term movement. After that, it also reverses sharply and starts to move in the direction of the emerging trend. This phenomenon can also be used as a signal for the end of market consolidation. In order not to be fooled by a false breakout, don’t jump to conclusions. Wait a bit until the movement develops so that there is no doubt that a new trend is forming. Experienced traders often derive additional profits from false breakouts. To do this, they open a position at the very beginning of the movement. After that, a trailing stop is set in such a way that it falls into the breakeven zone as soon as possible. Further moving of the stop order in the direction of the candlestick formation will give profit when triggered. ### Bollinger Bounce This strategy is suitable for trading opportunities on timeframes from M30 to H4. It is based on two popular tools: the Bollinger Bands indicator and the RSI. The essence of the trading system boils down to finding a price bounce, which is formed during the development of a trend. [![LiteFinance: Bollinger Bounce](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/indicator_setting_81.jpg?q=75&s=b250be1c0f49c39f7febf40320e534eb) First, let's add Bollinger Bands and RSI to the EURUSD chart of [LiteFinance online terminal](https://my.litefinance.org/). To do this, click on the "Indicators" button at the top of the chart. Then, in the menu that opens, click on the "Bollinger Bands (BB)" and "RSI" links. Now let's move on to setting up the tools. For Bollinger Bands trading strategy, we will use standard parameters: 20 bar period and 2 standard deviations. For RSI, we will also leave the default settings: - length — 14; - limits — 30 and 70. [![LiteFinance: Bollinger Bounce](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_85.jpg?q=75&s=00d002b653ea7cfc38066093cf948096) Let's modify the RSI a little by adding a horizontal line at the 50 level. The Bollinger Bounce strategy involves trading on developing trends. The direction of price movement does not matter. In an uptrend, we will look for the moment when the price action rolls back down, touches or almost touches the lower band. In a downtrend, on the contrary, we need a moment when several candles go up and stop at the border of the upper band and identify the m tops. Next comes the RSI. We will use it to understand how the instrument is strengthening or weakening in its value. In an upward trend and downward rollback, the signal is confirmed when the indicator line is within 30-50. Ideally, it goes up. Accordingly, in a downtrend and an upward rollback, the RSI should be between 50 and 70 and going down. If the main trend is upward, we enter the market at the close of the subsequent bullish (white) candlestick. If the trend is downward, enter after the close of the bearish bar. If the movement is too strong and you are afraid to miss a significant part of the movement, you can move to the next smaller timeframe and wait for the bar to close on it. Place stop loss a little behind the touch point of the Bollinger Band indicator. It is recommended to place take profit at the level of the opposite band. Let's see how the strategy works though an example. [![LiteFinance: Bollinger Bounce](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_86.jpg?q=75&s=e78f60ce1c73f98047f04406553c5f81) The [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/) chart shows an uptrend. In the place of the supposed bounce, one of the bars touches the lower band (green oval area). In this area, the RSI moves in the direction of the trend and is located in the optimal range from 30 to 50 percent. Therefore, we can talk about a signal for the upcoming bounce. [![LiteFinance: Bollinger Bounce](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_87.jpg?q=75&s=3c3056b7a1b0c1c77baf85a031f2ad79) Following the touch candle, a bullish bar is formed, signaling the start of a bounce. At its final point, open a long position at 1.09042 points (green horizontal line). Set the stop loss (red line) slightly behind. Take profit is placed at the level of the upper band (blue line). [![LiteFinance: Bollinger Bounce](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_88.jpg?q=75&s=4aede2bc30e124fd6763ed289c4dc203) The position closes by take profit (blue line) upon reaching the level of 1.10031 points. The profit from the trade was 1.10031 - 1.09042 = 0.00989 points. ### Bollinger Band Breakout Strategy Many experts agree that strategies based on breakout signals are the most effective. The Bollinger Bands indicator is among the best indicators for tracking and predicting future impulses. This is noted by D. Rooney, technical analyst and trader with ten years of experience, winner of an award in writing trading systems. [![LiteFinance: Bollinger Band Breakout Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_comment_89.jpg?q=75&s=569b81eebad1dc4c796c23825491fb6f) One such trading system is the Bollinger Band breakout strategy. It is equally effective on both 5-minute and weekly timeframes. This strategy is the complete opposite of the Bollinger Bands bounce strategy. The founder of breakout trading is Bruce Babcock, the author of the intuitive trading theory. John Bollinger liked his approach to trading volatility breakouts and decided to adapt it to his indicator. The key to success is the correct choice of timing to enter the market, namely, the moments of lowest volatility. To determine the narrowing, we will use the already familiar BandWidth indicator. I’ve talked in detail about this tool, its installation and setting up in the section on narrowing. If the BandWidth narrows, the trader should be prepared to see a breakout of one of the Bollinger Bands. We enter the market as soon as one of the candles closes above or below the line. The direction of the position coincides with the direction of the breakout. This means, if the upper band is crossed, we open a long position, and if the lower one is crossed — a short position. Stop orders are placed just below the breakout candle. Then, at regular intervals, the stop loss is pulled up by the price movement distance. Such intervals will be different for each of the timeframes. In daily charts, the optimal nudge time would be the opening of trades at the beginning of the day. You can also use the trailing stop, which changes the stop loss value at the close of each candle. Breakout Strategy is almost identical to Bollinger Squeeze. But there is also a significant difference. It’s in an alternative parabolic way of exiting the market. In this case, the stop loss is set in the breakeven zone during the growth process. We exit the market when the opposite band is touched: for the bullish movement — the lower bands, and for the bearish — the upper band. Let’s look at this option through an example. [![LiteFinance: Bollinger Band Breakout Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_90.jpg?q=75&s=9241fd7d2e1e21d1f4672ea1a32d5109) For the breakout strategy, I took the same chart that was used to demonstrate squeeze trading. The blue arrows indicate the narrowing area, the red one shows the candlestick crossing the lower level. When it closes, we enter a short position. With the blue line, I marked the entry price of 1.00002 points. And the red line is the initial stop loss. [![LiteFinance: Bollinger Band Breakout Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_91.jpg?q=75&s=4ac8ab44b357ebf0731473ed032c17bd) During the development of a bearish trend, we move the stop loss to the opening price (in reality you need to move it a little lower to compensate for the spread). The new stop loss is marked with a red line. I also left the original one intact for clarity. It is now marked with a semi-transparent red line. The position is closed when the candlestick touches the upper Bollinger band. This event is marked with a red cross in the chart. The closing price is marked with a green line and is 1.09410. This trade should have brought us a profit of 1.09410 - 1.00002 = 0.09408 points. ### Trend Trading Indicator Strategy The essence of this approach boils down to predicting the birth of trends using price strength analysis. The analyst considers the ability of the chart to approach the upper band during an upward movement and the lower one during a downward movement as a sign of strength. Additionally, the strength is confirmed by the MFI readings. To measure how close the price action is to one of the bands, we will use the Bollinger Bands %b indicator. I talked about it in detail in the section "How the Bollinger Wave Indicator Works". Let's look at the process of installing and setting up the indicator: 1\. Download the Bollinger Bands %b indicator from [here](http://www.mql5.com/en/code/7165). [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490) 2\. Open the "File" tab in the top menu of MetaTrader4, select the "Open Data Folder" item. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_96.jpg?q=75&s=31d8e5b30d30bc5e3b8fd592a6db2faf) 3\. File explorer will open with the target folder. In it, select the "MQL4" folder. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_98.jpg?q=75&s=f48c057e6759a9ed91390d2d7aa67d82) 4\. Select the "Indicators" folder. Copy the unarchived Bollinger\_Bands\_3b.mq4 file to this directory and restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/). [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_100.jpg?q=75&s=a47821411cbbbd0b57c5e687e5da5ee5) 5\. At the top of the terminal, open the "Insert" tab, then go to the "Indicators" item. Next, click on the "Custom" item and select the name of the newly installed indicator — Bollinger\_Bands\_3b. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_ustanovka_indicatora_102.jpg?q=75&s=fa9f0c3193084e73ce655f7650cd4ef6) 6\. The indicator window will appear. By clicking on the OK button, you will launch the indicator with default settings. The editable parameters of the tool are in the following tabs: - Common — technical settings for the indicator. They are best left as default. - Inputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings. - Colors — here you can set up the color, thickness and look of the indicator line. By default, it is bright yellow, so it is better to immediately change it to a more vivid color. - Levels — this item allows you to set levels. For example, a level, at the crossing of which you need to buy, etc. In the case of our strategy, it makes sense to add levels 0.8 and 0.2. - Visualization — here you can select the timeframes on which the indicator will be displayed. You can download MFI from [here](https://www.mql5.com/en/code). The installation principle for this instrument is the same as for Bollinger Bands %b. Most of the settings are the same as well. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_104.jpg?q=75&s=bb9b53b7f6c02d6b052a4d57a1e1fa0e) The only difference is in the "Inputs" tab, where you can only change the period. For trend trading with MFI, it is recommended to set a period that is half the period of Bollinger Bands %b, which for us is 10 bars. The tool itself is designed to measure the intensity with which funds are invested in a security’s price or withdrawn from it. Its full name reads as the Money Flow Index. Within the described trading system, we will only be interested in levels above 80 and below 20 signaling a potential market top and bottom. We also need classic Bollinger Bands trading strategy with standard settings: 20 period and 2 standard deviations. Conditions for opening a long position: - Bollinger Bands %b is in the range from 0.8 to 1. - The MFI chart is above 80. We enter after the completion of the growing bar. Stop orders are set at the low price with a two candlestick offset, counting from the bar with an open position. Conditions for opening a short position: - Bollinger Bands %b is in the range from 0 to 0.2. - The MFI chart is below 20. We enter after the completion of the descending bar. Stop orders are set at the high of the candlestick with an offset of two bars from where the position was opened. In the process of the market movement along the trend, the stop order should be moved to a break-even position. We take profit when one of the bars crosses the Bollinger Band opposite to the trend direction. For an upward movement this will be the lower Bollinger bands, and for a downward movement it will be the upper one. Let's look at an example. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_105.jpg?q=75&s=4bdb7fe36d01376c63c07d4e067eb13d) The [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/) chart shows a downward trend movement. The blue arrows mark the candlestick in which the Bollinger Bands %b ranges from 0 to 0.2, and the MFI chart is just below 20. Both conditions for opening a short position are met. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_106.jpg?q=75&s=2b6a724c7b41a8a526810fa6067b6678) Enter the market at the close of this bar at 1.09731 points (blue line). Stop-loss is placed at the candlestick low with a two-bar offset from where the position was opened (red line). [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_107.jpg?q=75&s=364fdfc33b8e1ee2be30c3f7cd2d3217) When the trend develops, we move the stop loss to a breakeven position (red line). For clarity, I marked the initial stop level with a transparent red line. Then the price touches the upper band opposite the green cross. At this moment, we close the order at 1.09402 (green line). The total profit is 1.09731 - 1.09402 = 0.00329 points. Some traders prefer to use an alternate version of the trending strategy that uses [MACD](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/macd-indicator-forex-trading/) instead of MFI. This indicator shows really good results on some instruments. So if you want to find the ideal trading method for several of the most commonly used currency pairs, it makes sense to test the strategy with both MFI and MACD. ### Bollinger Bands Reversal Strategy This strategy aims to predict trend reversals by comparing the touch of the Bollinger Bands with the behavior of indicators. First of all, we need a Bollinger indicator with standard settings. I’ve described earlier how to add it to the MT4/MT5 chart. We also need the MACD oscillator. It is available in MetaTrader by default. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_109.jpg?q=75&s=8eedf9a7ab940d4b02420c0fac1a6d3d) To add this instrument to the chart, click on the "Insert" button, then "Oscillators" and select MACD in the drop-down list. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_110.jpg?q=75&s=895c9a0f8c54f44b3ca91a8b400d10d7) A new window with the settings will appear. The period of the fast EMA should be set at 21 bars, the slow one at 100 candles, and the signal line — at 9. You can do this in the "Parameters" tab. In the "Colors" tab, you can change the colors of the histogram and signal line. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_112.jpg?q=75&s=68b3cbcfecfbfb54d434ceb0045e28f5) For convenience, in the "Levels" tab, add a new value "0". The third indicator will be the Bollinger Bands %b, which is already familiar to us from the previous strategy. I have already described its installation and setting up. It is standard. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_115.jpg?q=75&s=b477edf71d65a0c1cc51618d808712a8) In the trading process, we will need to determine the levels 0.95 and 0.05. So let's add them to the indicator chart. Open a long position when the following conditions are met: 1. The candlestick touches the lower Bollinger band; 2. Bollinger Bands %b ranges from 0 to 0.05; 3. MACD is above zero. Open a short position if the following conditions are met: 1. The candle touches the top band, 2. Bollinger Bands %b ranges from 0.95 to 1, 3. MACD is less than 0. Place the stop loss at the extreme reversal point, and in the process of the new trend development, move it to the breakeven zone. A signal to close can be a narrowing, the appearance of conditions for the next reversal, or touching of the Bollinger Band opposite to the direction of the main movement. Let's look at the strategy using an example. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_116.jpg?q=75&s=8bd913294fdc085008944512ad35eff5) In the chart, blue arrows mark the moment when one of the candles touches the upper band, Bollinger Bands %b is in the range from 0.95 to 1, and MACD is less than 0. This is a clear signal to enter the market. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_117.jpg?q=75&s=76fcc1974bc51ea3c2a042edd9af2c3d) At the close of the bar, open a short position at a price of 1.10447 points (green line). Wait for the appearance of the high price values at the reversal in the vicinity of the candlestick and set a stop loss (red line) at this level. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_118.jpg?q=75&s=4e4381a7a61571bc997e13afaef01fb9) Move the stop order to the breakeven zone (red line). I’ve marked the previous stop loss value with a semi-transparent red line. The development of the downtrend ends. The candlestick marked with a red cross crosses the upper border of the channel. After detecting the signal, close the position at a price of 1.09831 points (green line). The profit from the trade is 1.10447 - 1.09831 = 0.00616 points. ## Bollinger Bands Screener For effective profitable trading, it is important to always be on alert and monitor the market situation. While accessing the market is easy now even from a smartphone, novice traders often have problems with the choice of an instrument for trading. Screeners help you solve this problem — these are services for tracking trading instruments according to user-specified criteria. With their help, you can not only save time on market analysis, but also choose the best moments for entry and exit. One of the best quality screeners is offered by tradingview.com. [![LiteFinance: Bollinger Bands Screener](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_screener_121.jpg?q=75&s=be1630023d9dad927ab1d79d3745689f) Here you can set up filters by technical and fundamental parameters. For your convenience, in the upper part of the window there is a search bar for parameters by name. All filters are divided into three categories: - common; - fundamental; - technical. As part of Bollinger trading, we are interested in technical filters. [![LiteFinance: Bollinger Bands Screener](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_screener_123.jpg?q=75&s=02d1af5c015d1cc88bb62797572fa1dd) In particular, here you can select assets whose price action is located near a certain level of the upper or lower Bollinger band, such as a security’s price for example. In this case, you can set both standard parameters (higher or lower) and more complex ones: for example, higher or equal, crosses up and down. You can even configure the Bollinger indicator so that it will work with an alert and send trading signals if a specified condition is met. [![LiteFinance: Bollinger Bands Screener](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_skriner_125.jpg?q=75&s=c8d9c6065cdb9c6a630e32afa0eb4b90) You can refine your search using other tools that we used in the described strategies. For example, you can use the RSI readings to select trading instruments for which you should enter the market right now. ## Bollinger Bands Tips & Rules [![LiteFinance: Bollinger Bands Tips & Rules](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-4.jpg?q=75&s=faac801b313b948891eeb14d449d45fc) Whichever strategy you use, certain basic rules should always be followed when working with Bollinger Bands. They were deduced by the author of the indicator John Bollinger and listed in his book. I chose the most relevant ones and put them in a simpler language: - Bollinger Bands should be used in conjunction with other technical analysis tools. - You can use a variety of indicators with Bollinger Bands that determine momentum, market sentiment, activity, intermarket data, etc. The indicators used should not be connected to each other. For example, trend and price volatility are used in the calculation of the bands. Their use for additional confirmation of price action behavior is meaningless. - The default indicator parameters are applicable for most instruments, timeframes and trading methods. But this does not mean that you cannot use other settings. It is important that the middle band of the moving average always describes the medium-term trend well. If it lengthens or shortens, the number of standard deviations should also be increased or decreased. For example, for fifty periods it is better to use a ratio of 2.1, and for 10 periods — 1.9. - Bollinger Bands are good for confirming chart patterns such as triangles, double and triple tops and bottoms, head and shoulders, and other W-shaped bottoms and M-shaped tops. - With a directional price movement, it can often move along the upper line and in the case of a bearish trend — along the lower one. - Bars closing outside the bands are statistically more likely to indicate the continuation of the trend, rather than its end. - The price touching the band does not in itself signal a buy or sell. Therefore, it should be considered only in conjunction with the readings of other indicators. - The Moving Average in Bollinger Bands is not a substitute for strategies that involve SMA, EMA and other types of averages. - The Bollinger Bands %b indicator will help determine the position of the price relative to the Bollinger Bands. - The BandWidth indicator is recommended to be used together with Bollinger Bands. It helps identify the “calm before the storm” and signs of trend changes. - Bollinger Bands work on any timeframe and any market conditions. An important requirement for the correct use of the indicator is sufficient price activity and calibration of the parameter settings based on the history of its movement. - Bollinger Bands do not provide clear recommendations on their own. This indicator should improve your chances of avoiding bad trades. ### Bollinger Bands PDF Here you can download a [quick guide to Bollinger Bands PDF with the secrets to using them](https://www.litefinance.org/uploads/documents/pdf/trading-blog/Bollinger-Bands-Guide-and-Secrets-of-BB-Indicator-en.pdf?_t=1601453913). Remember these rules and always stick to them if you use Bollinger Bands in your trading method. ## Bollinger Bands FAQ How does the Bollinger indicator work? The Bollinger Bands is a technical analysis tool that works on the basis of a moving average. The upper and lower levels are equidistant from the MA. The lag rate is calculated using the standard deviation multiplied by the specified factor. The latter depends on the length of the moving average. For example, for the MA with a period of 21 bars, it is recommended to use 2 standard deviations, and for one with a period of 10 bars — 1.9. How to use the Bollinger indicator? The indicator itself provides little information. Almost all trading systems use Bollinger Bands in conjunction with the readings of other indicators. These can be both classic RSI, MACD, Average True Range (ATR), as well as more complex volume indicators or entire trading systems. The only condition is that there is no connection between the calculation of the Bollinger Bands and additional indicators. What is the best setting for Bollinger bands? The key nuance in setting up Bollinger Bands is maintaining the optimal ratio between the period of the moving average and the number of standard deviations. The classic version uses a 21 bar period and 2 deviations. If the period for some reason increases to 50 bars, you should use the ratio 2.1. And if it decreases to 10 bars, then 1.9. How accurate are Bollinger Bands? The Bollinger Bands indicator itself cannot provide accurate information about whether to open a position or close an existing one. They provide good forecasting accuracy when used with other indicators or in combination with several Bollinger Bands with different settings. How do you master Bollinger bands? I think one of the simplest and at the same time effective methods is the trend following strategy. It is used for trading instruments that follow long-term steady trends. If we are talking about volatile currency pairs, a scalping strategy is better suited for them. How do I use Bollinger Bands in intraday trading? In intraday trading, I recommend using channel strategies in combination with Bollinger bands on small timeframes. If you are a beginner, it is recommended to consider trending strategies with a horizon of at least a few days. The Double Bollinger Bands strategy is great for this. It allows you to accurately identify the buy, sell and profit-taking zones. This will increase your trading discipline and help you avoid unnecessary mistakes at the very beginning. What do fundamental investors think about Bollinger Bands? One of the most famous investors in the world Warren Buffett never mentioned that he uses Bollinger Bands. Lesser-known traders often stick to Bollinger's tools and rules. Experienced traders are captivated by the versatility of the indicator and good compatibility with any trading strategy. Bollinger Bands are often used as a confirmation filter for signals and help to figure things out when the market conditions are not obvious. Are the Bollinger Bands the most useful indicator? It is difficult to gauge the usefulness of Bollinger Band indicators. Despite its relatively young age, this tool has become classic in technical analysis. Such a phenomenon cannot be an accident. You shouldn't overestimate the capabilities of the Bollinger Bands either. One thing is certain. This indicator needs to be tested with your trading strategy. This is the only way you can understand whether this indicator is useful to you or not. Which are some good books on Bollinger Bands? Bollinger on Bollinger Bands is the only book by the author of the instrument that describes Bollinger trading in detail. What does it mean when the Bollinger bands are narrow? The narrowing of the bands indicates a decrease in volatility to a minimum. Bollinger believes that such situations occur cyclically. The narrowing is always followed by expansion, and expansion is always followed by narrowing. This pattern is used in some strategies to identify the beginning or end of a trend. ## Conclusions on Bollinger Trading Bollinger Bands, like most other technical indicators, are best not applied alone. However, they can become an integral part of your trading strategy and give a good result in combination with other trading signals. At first, you can use the above trading methods. If you are just starting out as a trader, it is best to first master the Bollinger Bands trending strategy on a large timeframe. You can get invaluable experience in trading the Bollinger Bands strategies mentioned in this article on a Litefinance demo account completely free of charge and without registering. The Bollinger Band indicator can be compared to a seasoning. Eating it with a spoon will not bring great results, but it will make any dish tastier. When you gain experience and intuitively understand the indicator signals, try additional tools and different combinations of settings and indicators to maximize your profitability. The Bollinger Band indicator is perfect for almost any strategy\! * P.S. Did you like my article? Share it in social networks: it will be the best "thank you" :) Useful links:** - I recommend trying to trade with a reliable broker [here](https://my.litefinance.org/registration?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands&utm_source=blog&utm_medium=article&utm_campaign=bonus). The system allows you to trade by yourself or copy successful traders from all across the globe. - Use my promo code BLOG to get a 50% deposit bonus on the LiteFinance platform. Simply enter this code in the appropriate field when [funding](https://my.litefinance.org/deposit?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus) your trading account. - Telegram chat for traders: <https://t.me/litefinancebrokerchat>. We are sharing the signals and trading experience. - Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders <https://t.me/litefinance> [![Bollinger Bands Indicator in Forex Strategies](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?s=aeeba6f45eefa7befe02d1ca833a4c6b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/new-logo.jpg?q=75&w=1000&s=f06453fe08b2fcbd7d6fdbb8c5f87a17) The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU. According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent. 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Efficient combinations of indicators. ![TTM Squeeze Indicator: How To Use It?](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 05 Dec. 2024 12:04 [TTM Squeeze Indicator: How To Use It?](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/ttm-squeeze/) Discover the TTM Squeeze indicator and a trading system that generated 1,270% returns in 2020. ![Technical Analysis Indicators: List and Description](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 24 Jan. 2025 13:53 [Technical Analysis Indicators: List and Description](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/technical-indicators-list/) Review of the best technical indicators for Forex: tips and strategies for successful trading on MetaTrader 4, MetaTrader 5, and other trading platforms. ![SuperTrend Indicator: Mastering Market Trends and Trading Signals](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 24 Jan. 2025 15:32 [SuperTrend Indicator: Mastering Market Trends and Trading Signals](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/supertrend-indicator/) Maximize your returns with the SuperTrend indicator: signals, settings, and trading strategies. ![Half Trend Indicator Explained: Forex Trading Tool Guide](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 28 Feb. 2025 13:08 [Half Trend Indicator Explained: Forex Trading Tool Guide](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/half-trend-indicator/) Half Trend indicator: how it works, its features and application in Forex trading. ![What Is the Arms Index (TRIN), and How Do You Calculate It?](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 13 Mar. 2025 12:42 [What Is the Arms Index (TRIN), and How Do You Calculate It?](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/trin-arms-index/) This indicator shows the ratio of advancing stocks versus declining stocks on the market, thus helping with price forecasts. ![Mastering the True Strength Index: A Comprehensive Guide for Traders](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 14 Apr. 2025 16:52 [Mastering the True Strength Index: A Comprehensive Guide for Traders](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/true-strength-intex-tsi/) TSI: a trend and momentum indicator. Learn how to set it up and apply it in your trading. ![Donchian Channel Indicator – Trading Strategies](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 21 May. 2025 10:53 [Donchian Channel Indicator – Trading Strategies](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/donchian-channel/) Everything about the Donchian channel: how to use it, strategies, advantages, and drawbacks. ![Schaff Trend Cycle: Advanced Market Analysis for Traders](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 10 Jul. 2025 13:35 [Schaff Trend Cycle: Advanced Market Analysis for Traders](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/schaff-trend-cycle/) Exploring the STC indicator, a valuable tool for identifying trends and making profitable trades. ![What is Anchored VWAP? Trading Strategies & Examples](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 20 Aug. 2025 16:44 [What is Anchored VWAP? Trading Strategies & Examples](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/anchored-vwap/) Everything about the Anchored VWAP indicator, strategies, and principles of its use in trading. ![Smart Money in Trading: Strategies, Insights & Techniques](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 17 Sep. 2025 11:11 [Smart Money in Trading: Strategies, Insights & Techniques](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/smart-money-concept/) Learn how SMC strategies work in trading and how to apply them to enhance your trading performance. ![A Guide to Xmaster Formula Indicator in Forex](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 25 Sep. 2025 17:57 [A Guide to Xmaster Formula Indicator in Forex](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/xmaster-formula-indicator/) The Xmaster Formula trend oscillator: signals, advantages, disadvantages, and practical usage. ![Best Entry and Exit Indicators Every Trader Should Know](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 29 Sep. 2025 17:11 [Best Entry and Exit Indicators Every Trader Should Know](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/best-entry-exit-indicator/) Learn how to spot entry and exit points using trend indicators, oscillators, and chart analysis. ![What Is Simple Moving Average (SMA) and How to Use It in Stock Trading](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 01 Oct. 2025 14:49 [What Is Simple Moving Average (SMA) and How to Use It in Stock Trading](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/what-is-simple-moving-average-indicator-sma/) The review offers a complete guide on how to use the SMA indicator in trading. ![What Is Market Facilitation Index and How to Use BW Mfi Indicator in Trading](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 07 Oct. 2025 16:58 [What Is Market Facilitation Index and How to Use BW Mfi Indicator in Trading](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/what-is-market-facilitation-index/) The essence and calculation formula of the market facilitation index indicator. Interpretation of its signals and examples of practical application. ![What Is the Kelly Criterion in Trading and How to Use It for Investing](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 28 Oct. 2025 10:50 [What Is the Kelly Criterion in Trading and How to Use It for Investing](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/kelly-criterion-trading/) This article provides a detailed overview of the Kelly Criterion and explains how to use it effectively in quantitative trading. ![What Is Market Breadth and How Investors Use It?](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 07 Nov. 2025 14:41 [What Is Market Breadth and How Investors Use It?](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/what-is-market-breadth/) Determining market breadth in the stock market. Indicators and their use in investment strategies. ![RSI vs MACD: Which Trading Indicator Is Better and How to Combine Them](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 10 Nov. 2025 11:07 [RSI vs MACD: Which Trading Indicator Is Better and How to Combine Them](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/rsi-vs-macd/) How to use RSI and MACD in trading. ![What Is the McClellan Oscillator and How to Use It in Trading](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 10 Nov. 2025 16:09 [What Is the McClellan Oscillator and How to Use It in Trading](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/what-is-mcclellan-oscillator/) Explore the McClellan Oscillator as well as its formula and signals, and learn how to use it in trading. ![What Is CVD Indicator and How to Use Cumulative Volume Delta in Trading](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 04 Dec. 2025 15:11 [What Is CVD Indicator and How to Use Cumulative Volume Delta in Trading](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/cvd-indicator/) The cumulative volume delta CVD indicator: Practical examples of trend confirmation and trend reversal. ![Best Indicators for Swing Trading: Ultimate Guide to Technical Analysis](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 08 Dec. 2025 13:30 [Best Indicators for Swing Trading: Ultimate Guide to Technical Analysis](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/best-indicators-for-swing-trading/) Learn how to generate profits using the most popular indicators for swing trading. ![McGinley Dynamic Indicator: Trading Guide](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 14 Jan. 2026 16:15 [McGinley Dynamic Indicator: Trading Guide](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/mcginley-dynamic-indicator/) Learn all about the McGinley dynamic indicator and how to trade using it. ![Coppock Curve Indicator Explained: Calculation, Formula, and Trading Strategies](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 20 Jan. 2026 09:36 [Coppock Curve Indicator Explained: Calculation, Formula, and Trading Strategies](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/what-is-coppock-curve-indicator/) The Coppock Curve: calculation formula and effective long-term trading strategies. ![Know Sure Thing (KST) Indicator: Trading Guide for Beginners](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 21 Jan. 2026 14:14 [Know Sure Thing (KST) Indicator: Trading Guide for Beginners](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/know-sure-thing-kst-indicator/) The KST indicator: formula, interpretation, signals, and examples of trading strategies. ![Ease of Movement Indicator: Trading with EOM](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 26 Jan. 2026 17:04 [Ease of Movement Indicator: Trading with EOM](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/ease-of-movement-indicator/) The Ease of Movement indicator: principles, signals, and trading strategies. ![Leading and Lagging Indicators in Trading: Key Differences](https://cdn.litemarkets.com/cache/uploads/blog_previews_enlarged/_loading-image.png?w=120&s=8ca8a893305ffd8e9c9398e61c3d33e4) 12 Mar. 2026 14:02 [Leading and Lagging Indicators in Trading: Key Differences](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/leading-and-lagging-indicators/) Discover leading and lagging indicators, their key differences, and their benefits and limitations. 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[Blog](https://www.litefinance.org/blog/) - [Beginners](https://www.litefinance.org/blog/for-beginners/) - Bollinger Bands Indicator in Forex Strategies ## Bollinger Bands Indicator in Forex Strategies ![Michael Hypov](https://www.litefinance.org/images/blog/authors/Mikhail_Hyipov.jpg) Author [Michael Hypov](https://www.litefinance.org/blog/authors/mikhail-hypov/) ![Jana Kane](https://www.litefinance.org/images/blog/authors/jana-kanne.jpg) Reviewed by [Jana Kane](https://www.litefinance.org/blog/authors/jana-kane/) Updated version 09Jul.202416:51 2025\.11.14 2024\.07.09 Bollinger Bands Indicator in Forex Strategies [![Bollinger Bands Guide: Trading Strategies & Best Settings \\| LiteFinance](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/new-logo.jpg?q=75&w=1000&s=f06453fe08b2fcbd7d6fdbb8c5f87a17)](https://www.litefinance.org/assets/2d47d2c9/images/_loading-image-331w.png) Michael Hypovhttps://www.litefinance.org/blog/authors/mikhail-hypov/ [![logo](https://www.litefinance.org/assets/2d47d2c9/images/header-logo-litefinance.png)](https://www.litefinance.org/assets/2d47d2c9/images/header-logo-litefinance.png) Dear friends\! In this article, we will take a detailed look at Bollinger Bands, a classic indicator that many traders have been using for many years. I will tell you what are Bollinger Bands, what this tool does, how it works, how are Bollinger Bands calculated, how to use Bollinger Bands Forex strategies, and give you lots of other interesting information with examples. The article covers the following subjects: - [What Bollinger Bands are: Definition and History](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h0) - [Bollinger Bands Formula & Calculations](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h1) - [How Bollinger Bands Indicator Works](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h2) - [Bollinger Bands Signals](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h3) - [Bollinger Bands Strategies](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h4) - [Bollinger bands best settings](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h5) - [Bollinger Bands Screener](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h6) - [Bollinger Bands Tips & Rules](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h7) - [Bollinger Bands FAQ](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h8) - [Conclusions on Bollinger Trading](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/bollinger-bands/#h9) Let's get started with bollinger bands tutorial\! ## What Bollinger Bands are: Definition and History Let's dive into the history of the indicator. The very first mention of a tool similar to Bollinger Bands dates back to 1960. The well-known trading analyst Wilfrid LeDoux used a trading channel based on two moving averages as technical indicators in his trading system. The first band was built based on the highs, and the second — on the lows. The signals in the LeDoux’s trading system were both the expansion leading to the bands expand accordingly, or the contraction of the channel itself where the bands contract, following the security’s price movement to shape within it. #### John Bollinger [![LiteFinance: John Bollinger](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Mr_Bollinger_3.jpg?q=75&s=b7d10d153739e94479825a77723c4490)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Mr_Bollinger_3.jpg?q=75&s=b7d10d153739e94479825a77723c4490) Funnily enough, at first John Bollinger did not even think about trading. He thought his future work would be on television. But while working as an operator at one of the Hollywood companies, he encountered some financial analysts and became interested in this occupation. Later, the future trader’s mother asked her son to help organize her investment portfolio. Starting then, Bollinger finally decided to be part of the world of stock trading. Combining his work as an operator at Financial News with training from experienced financiers, he quickly mastered trading and moved on to the position of financial analyst on the same channel. He did not become a TV star, but he gained fame thanks to successful trading ideas based on simple envelopes. The envelope is one of the oldest technical analysis indicators. It was built on the basis of a simple moving average and two bands located at an equal distance from this center line. Between 1984 and 1991, John worked on his own trading system based on the LeDoux strategy and the envelope indicator. John's brainchild was named after its creator — the Bollinger Bands. This technical analysis tool developed was based on a middle band known as the moving average with so-called volatility bands plotted above and below. However, unlike envelopes, the offset is not by a certain number of points, but by a percentage. [![LiteFinance: John Bollinger](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_5.jpg?q=75&s=1a3666c9577a136941abf1b50bf33094)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_5.jpg?q=75&s=1a3666c9577a136941abf1b50bf33094) The Bollinger Bands are shown in the [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/) chart. The red lines are the upper and lower boundaries of the channels. They are plotted based on the percentage offset from the blue middle band of the moving average. The main purpose of BB indicator is to determine a sharp deviation from the average direction of the current trend. > Next, we will analyze the techniques for using the Bollinger indicator in detail. In order to study the material as efficiently as possible, I advise you to go to the LiteFinance [demo account](https://my.litefinance.org/trading/) right now (you do not need to register), open any trading instrument and apply the Bollinger bands to the chart. Skim the Bollinger Band chart and see how it reacts to price changes. If you encounter any difficulties, we will do it together below. The Bollinger Bands indicator became widely known in comparison with other technical indicators after the mention in the book The New Commodity Trading Systems and Methods by Perry Kaufman published in 1987. The author of the indicator spoke about his brainchild and Bollinger Bands strategies only in 2001, in the book Bollinger on Bollinger Bands. The article that you are now reading is written on the basis of materials from these two books. I have extracted from them the most relevant and useful information adapted for modern financial markets. Enjoy the article\! ## Bollinger Bands Formula & Calculations [![LiteFinance: Bollinger Bands Formula & Calculations](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-1.jpg?q=75&s=b2e98fb6593b5b76cd09d4238a777303)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-1.jpg?q=75&s=b2e98fb6593b5b76cd09d4238a777303) Today, in order to draw Bollinger Bands in a chart, you just need to select the required indicator from the list. Before, a trader had to gather it piece by piece. The process is as follows: take the moving average as the middle line (hereinafter the MA) and build the upper and lower bands: one above the center line by some percentage distance and one below it. The main issue was selecting the optimal interval for the MA and the deviation of these volatility bands (Bollinger levels) from it. The author of the indicator looked for an effective way to select the interval for a long time. #### Marc Chaikin [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/stochastic-oscillator/marc__circle.png?q=75&s=9b4b94490b7f932b922ec7dfd324ef31)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/stochastic-oscillator/marc__circle.png?q=75&s=9b4b94490b7f932b922ec7dfd324ef31) For some time he followed Marc Chaikin’s principles. Chaikin used a 21-day moving average for his bands offset up and down so that the resulting zone contains about 85% of last year's price data. However, he later realized that the key to success in establishing the width of trading bands is the degree of market volatility. To determine the offset of the waves from the moving average, John used the formula for the root-mean-square or standard deviation. This variable is usually denoted as σ (sigma). To calculate the standard deviation, the average closing price is calculated for a specified period. The resulting value is subtracted from each point of this closing price dataset. As a result, you will have a list of deviations from the average price. Some of these typical values will have positive values, others will be negative. The general principle is that the range of deviations is in direct proportion to the degree of variability of the series. Simply put, in a volatile market, Bollinger bands expand, and in case of consolidation, they narrow. At the next stage, we add up the list of data we have obtained. If we add negative and positive values, we end up with 0. To get a non-zero result, we need to get rid of negative values by squaring them. As a result, after adding up, we get the average absolute deviation. This amount is divided by the period for which the data was collected, and then we extract the root of the resulting value. We get the following formula for calculating the square deviation: [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/new-Deviation_8.jpg?q=75&s=7824a4651b1be4c86e02dc69c8b8d13b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/new-Deviation_8.jpg?q=75&s=7824a4651b1be4c86e02dc69c8b8d13b) σ — standard deviation; x — closing price; i — order number of the bar; μ — moving average; N — total number of points (period). If we translate all of the above from the math language into trading language, the obtained value of σ determines the area in which all candles close with a probability of 68.2% (if the indicator is based on closing levels) for the selected period. When the price breaks out of this area, it is outside the root-mean-square distribution — it becomes an anomaly in terms of mathematical statistics. What does this mean for the trader? We'll find out it out a bit later. As for the choice of the optimal moving average period, the classic version of the Bollinger indicator uses a 20-period MA. This range is approximately equal to the number of trading days in a month. If for some reason the period has to be shortened, in order to obtain the optimal width of the band, you need to cut the number of standard deviations. If the period is lengthened, the number of standard deviations must be increased. The need to adjust the calculation of the Bollinger Bands width may arise because of the peculiarities of the formula. After analyzing the largest markets, the author has derived the most convenient ratios for frequently used periods: \| \| \| \|---\|---\| \| Periods \| Multiplier \| \| 10 \| 1,9 \| \| 20 \| 2 \| \| 50 \| 2,1 \| Let me explain why you need these ratios. In most markets, when using 20 periods and 2 standard deviations, you can get coverage of 88-89%. As the period is shortened or lengthened, the coverage changes, which affects the analysis efficiency. To maintain coverage at 88-89%, Bollinger Bands should be plotted using a 1.9 ratio for a 10-bar period. This means you cut the band width from 2.0 to 1.9. With a period of 50 bars, respectively, you need to increase the width from 2.0 to 2.1. After selecting the multiplier and the period, you can calculate the Bollinger bands themselves. The formula for the top band is as follows: UB \= μ \+ (m \* σ), For the bottom band: LB = μ - (m \* σ), UB — upper band; LB — lower band; μ — moving average value; σ — standard deviation value; m — factor. As an example, let's calculate the value of one point of the upper Bollinger band. To simplify the calculations, let's take a period of 10 bars. [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_9.jpg?q=75&s=2b84d4985af193df36f687529e85adc9)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_9.jpg?q=75&s=2b84d4985af193df36f687529e85adc9) Candles entering the period are marked with a blue rectangle in the chart. First, let's identify the closing levels of these candles in points, starting with the most recent. For convenience, I have rounded ten thousandths to 0: 1,18700; 1,17700; 1,16500; 1,14200; 1,13000; 1,12400; 1,12100; 1,11700; 1,12500; 1,12900. Therefore, the moving average is: \= (1,18700 + 1,17700 + 1,16500 + 1,14200 + 1,13000 + 1,12400 + 1,12100 + 1,11700 + 1,12500 + 1,12900)/10 = 1,14200 We can now move on to calculating the standard deviation: [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/standard_deviation.jpg?q=75&s=0ac8306048818f4738994a20dfc7ca89)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/standard_deviation.jpg?q=75&s=0ac8306048818f4738994a20dfc7ca89) Now we know the value of the standard deviation and can calculate the point of the upper Bollinger band above the last bar (take the multiplier 1.9 from the table above): 1,14200 + 1,9 \* 0,02404 = 1,18768. Knowing the standard deviation, we can calculate other points and draw the top line along them. The points of the lower line are calculated similarly. As you can see, manual calculations are too cumbersome. To simplify the Bollinger Band calculation, you can use an Excel spreadsheet, which I will discuss below. Now let's talk about the allowed parameters. From my own experience, I can say that it makes no sense to use the Bollinger indicator with a period of less than 10 and more than 50. If such a need arises, you need to change the timeframe, for example, switch from a daily to a four-hour chart or vice versa. In the initial stages, I recommend limiting yourself to a period of 20-30 bars. The author himself believes that his indicator works best in this range. In addition to the classic setting of this technical indicator, the use of Bollinger Bands varies since combined options are also possible to be implemented for better results. For example, a chart might contain two band indicators plotted using the same calculation period but with different ratios. In his book, the analyst gives an example of a chart with two volatility bands in 20 periods that differ in width by 1 and 2 standard deviations. [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_10.jpg?q=75&s=2410bb5a2bbbc65807cc0cf092657957)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_10.jpg?q=75&s=2410bb5a2bbbc65807cc0cf092657957) You can see this tool in the picture above. Visually, these two technical indicators coincide at the moving average line but have different widths. A narrower channel is built with a factor of 1.0, and a wider one — with a factor of 2.0. [![LiteFinance: Marc Chaikin](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_12.jpg?q=75&s=e53ed30a1a797f47a2ed6e378d55b470)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_12.jpg?q=75&s=e53ed30a1a797f47a2ed6e378d55b470) The second popular option for setting up the indicator is to plot BB of two different types. For example, one channel can be formed based on a moving average with a period of 20 bars and a width of 2 standard deviations. The second one has a period of 50 bars and a ratio of 2.1. If you think you already know how to use Bollinger Bands, you are wrong. All the fun is yet to come. Get a cup of tea and let's move on. ### Bollinger Bands Excel Sheet [Here you can find the Bollinger Bands Excel Sheet](https://docs.google.com/spreadsheets/d/1TfiWC5q9gVd_6T69ypexUwYNLgD1mWeF5xsR6tKnALY/edit?usp=sharing). It is designed to accurately calculate Bollinger Bands at a specific point in time. This tool can also be used to experiment with inputs to calculate the MA or the multiplier. [![LiteFinance: Bollinger Bands Excel Sheet](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_calculator_eng_17.jpg?q=75&s=5b832886260a740e3399580b650a2935)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_calculator_eng_17.jpg?q=75&s=5b832886260a740e3399580b650a2935) In order to use the table, you need to make a copy of it or download the Bollinger Bands calculator directly to your computer. The screenshot above shows the path: File / Make a copy or Download. [![LiteFinance: Bollinger Bands Excel Sheet](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_calculator_eng_19.jpg?q=75&s=55e7a4eaa8785e90bf5bdd92ca013895)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_calculator_eng_19.jpg?q=75&s=55e7a4eaa8785e90bf5bdd92ca013895) The table is very simple. In column A, you fill in the purple cells. The formulas work for 50 cells, but there is no need to enter numbers in each one. Input values can be any numbers. For example: - closing levels; - opening levels; - bar highs; - bar lows; - weighted averages of each bar; - or any other numbers for your experiments. The number of values corresponds to the calculated period. If 10 cells are filled in, the calculation will correspond to a moving average with a period of 10. In column B, indicate the multiplier in the purple cell. The default ratio is 2, but you can enter any other number instead. Columns C, D and E contain the final result and a caption for the values: - standard deviation — σ; - upper band — UB; - moving average — μ; - lower band — LB. > Important\! All calculations are done automatically. You do not need to enter data manually in the blue cells in column E. ## How Bollinger Bands Indicator Works [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-2.jpg?q=75&s=3df11ee0373562b34f4ffd94360b0ba1)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-2.jpg?q=75&s=3df11ee0373562b34f4ffd94360b0ba1) We already know that the Bollinger Bands indicator consists of three lines: a moving average, upper and lower bands. The latter are formed with an offset ranging from 1.9 to 2.1 standard deviations. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_22.jpg?q=75&s=8a581dbee104c9b054349d30fdf2529c)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_22.jpg?q=75&s=8a581dbee104c9b054349d30fdf2529c) Setting up Bollinger Bands is pretty straightforward even for beginners. There are only two relevant columns in the Parameters tab: "Length" or the period for which calculations will be made, and the "Multiplier" factor. It only makes sense to change other settings within the classic Bollinger Bands if you want to experiment. For example, changing the source from the closing price to the opening price changes the traditional approach to building the indicator, but it may show an unexpectedly interesting result on certain trading instruments. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_24.jpg?q=75&s=f8c89290192f83412f0e30b053cb8b37)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_24.jpg?q=75&s=f8c89290192f83412f0e30b053cb8b37) In the second "Style" tab, you can set the color of the Bollinger bands, the moving average, and the chart area between them. John suggests using two indicators in the trading process: - %b allows you to determine exactly where the price data is in relation to the Bollinger Bands. This tool will be useful when developing a trading system that uses the relationship between price behavior and the behavior of the upper and lower bands. - BandWidth analyzes the current offset width. This metric is very useful for finding the start and end points of a trend, and BandWidth is an integral part of the squeeze technique. I will talk about it in detail a bit later. First, let's take a closer look at %b. This tool is calculated by the formula: %b = (Last price - LB) / (UB - LB). - UB — upper band; - LB — lower band. If you look closely at this formula, you will understand that if the last price is located on the upper Bollinger bands, the calculation result will be 1. If it is located on the moving average, the %b value will be 0.5. And if the price falls and stops at the lower bands, the result of the above formula will be 0. In this case, negative %b is possible if the price falls and breaks out of the lower Bollinger bands. This signal can be interpreted both as a sign that the asset is oversold and as a sign of a trend reversal. A value greater than 1 is possible if the price goes above the upper Bollinger bands. In this case, it will be a signal either about an overbought asset, or about a change from a bearish to a bullish trend. In order to read these signals correctly, you need to use additional indicators as filters. The Alligator indicator is often used for this purpose. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_25.jpg?q=75&s=bd3e43905c59c8d3ffb51c878c50dd1c)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_25.jpg?q=75&s=bd3e43905c59c8d3ffb51c878c50dd1c) In the chart above we can easily identify the m tops, and we can see that the price has gone above the upper band, i.e. %b must be greater than 1 (highlighted in the graph with a green oval). At the same time, Alligator does not show any crossings between its lines (in a blue circle), which indicates an early sign of an overbought asset and a possible trend change. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_26.jpg?q=75&s=b017b00d7fbf8c93d34f0e986c6d3bc3)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_26.jpg?q=75&s=b017b00d7fbf8c93d34f0e986c6d3bc3) In the next chart, the green oval marks an area where several candles in a row close below the lower band where we can identify the w bottoms, meaning that the %b will be less than 0. This can be both an oversold signal and a trend reversal signal. A little later, the Alligator lines cross, which confirms the trend change and lets us open a short position. We see that Alligator helps us correctly interpret the Bollinger signal. %b can also be used to identify shapes. We will talk about this later. Now let's move on to BandWidth, which analyzes — you guessed it — the current band width. It is determined by calculating the difference between the upper and lower bands and dividing the result by the moving average value. The formula looks like this: BandWidth = (UB - LB)/μ - UB — upper band; - LB — lower band; - μ — moving average. This signal is useful for detecting squeeze. In other words, it describes a situation when market low volatility has decreased to an abnormally lower level. > This situation can be described as the calm before the storm. Bollinger noticed that most trends are born when BandWidth is at its lowest. The market’s low volatility is like the calm before bad weather. The emergence of a sharp expansion of Bollinger bands and a strong price movement in such a situation indicates the possible formation of a new strong trend. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_27.jpg?q=75&s=e840ae2605c73fca606285620e2cf807)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_27.jpg?q=75&s=e840ae2605c73fca606285620e2cf807) In the chart, the green oval marks the moment when the Bollinger Bands narrow, i.e. the market volatility decreases to a local minimum. As you can see, a sharp upside breakout occurs after this, which is the start of a bullish trend. BandWidth will also be very useful in determining the end points of strong trends. Heavy movements provoke a significant increase in volatility and the bands widen. Because of this, the level of dispersion increases and the Bollinger Bands expand. In the case of a bullish strong trend, after the channel narrowing, we will see a strong fall of the lower Bollinger band downwards against the main trend. This phenomenon is an early signal of a bullish trend reversal. [![LiteFinance: How Bollinger Bands Indicator Works](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_28.jpg?q=75&s=26569f3b326fbf0cd221c4635e8a625f)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_28.jpg?q=75&s=26569f3b326fbf0cd221c4635e8a625f) The [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/) chart shows Bollinger Bands at the time of the trend development. The green rectangle marks the area when the lower line begins to move down during the formation of an upward trend. After that, in the area marked with a blue rectangle, the lower band reverses and begins to move up. A signal about the end of the trend appears. And indeed, after a while there is a transition from a bullish trend to a bearish one. ## Bollinger Bands Signals Earlier, we have already discussed the main signals of the Bollinger Bands. Their weak point is the need to filter and identify entry and exit points. The simplest solution to the first problem is a Bollinger filter. To solve the second problem — identifying the entry and exit points — in most cases finding shapes is the solution. A shape is a pattern formed by the market movement and the price volatility or a sequence of such movements. They are fairly easy to recognize in the chart. At the same time, for a better understanding, beginners are recommended to use Bollinger Bands. They smooth out minor market fluctuations, making it possible to focus only on significant price data reversals. Often, shapes precede a reversal or are themselves part of a trend reversal. I will tell you about the two most common shapes — W and M. Before we move on to examining the features of the shapes, have a look at their types. #### W-bottoms [![LiteFinance: W-bottoms](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/W_pattern_30.jpg?q=75&s=2751bf72c771b06039de255287459513)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/W_pattern_30.jpg?q=75&s=2751bf72c771b06039de255287459513) #### M-tops [![LiteFinance: M-tops](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/M_pattern_31.jpg?q=75&s=8a13394011411fdb7bbc13d8601e5597)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/M_pattern_31.jpg?q=75&s=8a13394011411fdb7bbc13d8601e5597) The image above will help you understand what types of patterns m tops look like. The meaning of each of the presented shapes is unique. You can read more about this in Arthur Merill’s work with the name MW Waves. Here we will just take a quick look at these patterns and discuss how to work with them. All shapes can be grouped by to the signal the trader receives. Let's take a look how to read bollinger bands signals: - M15, M16, W14, W16 signal the formation of an uptrend. - M1, MZ, W1, W2 indicate the formation of a downtrend. - W6, W7, W9, W11, W13, W15, M2, M4, M6, M8, M10, M11 are reversal formations. These patterns indicate a trend reversal. - M13, W4 — in classical technical analysis these figures are called triangles. The direction of movement is determined by the side of the exit from the figure. - M5, W12 — in classic technical analysis, these are expanding triangles — the trend is determined after the breakout. - W6, W7, W9, W11, W13, W15 are most often part of the head and shoulders reversal formation. - M2, M4, M6, M8, M10, M11 are often components of the inverted head and shoulders pattern. - For the rest of the figures — M7, M9, M12, M14, W1, W3, W5, W8, W10 — signals are generated based on the general rules described below for W and M shapes. ### W-Bottoms (Double Downs) W-bottom is the most common pattern of transition to the bullish market. It is rarely seen in its pure form and often has a variety of deviations from the ideal shape. Bollinger developed a system for the psychological assessment of market sentiment based on the following pattern features: - Longer right side suggests that there is a sentiment of disappointment in the market. Many investors expect another retest of the lows, abandoning their positions and are extremely disappointed after the price soars up. - Equality of the lows on the left and right sides indicates a calm market. Investors make purchases after a repeat testing without much stress and soon get the expected profit. - If the low on the right side is lower than the low on the left, this situation is accompanied by fear and discomfort on the part of the masses of ordinary traders. Many of them went long at the previous low and ended up being kicked out of the market. Few of them will want to buy again, and the inflow of new money is limited to the formation of a new low point. The technical analyst Richard Wyckoff once called this phenomenon a spring, and this term is still used in the trading circles to this day. As for the interaction of the W-bottom with the BB, in most cases the left side of the pattern will touch the lower line or cross it. The growth following the local low will again return the candles to the inner zone of the bands. In this case, the crossing of the middle line of the moving average indicator should occur. The next move will be a second touch inside the lower Bollinger Band. It is important to pay attention here that the low in the considered strategy is determined by the lower Bollinger bands. If the first point crossed the band, and the second is formed within the channel, then the second low will be considered higher even if it is located lower in absolute terms. The retest price must be greater than or equal to the price of the first low. This is one of the most important requirements. To check whether it is met, you can use the previously discussed %b indicator, which allows you to accurately measure the position of candles relative to Bollinger bands. Another feature of W-bottoms is the presence of some smaller formations in their structure. A closer look at smaller timeframes reveals reversal signals. They form the beginning or end of the compound segments of a large figure. A W-bottom gives a clear signal of base formation. Therefore, these formations are often used to predict trend reversals and open positions. [![LiteFinance: W-Bottoms (Double Downs)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_32.jpg?q=75&s=ff917205603f012316daa37b6087ae55)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_32.jpg?q=75&s=ff917205603f012316daa37b6087ae55) The chart depicts a growing W-bottom. This is a formation in which retesting occurs at a higher level. This is true only when analyzing the absolute location of the lows, i.e. the location relative to the coordinates of the chart. As for the Bollinger Bands, both low points cross the lower line at approximately the same distance. We can talk about the equality of the lows of the left and right sides and equilibrium in the market. After finding the W-bottom, you need to answer the question: "When and what positions should I open?" Experts recommend buying “strong” — wait for the moment when a bar with a volume and range above average is formed. This will be the signal to open a long position. The stop order should be set below the last low point (below the right side of the formation). Later it should be moved up. You can do this by eye or according to your own rules. For beginners, I recommend starting with stop losses set off from local lows. ### M-Tops While the most common base shape is a W-bottom, the tops can be double or triple in an M-top. The most common case of a triple top is the head and shoulders pattern, which is well known in technical analysis. It shows rapid growth and small rollbacks. This rollback forms the left shoulder. It is followed by another period of growth, which forms a new high, which ends with an even larger rollback. Quite often, this rollback completes near the previous local low. It forms the so-called head. Following the head, the right shoulder is formed. It represents a failed growth with an amplitude less than the previous one (ideally ends around the peak of the left shoulder) and a subsequent fall in price setting a new low. The right shoulder may be followed by another minor growth, bringing prices back to the vicinity of the lows of the left and right shoulder. Many traders often refer to these lows as the neckline. It is usually followed by a complete fall. [![LiteFinance: M-Tops](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_33.jpg?q=75&s=127f709b1fbfaf45575307e34c9c76e1)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_33.jpg?q=75&s=127f709b1fbfaf45575307e34c9c76e1) The chart depicts a head and shoulders formation. For clarity, I marked its outlines with green lines, and its components with numbers: 1. left shoulder; 2. head; 3. right shoulder; 4. backward movement before final decline. This example clearly shows that in practice the head and shoulders are rarely formed as a perfect structure. Deviation of one or more parameters is considered acceptable. When analyzing a figure, I also recommend paying attention to volume. On the left side of the figure, especially in the head area, it is characterized by high values. At this point, news is published preceded by rumors and expectations. After passing the peak of the head, activity decreases. A small surge of optimism can be observed on the right shoulder or the last jump up. In the chart, we see that at the moment of the formation of the right shoulder, traders are confused. Most of them argue that a reversal is inevitable. Therefore, the increase in volume occurs at the stage of the lowering of the right shoulder. In the first part of the last spike, the high volume can be explained by the struggle between bulls still hoping for growth and bears confident of the fall. After passing the peak, massive sales continue at the expense of traders, who at the last moment realized that further growth is impossible. Analysis of the formation using Bollinger signals is even more interesting. In the ideal version, the left shoulder goes beyond the upper line. The right one misses it by a little. The neckline in the right shoulder often stops at the moving average, and the first decline is in the vicinity of the lower Bollinger band. [![LiteFinance: M-Tops](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_34.jpg?q=75&s=9c0fbc1c0f22a36211b9a51b5ef50a19)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_34.jpg?q=75&s=9c0fbc1c0f22a36211b9a51b5ef50a19) In our graph above, only one condition is met strictly. Upon reaching its peak, the first shoulder is crossed by the Bollinger Wave indicator (blue arrow). The bands contract when the neckline is bounded by the lower band rather than the moving average. You can also say that the first decline stops at the lower line (red arrow). However, upon closer inspection, a slight overlap is noticeable. This once again confirms the fact that in real trading you will rarely come across perfect shapes. The first part of the head and shoulders formation is ideally an M-top consisting of a left shoulder and a head. Most often it is expressed in the form of an M15 or M16 shape. The next part is also an M and it includes the head and right shoulder (possible shapes are M3, M4, M7 and M8). The last phase (right shoulder and reverse growth before the final decline) can be formed in the form of an M1 or M3 shape. M-tops are useful for identifying the tops of sustainable trends. In the process of their formation, there is a reversal of the price movement, which opens up opportunities for effective entry into the market. Even more useful is the analysis of the interaction of the head and shoulders with the BB. It allows you to recognize the pattern before it is fully formed, which means opening a position at one of the high points and increasing the final profit from the trade. At the same time, starting from the right dip after the head, the structure has a downward slope. This means it can be analyzed using W shapes. Reverse growth often forms as W1 or W2 shapes. As you analyze, you can get deep into the details by identifying each component of the M and W at the following levels. There should be five of them in total. But with traditional analysis, there is no need to analyze all the constituent figures. It is enough to find a few of them. In addition, the formation is easy to read visually, as well as in terms of its interaction with Bollinger Bands and the impact on trading volumes. ### Three pushes to high In addition to the classic head and shoulders, you will often see a variation of this pattern, which Bollinger calls the three pushes to a high. It usually completes larger shapes. When analyzing this structure using Bollinger Bands, you can see the following patterns: - The first push goes beyond the upper bands. - The second push creates a new high and touches the upper level. - The third push may or may not form a new high. If a new extreme point is created, it will not be much higher than the previous one. In this case, the third push does not touch the upper Bollinger band. The highest volumes are observed at the first stage of the development of the three pushes to a high. Then the activity gradually decreases and in the final stage reaches a low. Let's take a look at an example. [![LiteFinance: Three pushes to high](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_35.jpg?q=75&s=e5973d7accd748e7d2db853599afedf5)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_35.jpg?q=75&s=e5973d7accd748e7d2db853599afedf5) In the EURUSD chart, I marked the direction of price movement with green lines. The peaks of the three pushes to a high are labeled with numbers. We will use them as serial numbers. The first push naturally crosses the upper Bollinger band. The second creates a new top. However, it is only slightly higher than the previous one. Because of this and as a result of the previous rapid upward movement, the second pattern is not realized. The third spike is also not much stronger than the previous ones. Its high touches the Bollinger band, but the end point of the candlestick is below it. A gradual decrease in volumes from the beginning of the formation to its end confirms an early reversal. I marked this phenomenon in the chart with a blue line. ## Bollinger Bands Strategies [![LiteFinance: Bollinger Bands Strategies](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-3.jpg?q=75&s=9f6e5479ec6787b20101b7fe5587c30b)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-3.jpg?q=75&s=9f6e5479ec6787b20101b7fe5587c30b) In this section, I have collected the most popular Bollinger Bands strategies. We will look at various methods within the day, in the lowest timeframes, learn how to squeeze the bands and use their signals in conjunction with other indicators. I will separately talk about the Bollinger Bands strategies, which involve trend following in the presence of a breakout of important levels and additional reversal signals. ### Daily Trading with DBBs (Double Bollinger Bands) #### Kathy Lien [![LiteFinance: Kathy Lien](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Ms.Lin_37.jpg?q=75&s=e0d441af2509483dd4d5a3e398ef0571)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Ms.Lin_37.jpg?q=75&s=e0d441af2509483dd4d5a3e398ef0571) This method appeared as a result of the efforts of the exchange analyst Kathy Lien. In her book, The Little Book of Currency Trading. How to Make Big Profits in the World of Forex, she described an unusual technique involving the use of two Bollinger Bands of the same type in the same chart. To understand what this is about, let's add them to the chart. The first indicator will be with a period of 20 candles and two standard deviations. For the second indicator, we use slightly different Bollinger Band strategy settings: a 20-bar period and one standard deviation. I also recommend assigning its own color scheme for each indicator, so that it’s easier to compare their readings in the chart. [![LiteFinance: Kathy Lien](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_38.jpg?q=75&s=7fd13367e488c91fb9066ee5fa9298ec)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_38.jpg?q=75&s=7fd13367e488c91fb9066ee5fa9298ec) The final Bollinger indicator consists of five lines: - top (red) line with two standard deviations; - top (green) line with one deviation; - moving average (blue); - bottom (green) line with one deviation; - bottom (red) line with two deviations. All bands, except the middle band of the moving average, form trading zones that we will use to open trades: - buy zone — between the upper red Bollinger band and the upper green line; - neutral zone — between the upper green and lower green line; - sell area is between the lower green and lower red line. The price being in the buy zone indicates the strength of the current trend. This means that there is a high probability that the price moves will go up for some time. For trend trading, Ketty recommends opening long positions when the close of the candlestick hits the upper quarter of the double Bollinger indicator. In this case, the two bars preceding it should close in the neutral half. Keep a long position as long as the candles close within it. On the other hand, if the price moves in the sell zone, it indicates the strength of the bearish trend. By analogy, here you should open short positions (provided the closing points of the two previous bars are in the neutral half) and keep them until the candle closes return to the neutral zone. For an uptrend, we should identify the m tops and place a stop order at the lowest price of the first bar that broke the upper bands of the neutral zone. For a downtrend, the stop order position is determined by the high of the first bar that breaks the lower line of the neutral zone. The initial target is set at a distance of two stop losses. When the distance of one stop loss is passed, Kathy recommends moving it to breakeven. Then it should be gradually moved along with the potential target following the price moves and closed manually when the last candlestick closes in the neutral zone. After the price has entered the neutral zone, we can consider two possible scenarios: 1. The price will move to one of the trading quarters — usually this happens when a trend reverses. 2. The price will consolidate in the neutral zone — there will be a “calm before the storm”. You can prepare for a strong movement in either direction. The price being in the neutral zone demonstrates uncertainty. You should refrain from entering the market and wait for the price to close in one of the quarters. Alternatively, you can go to a lower timeframe or trade short-term trades within the channel. In the latter case, the [Grid trading strategy](https://www.litefinance.org/blog/for-professionals/grid-trading-a-complete-overview-of-forex-grid-trading-method/), which I talked about in one of the previous materials, may come in handy. Now let's look at the classic strategy Double Bollinger Bands through an example. [![LiteFinance: Kathy Lien](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_39.jpg?q=75&s=05a27fa008ef00496d24ffa788d2ef6c)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_39.jpg?q=75&s=05a27fa008ef00496d24ffa788d2ef6c) In the chart, the bar marked with a blue oval closes in the upper quarter. A buy signal appears. Open a long position at the close of the candlestick at 1.17873 points (blue line in the chart). Set the stop loss at the low of the candle that has broken through the first upper line. It is marked with a red line in the chart. I’ve marked the target with a green line, it’s located at two stop loss lengths. [![LiteFinance: Kathy Lien](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_40.jpg?q=75&s=20c4918276448760caf9d114fe9acc64)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_40.jpg?q=75&s=20c4918276448760caf9d114fe9acc64) In the future, you can stop at the target level. But it is much better when the price grows to move the stop loss to the breakeven level, leave it at this position and wait for the signal to close the order or move it dynamically with the target. As long as the price remains in the upper quarter, we leave the position open. In the chart above, the borders of this period are between the blue and orange ovals. Then a downtrend bar forms — see inside the orange oval. It closes in the neutral zone, which is a signal to take profit. The closing price is marked with a black line and is 1.18755 points. The resulting profit will be equal to 1.18755 - 1.17873 = 0.00882 points excluding spread. If we had stuck with the option of moving the stop loss and target, the close would have occurred automatically at the 1.18877 level marked with a red line. In this case, net profit excluding spread would be 0.00886 points. It is recommended to use the strategy of double Bollinger bands on trend instruments. You can use almost any timeframe — from M15 to D1. Here's what experienced traders think of the strategy: [![LiteFinance: Kathy Lien](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_comment_42.jpg?q=75&s=2b878118dd98e1be00aba06f82502ffa)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_comment_42.jpg?q=75&s=2b878118dd98e1be00aba06f82502ffa) ### Bollinger Bands Scalping [This strategy](https://www.litefinance.org/blog/for-beginners/trading-strategies/scalping-forex/) works on any exchange instruments. The recommended chart timeframe is M1 to M15. We will receive the main signals from Bollinger Bands. We will use them to identify opportunities for opening and closing positions. [![LiteFinance: Bollinger Bands Scalping](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_44.jpg?q=75&s=82c0d1be5ddaee1a72b2d5c17eed6a4a)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_44.jpg?q=75&s=82c0d1be5ddaee1a72b2d5c17eed6a4a) The picture above shows how to set up the Bollinger Bands trading strategy. The parameters are standard — the period of the middle band of the moving average of 20 bars and two standard deviations. The [RSI indicator](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/rsi-relative-strength-index/) is used as a signal filter. [![LiteFinance: Bollinger Bands Scalping](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_46.jpg?q=75&s=40dbafdb7ad4a34bccedcbb194ea44bf)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_46.jpg?q=75&s=40dbafdb7ad4a34bccedcbb194ea44bf) I recommend using the 8 bar period for it. Go to the indicator settings, open the "Parameters" tab and set 8 under the "Length". [![LiteFinance: Bollinger Bands Scalping](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/RSI_settings_48.jpg?q=75&s=5677540d80b2fa60c9cc2e885d4d4808)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/RSI_settings_48.jpg?q=75&s=5677540d80b2fa60c9cc2e885d4d4808) We leave the upper and lower limits as is — 30 and 70. To open a long position, the following conditions must be met: 1. the price candlestick touches or breaks the lower Bollinger band; 2. RSI level is below 30; 3. one of the following candles will close within the channel. The stop loss is set just below the low level of the breakout candle. The gap should not be less than 10 points. The optimal ratio of take profit to stop loss when using this strategy is 0.6. Therefore, the minimum target should be at least 6 pips above the buy price. To open a short position, the following conditions must be met: 1. the candle touches or breaks the upper band; 2. RSI level is above 70; 3. enter when one of the following candles closes within the channel. Set stop losses and take profits similarly as with long positions. Let's consider the application of the strategy using an example. [![LiteFinance: Bollinger Bands Scalping](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_49.jpg?q=75&s=4a25aced35798c8c5e716d56b519ac69)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_49.jpg?q=75&s=4a25aced35798c8c5e716d56b519ac69) In the five-minute [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/) chart, a blue circle marks the area where one of the candles touches the lower band. At the same time, the RSI is below 30%, confirming a buy signal. We open a long position immediately after the close of the next upward candlestick within the channel. The opening price is 1.18805 points (green line). The stop loss is set below the low of the touch candle. Since there are several such bars in a row, we take the smallest low and set the stop loss just below it. Set the take profit slightly above the buy price so that it is about 60% of the stop loss. [![LiteFinance: Bollinger Bands Scalping](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_50.jpg?q=75&s=9d3392c87745a46738f75602e7006b8a)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_50.jpg?q=75&s=9d3392c87745a46738f75602e7006b8a) The take profit is crossed on the next candlestick after the opening. Thus, the long position is automatically closed at the price of 1.18868 points. The profit from the trade is 1.18868 - 1.18805 = 0.00063 points. ### Bollinger Band and Stochastic Strategy Bollinger trading with the [Stochastic indicator](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/stochastic-oscillator/) is similar to the previous strategy using the RSI. We will use the bands to detect potential entry points, and the oscillator readings to filter signals. Unlike the previous one, this trading method is more like a channel strategy, with the only difference that the Bollinger channel will be used for trading decissions. Therefore, it is very important to pay special attention to setting the indicator bands. As an example, we will use standard parameters — a 20-bar moving average and a multiplier with a factor of 2. Your input data may be different. Depending on the trading instrument, timeframe and market peculiarities, select the period and multiplier in such a way that the moving average of the indicator shows the correct trend direction. At the same time, the price should not be outside the channel for longer than several candles. [![LiteFinance: Bollinger Band and Stochastic Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Stochastic_Oscillytor_53.jpg?q=75&s=60ab7d89afc54bc3e9b99de143f88d7f)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Stochastic_Oscillytor_53.jpg?q=75&s=60ab7d89afc54bc3e9b99de143f88d7f) To add a Stochastic, click on the "Indicators" button in the upper part of the online terminal window. Select "Stochastic Oscillator" from the dropdown list. [![LiteFinance: Bollinger Band and Stochastic Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Stochastic_Oscillytor_settings_55.jpg?q=75&s=e61356a4a0384af1b1b3ffa0e63ba975)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Stochastic_Oscillytor_settings_55.jpg?q=75&s=e61356a4a0384af1b1b3ffa0e63ba975) We will use the following default parameters for the Stochastic: periods 5 for line K and 3 for line D, length 3. You can change the colors of the K and D lines, as well as the upper and lower limits in the "Style" tab. By default, K is orange and D is blue. Conditions for opening a buy order: - the candlestick crosses or at least touches the lower band; - the oscillator shows oversold (less than 20%); - line K crosses D from bottom to top; - buy after the close of the signal candle. Conditions for opening a sell order: - the candlestick crosses or at least touches the upper Bollinger band; - the oscillator shows overbought (more than 80%); - line K crosses D from top to bottom; - Sell when the signal candle closes. Stop loss is set with an offset of at least 10-20 points from the low of the breakout candle in the case of a long position and the high in the case of a sell position. Set take profit on the opposite Bollinger band. When buying, take profit will be located on the upper bollinger band, and when selling — on the lower one. Let's consider the application of the strategy using an example. [![LiteFinance: Bollinger Band and Stochastic Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_56.jpg?q=75&s=3bf6c4bfa18b034d247a40e05f5e6c6a)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_56.jpg?q=75&s=3bf6c4bfa18b034d247a40e05f5e6c6a) In the area of the chart marked with a blue oval, the candlestick crosses the lower band. Here line K crosses D, and the Stochastic itself shows oversold below the 20% level. [![LiteFinance: Bollinger Band and Stochastic Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_57.jpg?q=75&s=c7c062ccf209291bd5fe5e3324131806)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_57.jpg?q=75&s=c7c062ccf209291bd5fe5e3324131806) At the opening of the next candle, we enter the market with a buy position at 1.08752 points (green line). Set the stop order a little lower (red line). [![LiteFinance: Bollinger Band and Stochastic Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_58.jpg?q=75&s=c2efcd6b99216c37a50e0502fdc2fcfc)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_58.jpg?q=75&s=c2efcd6b99216c37a50e0502fdc2fcfc) Place the take profit on the upper Bollinger band. It is marked with a blue line in the chart. After a while, one of the candles reaches it and the order is automatically closed at a price of 1.09100 points. Thus, the profit from the trade is 1.09100 - 1.08752 = 0.00348 points. If you are going to use this strategy on small timeframes, I recommend to monitor more stable trends additionally. This way you will avoid entering the market against powerful trends. ### Using EMA and WMA instead of Simple Moving Average Many traders often ask: "Can I use a weighted average or exponential instead of a moving average?" In theory, any average is suitable for plotting BB. When trying to answer this question, John Bollinger himself did a comparative analysis of various averages and came to the conclusion that the classical moving average is the simplest and most accurate tool for constructing reference points. Let's compare the indications of moving averages using an example. [![LiteFinance: Using EMA and WMA instead of Simple Moving Average](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_59.jpg?q=75&s=cdc069dde51997e2f76d6abeb680350e)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_59.jpg?q=75&s=cdc069dde51997e2f76d6abeb680350e) In the chart, the blue middle band channel represents standard bands based on a 20-period moving average. The orange channel, in turn, was built on the basis of the 20-period EMA. As you can see, in times of high volatility, where the bands expand significantly, these methods give different results. [![LiteFinance: Using EMA and WMA instead of Simple Moving Average](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_60.jpg?q=75&s=72489b691d01c3fec2ed84c3cef6af08)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_60.jpg?q=75&s=72489b691d01c3fec2ed84c3cef6af08) And in this chart, the red channel marks the bands plotted by the WMA, and the blue one — by the middle line of the moving average. As you can see, in this case the differences are noticeable, especially at the extreme points. Both examples show that using WMA and EMA instead of a moving average can give very unexpected results. Therefore, these averages are not recommended for Bollinger trading. ### Bollinger Band Squeeze Bollinger Band strategy is driven by volatility. Because of it, the bands widen or contract. To determine the degree of compression, John created the BandWidth indicator. It determines volatility as a function of the average and works great on any time frame. BandWidth is calculated by the formula: BandWidth = (UB - LB) / μ UB — upper Bollinger line; LB — lower Bollinger line; μ — moving average value. You can download Bollinger Bandwidth for MetaTrader 4 [here](https://www.mql5.com/en/market/product/4768). Let's look at the process of installing and setting up the indicator: Download the archive from the link above and unpack it. We need the dinapoli-BandsBandwidth.mq4 file. [![LiteFinance: Bollinger Band Squeeze](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490) Open the File tab in the MetaTrader4 top menu. Next, select the item "Open Data Folder". [![LiteFinance: Bollinger Band Squeeze](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_64.jpg?q=75&s=1c1480ca125e4d6c936ab2c64a2c8795)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_64.jpg?q=75&s=1c1480ca125e4d6c936ab2c64a2c8795) File explorer will open with the target folder. In it, select the "MQL4" folder. [![LiteFinance: Bollinger Band Squeeze](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_66.jpg?q=75&s=6b359921bc938e0065f9fa2af34153e1)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_66.jpg?q=75&s=6b359921bc938e0065f9fa2af34153e1) Then select the "Indicators" folder. Copy the unarchived BandsBandwidth.mq4 file to this directory. Restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/). [![LiteFinance: Bollinger Band Squeeze](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_68.jpg?q=75&s=f5987b7b40d35f9e5f55d9e804b28926)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_68.jpg?q=75&s=f5987b7b40d35f9e5f55d9e804b28926) At the top of the terminal, open the "Insert" tab, then go to the "Indicators" item. Click on the "Custom" item and select the name of the newly installed indicator. In our case, it’s BandWidth. [![LiteFinance: Bollinger Band Squeeze](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_70.jpg?q=75&s=75d3e116194cf0fd0003536d966eba9f)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_70.jpg?q=75&s=75d3e116194cf0fd0003536d966eba9f) After that, the indicator window will appear. By clicking on the OK button, you launch the indicator with default settings. ## Bollinger bands best settings You can also change the indicator settings. Best Bollinger band strategy setting is: - Common — these are the technical settings for the indicator. They are best left as default. - Inputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings. - Colors — here you can set up the color, thickness and look of the indicator lines. - Levels — this item allows you to set levels. For example, the level, upon crossing which you need to buy, etc. Let's look at the indicator's application using an example. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_71.jpg?q=75&s=42e9aa07df1a0efb3809e9c9607fe4cc)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_71.jpg?q=75&s=42e9aa07df1a0efb3809e9c9607fe4cc) The Bollinger indicator is shown in the chart with red lines. At the bottom, the blue line shows BandWidth. The principle is simple: the higher the line, the greater the expansion; the lower the line the stronger the narrowing. With blue arrows, I marked the narrowing areas, which correspond to the minimum typical values in the BandWidth chart. The Bollinger Bands Squeeze strategy shows good results during narrowing and expansion. It is a channel trading method. The idea is to open positions on a rebound from one of the levels. The strategy works well on any exchange instruments with a timeframe of M30 and higher. We need: 1. Bollinger Bands indicator with the following settings: 20 periods and two standard deviations. 2. BandWidth indicator. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_73.jpg?q=75&s=60bc382b97c970ab20037239c2cc1471)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_73.jpg?q=75&s=60bc382b97c970ab20037239c2cc1471) To add the Bollinger Bands indicator to the chart, open the "Insert" tab in the main menu, then "Indicators", "Trend" and in the submenu that opens, select Bollinger Bands. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_75.jpg?q=75&s=fecbd021c34eba2b610ce98288ea59f8)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_75.jpg?q=75&s=fecbd021c34eba2b610ce98288ea59f8) This will open the settings window. In it, we will set the period equal to 20 bars and two standard deviations. As John Bollinger argued, periods of low market activity are cyclically replaced by periods of high volatility where the bands widen. This statement is the essence of the Bollinger Squeeze strategy. The signal for an early entry into the market is the narrowing of the BB. We will identify it using BandWidth, which demonstrates its lowest values during this period. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_76.jpg?q=75&s=e3e2c8f2a8ef312d81e4f8c16b95e989)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_76.jpg?q=75&s=e3e2c8f2a8ef312d81e4f8c16b95e989) In the EURUSD chart, the blue arrows indicate a narrowing. Please note that the BandWidth is at its lowest during this period. The next goal is to identify when the narrowing ends. The beginning of the movement is evidenced by the breakout of one of the Bollinger bands. For a bearish trend, this will be the crossing of the lower level, and for a bullish trend, it will be the crossing of the upper level. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_77.jpg?q=75&s=72f1bcf81434c4553bb0a1c678dc5810)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_77.jpg?q=75&s=72f1bcf81434c4553bb0a1c678dc5810) In the chart, I have marked the moment of the breakout of the lower level with a red arrow. This signal indicates the beginning of a bearish trend. You can set the stop order, as in previous trading methods, at the high or low point of the breakout candle. The initial take profit must be at least twice the stop loss length. Since we are talking about trend trading decissions, it makes sense to use the trailing stop and wait for the signal of the trend end. This signal can be one of the patterns described in the analyst's book or another narrowing of the channel. [![LiteFinance: Bollinger bands best settings](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_78.jpg?q=75&s=b4cadccbb3b06b088ccda23753cee73c)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_78.jpg?q=75&s=b4cadccbb3b06b088ccda23753cee73c) The next narrowing of the channel is marked by green arrows in the chart. It signals a reversal, which means it's time to close the short position. > Important\! During the squeeze, one unusual phenomenon often happens that confuses most beginners. This is a false breakout that occurs in anticipation of the end of the squeeze. At this moment, the chart makes an intense but short-term movement. After that, it also reverses sharply and starts to move in the direction of the emerging trend. This phenomenon can also be used as a signal for the end of market consolidation. In order not to be fooled by a false breakout, don’t jump to conclusions. Wait a bit until the movement develops so that there is no doubt that a new trend is forming. Experienced traders often derive additional profits from false breakouts. To do this, they open a position at the very beginning of the movement. After that, a trailing stop is set in such a way that it falls into the breakeven zone as soon as possible. Further moving of the stop order in the direction of the candlestick formation will give profit when triggered. ### Bollinger Bounce This strategy is suitable for trading opportunities on timeframes from M30 to H4. It is based on two popular tools: the Bollinger Bands indicator and the RSI. The essence of the trading system boils down to finding a price bounce, which is formed during the development of a trend. [![LiteFinance: Bollinger Bounce](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/indicator_setting_81.jpg?q=75&s=b250be1c0f49c39f7febf40320e534eb)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/indicator_setting_81.jpg?q=75&s=b250be1c0f49c39f7febf40320e534eb) First, let's add Bollinger Bands and RSI to the EURUSD chart of [LiteFinance online terminal](https://my.litefinance.org/). To do this, click on the "Indicators" button at the top of the chart. Then, in the menu that opens, click on the "Bollinger Bands (BB)" and "RSI" links. Now let's move on to setting up the tools. For Bollinger Bands trading strategy, we will use standard parameters: 20 bar period and 2 standard deviations. For RSI, we will also leave the default settings: - length — 14; - limits — 30 and 70. [![LiteFinance: Bollinger Bounce](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_85.jpg?q=75&s=00d002b653ea7cfc38066093cf948096)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_85.jpg?q=75&s=00d002b653ea7cfc38066093cf948096) Let's modify the RSI a little by adding a horizontal line at the 50 level. The Bollinger Bounce strategy involves trading on developing trends. The direction of price movement does not matter. In an uptrend, we will look for the moment when the price action rolls back down, touches or almost touches the lower band. In a downtrend, on the contrary, we need a moment when several candles go up and stop at the border of the upper band and identify the m tops. Next comes the RSI. We will use it to understand how the instrument is strengthening or weakening in its value. In an upward trend and downward rollback, the signal is confirmed when the indicator line is within 30-50. Ideally, it goes up. Accordingly, in a downtrend and an upward rollback, the RSI should be between 50 and 70 and going down. If the main trend is upward, we enter the market at the close of the subsequent bullish (white) candlestick. If the trend is downward, enter after the close of the bearish bar. If the movement is too strong and you are afraid to miss a significant part of the movement, you can move to the next smaller timeframe and wait for the bar to close on it. Place stop loss a little behind the touch point of the Bollinger Band indicator. It is recommended to place take profit at the level of the opposite band. Let's see how the strategy works though an example. [![LiteFinance: Bollinger Bounce](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_86.jpg?q=75&s=e78f60ce1c73f98047f04406553c5f81)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_86.jpg?q=75&s=e78f60ce1c73f98047f04406553c5f81) The [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/) chart shows an uptrend. In the place of the supposed bounce, one of the bars touches the lower band (green oval area). In this area, the RSI moves in the direction of the trend and is located in the optimal range from 30 to 50 percent. Therefore, we can talk about a signal for the upcoming bounce. [![LiteFinance: Bollinger Bounce](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_87.jpg?q=75&s=3c3056b7a1b0c1c77baf85a031f2ad79)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_87.jpg?q=75&s=3c3056b7a1b0c1c77baf85a031f2ad79) Following the touch candle, a bullish bar is formed, signaling the start of a bounce. At its final point, open a long position at 1.09042 points (green horizontal line). Set the stop loss (red line) slightly behind. Take profit is placed at the level of the upper band (blue line). [![LiteFinance: Bollinger Bounce](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_88.jpg?q=75&s=4aede2bc30e124fd6763ed289c4dc203)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_88.jpg?q=75&s=4aede2bc30e124fd6763ed289c4dc203) The position closes by take profit (blue line) upon reaching the level of 1.10031 points. The profit from the trade was 1.10031 - 1.09042 = 0.00989 points. ### Bollinger Band Breakout Strategy Many experts agree that strategies based on breakout signals are the most effective. The Bollinger Bands indicator is among the best indicators for tracking and predicting future impulses. This is noted by D. Rooney, technical analyst and trader with ten years of experience, winner of an award in writing trading systems. [![LiteFinance: Bollinger Band Breakout Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_comment_89.jpg?q=75&s=569b81eebad1dc4c796c23825491fb6f)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_comment_89.jpg?q=75&s=569b81eebad1dc4c796c23825491fb6f) One such trading system is the Bollinger Band breakout strategy. It is equally effective on both 5-minute and weekly timeframes. This strategy is the complete opposite of the Bollinger Bands bounce strategy. The founder of breakout trading is Bruce Babcock, the author of the intuitive trading theory. John Bollinger liked his approach to trading volatility breakouts and decided to adapt it to his indicator. The key to success is the correct choice of timing to enter the market, namely, the moments of lowest volatility. To determine the narrowing, we will use the already familiar BandWidth indicator. I’ve talked in detail about this tool, its installation and setting up in the section on narrowing. If the BandWidth narrows, the trader should be prepared to see a breakout of one of the Bollinger Bands. We enter the market as soon as one of the candles closes above or below the line. The direction of the position coincides with the direction of the breakout. This means, if the upper band is crossed, we open a long position, and if the lower one is crossed — a short position. Stop orders are placed just below the breakout candle. Then, at regular intervals, the stop loss is pulled up by the price movement distance. Such intervals will be different for each of the timeframes. In daily charts, the optimal nudge time would be the opening of trades at the beginning of the day. You can also use the trailing stop, which changes the stop loss value at the close of each candle. Breakout Strategy is almost identical to Bollinger Squeeze. But there is also a significant difference. It’s in an alternative parabolic way of exiting the market. In this case, the stop loss is set in the breakeven zone during the growth process. We exit the market when the opposite band is touched: for the bullish movement — the lower bands, and for the bearish — the upper band. Let’s look at this option through an example. [![LiteFinance: Bollinger Band Breakout Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_90.jpg?q=75&s=9241fd7d2e1e21d1f4672ea1a32d5109)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_90.jpg?q=75&s=9241fd7d2e1e21d1f4672ea1a32d5109) For the breakout strategy, I took the same chart that was used to demonstrate squeeze trading. The blue arrows indicate the narrowing area, the red one shows the candlestick crossing the lower level. When it closes, we enter a short position. With the blue line, I marked the entry price of 1.00002 points. And the red line is the initial stop loss. [![LiteFinance: Bollinger Band Breakout Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_91.jpg?q=75&s=4ac8ab44b357ebf0731473ed032c17bd)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_91.jpg?q=75&s=4ac8ab44b357ebf0731473ed032c17bd) During the development of a bearish trend, we move the stop loss to the opening price (in reality you need to move it a little lower to compensate for the spread). The new stop loss is marked with a red line. I also left the original one intact for clarity. It is now marked with a semi-transparent red line. The position is closed when the candlestick touches the upper Bollinger band. This event is marked with a red cross in the chart. The closing price is marked with a green line and is 1.09410. This trade should have brought us a profit of 1.09410 - 1.00002 = 0.09408 points. ### Trend Trading Indicator Strategy The essence of this approach boils down to predicting the birth of trends using price strength analysis. The analyst considers the ability of the chart to approach the upper band during an upward movement and the lower one during a downward movement as a sign of strength. Additionally, the strength is confirmed by the MFI readings. To measure how close the price action is to one of the bands, we will use the Bollinger Bands %b indicator. I talked about it in detail in the section "How the Bollinger Wave Indicator Works". Let's look at the process of installing and setting up the indicator: 1\. Download the Bollinger Bands %b indicator from [here](http://www.mql5.com/en/code/7165). [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_62.jpg?q=75&s=8c359f1d3a83abf39b2277c0dde5d490) 2\. Open the "File" tab in the top menu of MetaTrader4, select the "Open Data Folder" item. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_96.jpg?q=75&s=31d8e5b30d30bc5e3b8fd592a6db2faf)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_settings_96.jpg?q=75&s=31d8e5b30d30bc5e3b8fd592a6db2faf) 3\. File explorer will open with the target folder. In it, select the "MQL4" folder. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_98.jpg?q=75&s=f48c057e6759a9ed91390d2d7aa67d82)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_98.jpg?q=75&s=f48c057e6759a9ed91390d2d7aa67d82) 4\. Select the "Indicators" folder. Copy the unarchived Bollinger\_Bands\_3b.mq4 file to this directory and restart the terminal. Open the chart to which you want to add the indicator. In our case, it will be [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/). [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_100.jpg?q=75&s=a47821411cbbbd0b57c5e687e5da5ee5)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_100.jpg?q=75&s=a47821411cbbbd0b57c5e687e5da5ee5) 5\. At the top of the terminal, open the "Insert" tab, then go to the "Indicators" item. Next, click on the "Custom" item and select the name of the newly installed indicator — Bollinger\_Bands\_3b. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_ustanovka_indicatora_102.jpg?q=75&s=fa9f0c3193084e73ce655f7650cd4ef6)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_ustanovka_indicatora_102.jpg?q=75&s=fa9f0c3193084e73ce655f7650cd4ef6) 6\. The indicator window will appear. By clicking on the OK button, you will launch the indicator with default settings. The editable parameters of the tool are in the following tabs: - Common — technical settings for the indicator. They are best left as default. - Inputs — here you can set the period and the number of standard deviations. For most timeframes, it is best to use the default settings. - Colors — here you can set up the color, thickness and look of the indicator line. By default, it is bright yellow, so it is better to immediately change it to a more vivid color. - Levels — this item allows you to set levels. For example, a level, at the crossing of which you need to buy, etc. In the case of our strategy, it makes sense to add levels 0.8 and 0.2. - Visualization — here you can select the timeframes on which the indicator will be displayed. You can download MFI from [here](https://www.mql5.com/en/code). The installation principle for this instrument is the same as for Bollinger Bands %b. Most of the settings are the same as well. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_104.jpg?q=75&s=bb9b53b7f6c02d6b052a4d57a1e1fa0e)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_104.jpg?q=75&s=bb9b53b7f6c02d6b052a4d57a1e1fa0e) The only difference is in the "Inputs" tab, where you can only change the period. For trend trading with MFI, it is recommended to set a period that is half the period of Bollinger Bands %b, which for us is 10 bars. The tool itself is designed to measure the intensity with which funds are invested in a security’s price or withdrawn from it. Its full name reads as the Money Flow Index. Within the described trading system, we will only be interested in levels above 80 and below 20 signaling a potential market top and bottom. We also need classic Bollinger Bands trading strategy with standard settings: 20 period and 2 standard deviations. Conditions for opening a long position: - Bollinger Bands %b is in the range from 0.8 to 1. - The MFI chart is above 80. We enter after the completion of the growing bar. Stop orders are set at the low price with a two candlestick offset, counting from the bar with an open position. Conditions for opening a short position: - Bollinger Bands %b is in the range from 0 to 0.2. - The MFI chart is below 20. We enter after the completion of the descending bar. Stop orders are set at the high of the candlestick with an offset of two bars from where the position was opened. In the process of the market movement along the trend, the stop order should be moved to a break-even position. We take profit when one of the bars crosses the Bollinger Band opposite to the trend direction. For an upward movement this will be the lower Bollinger bands, and for a downward movement it will be the upper one. Let's look at an example. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_105.jpg?q=75&s=4bdb7fe36d01376c63c07d4e067eb13d)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_105.jpg?q=75&s=4bdb7fe36d01376c63c07d4e067eb13d) The [EURUSD](https://www.litefinance.org/trading/trading-instruments/currency/eurusd/) chart shows a downward trend movement. The blue arrows mark the candlestick in which the Bollinger Bands %b ranges from 0 to 0.2, and the MFI chart is just below 20. Both conditions for opening a short position are met. [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_106.jpg?q=75&s=2b6a724c7b41a8a526810fa6067b6678)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_106.jpg?q=75&s=2b6a724c7b41a8a526810fa6067b6678) Enter the market at the close of this bar at 1.09731 points (blue line). Stop-loss is placed at the candlestick low with a two-bar offset from where the position was opened (red line). [![LiteFinance: Trend Trading Indicator Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_107.jpg?q=75&s=364fdfc33b8e1ee2be30c3f7cd2d3217)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_107.jpg?q=75&s=364fdfc33b8e1ee2be30c3f7cd2d3217) When the trend develops, we move the stop loss to a breakeven position (red line). For clarity, I marked the initial stop level with a transparent red line. Then the price touches the upper band opposite the green cross. At this moment, we close the order at 1.09402 (green line). The total profit is 1.09731 - 1.09402 = 0.00329 points. Some traders prefer to use an alternate version of the trending strategy that uses [MACD](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/macd-indicator-forex-trading/) instead of MFI. This indicator shows really good results on some instruments. So if you want to find the ideal trading method for several of the most commonly used currency pairs, it makes sense to test the strategy with both MFI and MACD. ### Bollinger Bands Reversal Strategy This strategy aims to predict trend reversals by comparing the touch of the Bollinger Bands with the behavior of indicators. First of all, we need a Bollinger indicator with standard settings. I’ve described earlier how to add it to the MT4/MT5 chart. We also need the MACD oscillator. It is available in MetaTrader by default. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_109.jpg?q=75&s=8eedf9a7ab940d4b02420c0fac1a6d3d)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_109.jpg?q=75&s=8eedf9a7ab940d4b02420c0fac1a6d3d) To add this instrument to the chart, click on the "Insert" button, then "Oscillators" and select MACD in the drop-down list. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_110.jpg?q=75&s=895c9a0f8c54f44b3ca91a8b400d10d7)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_110.jpg?q=75&s=895c9a0f8c54f44b3ca91a8b400d10d7) A new window with the settings will appear. The period of the fast EMA should be set at 21 bars, the slow one at 100 candles, and the signal line — at 9. You can do this in the "Parameters" tab. In the "Colors" tab, you can change the colors of the histogram and signal line. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_112.jpg?q=75&s=68b3cbcfecfbfb54d434ceb0045e28f5)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_112.jpg?q=75&s=68b3cbcfecfbfb54d434ceb0045e28f5) For convenience, in the "Levels" tab, add a new value "0". The third indicator will be the Bollinger Bands %b, which is already familiar to us from the previous strategy. I have already described its installation and setting up. It is standard. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_115.jpg?q=75&s=b477edf71d65a0c1cc51618d808712a8)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/MT4_indicator_setup_115.jpg?q=75&s=b477edf71d65a0c1cc51618d808712a8) In the trading process, we will need to determine the levels 0.95 and 0.05. So let's add them to the indicator chart. Open a long position when the following conditions are met: 1. The candlestick touches the lower Bollinger band; 2. Bollinger Bands %b ranges from 0 to 0.05; 3. MACD is above zero. Open a short position if the following conditions are met: 1. The candle touches the top band, 2. Bollinger Bands %b ranges from 0.95 to 1, 3. MACD is less than 0. Place the stop loss at the extreme reversal point, and in the process of the new trend development, move it to the breakeven zone. A signal to close can be a narrowing, the appearance of conditions for the next reversal, or touching of the Bollinger Band opposite to the direction of the main movement. Let's look at the strategy using an example. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_116.jpg?q=75&s=8bd913294fdc085008944512ad35eff5)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_116.jpg?q=75&s=8bd913294fdc085008944512ad35eff5) In the chart, blue arrows mark the moment when one of the candles touches the upper band, Bollinger Bands %b is in the range from 0.95 to 1, and MACD is less than 0. This is a clear signal to enter the market. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_117.jpg?q=75&s=76fcc1974bc51ea3c2a042edd9af2c3d)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_117.jpg?q=75&s=76fcc1974bc51ea3c2a042edd9af2c3d) At the close of the bar, open a short position at a price of 1.10447 points (green line). Wait for the appearance of the high price values at the reversal in the vicinity of the candlestick and set a stop loss (red line) at this level. [![LiteFinance: Bollinger Bands Reversal Strategy](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_118.jpg?q=75&s=4e4381a7a61571bc997e13afaef01fb9)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_chart_118.jpg?q=75&s=4e4381a7a61571bc997e13afaef01fb9) Move the stop order to the breakeven zone (red line). I’ve marked the previous stop loss value with a semi-transparent red line. The development of the downtrend ends. The candlestick marked with a red cross crosses the upper border of the channel. After detecting the signal, close the position at a price of 1.09831 points (green line). The profit from the trade is 1.10447 - 1.09831 = 0.00616 points. ## Bollinger Bands Screener For effective profitable trading, it is important to always be on alert and monitor the market situation. While accessing the market is easy now even from a smartphone, novice traders often have problems with the choice of an instrument for trading. Screeners help you solve this problem — these are services for tracking trading instruments according to user-specified criteria. With their help, you can not only save time on market analysis, but also choose the best moments for entry and exit. One of the best quality screeners is offered by tradingview.com. [![LiteFinance: Bollinger Bands Screener](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_screener_121.jpg?q=75&s=be1630023d9dad927ab1d79d3745689f)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_screener_121.jpg?q=75&s=be1630023d9dad927ab1d79d3745689f) Here you can set up filters by technical and fundamental parameters. For your convenience, in the upper part of the window there is a search bar for parameters by name. All filters are divided into three categories: - common; - fundamental; - technical. As part of Bollinger trading, we are interested in technical filters. [![LiteFinance: Bollinger Bands Screener](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_screener_123.jpg?q=75&s=02d1af5c015d1cc88bb62797572fa1dd)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_screener_123.jpg?q=75&s=02d1af5c015d1cc88bb62797572fa1dd) In particular, here you can select assets whose price action is located near a certain level of the upper or lower Bollinger band, such as a security’s price for example. In this case, you can set both standard parameters (higher or lower) and more complex ones: for example, higher or equal, crosses up and down. You can even configure the Bollinger indicator so that it will work with an alert and send trading signals if a specified condition is met. [![LiteFinance: Bollinger Bands Screener](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_skriner_125.jpg?q=75&s=c8d9c6065cdb9c6a630e32afa0eb4b90)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/Bollinger_bands_skriner_125.jpg?q=75&s=c8d9c6065cdb9c6a630e32afa0eb4b90) You can refine your search using other tools that we used in the described strategies. For example, you can use the RSI readings to select trading instruments for which you should enter the market right now. ## Bollinger Bands Tips & Rules [![LiteFinance: Bollinger Bands Tips & Rules](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-4.jpg?q=75&s=faac801b313b948891eeb14d449d45fc)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/bands-4.jpg?q=75&s=faac801b313b948891eeb14d449d45fc) Whichever strategy you use, certain basic rules should always be followed when working with Bollinger Bands. They were deduced by the author of the indicator John Bollinger and listed in his book. I chose the most relevant ones and put them in a simpler language: - Bollinger Bands should be used in conjunction with other technical analysis tools. - You can use a variety of indicators with Bollinger Bands that determine momentum, market sentiment, activity, intermarket data, etc. The indicators used should not be connected to each other. For example, trend and price volatility are used in the calculation of the bands. Their use for additional confirmation of price action behavior is meaningless. - The default indicator parameters are applicable for most instruments, timeframes and trading methods. But this does not mean that you cannot use other settings. It is important that the middle band of the moving average always describes the medium-term trend well. If it lengthens or shortens, the number of standard deviations should also be increased or decreased. For example, for fifty periods it is better to use a ratio of 2.1, and for 10 periods — 1.9. - Bollinger Bands are good for confirming chart patterns such as triangles, double and triple tops and bottoms, head and shoulders, and other W-shaped bottoms and M-shaped tops. - With a directional price movement, it can often move along the upper line and in the case of a bearish trend — along the lower one. - Bars closing outside the bands are statistically more likely to indicate the continuation of the trend, rather than its end. - The price touching the band does not in itself signal a buy or sell. Therefore, it should be considered only in conjunction with the readings of other indicators. - The Moving Average in Bollinger Bands is not a substitute for strategies that involve SMA, EMA and other types of averages. - The Bollinger Bands %b indicator will help determine the position of the price relative to the Bollinger Bands. - The BandWidth indicator is recommended to be used together with Bollinger Bands. It helps identify the “calm before the storm” and signs of trend changes. - Bollinger Bands work on any timeframe and any market conditions. An important requirement for the correct use of the indicator is sufficient price activity and calibration of the parameter settings based on the history of its movement. - Bollinger Bands do not provide clear recommendations on their own. This indicator should improve your chances of avoiding bad trades. ### Bollinger Bands PDF Here you can download a [quick guide to Bollinger Bands PDF with the secrets to using them](https://www.litefinance.org/uploads/documents/pdf/trading-blog/Bollinger-Bands-Guide-and-Secrets-of-BB-Indicator-en.pdf?_t=1601453913). Remember these rules and always stick to them if you use Bollinger Bands in your trading method. ## Bollinger Bands FAQ How does the Bollinger indicator work? The Bollinger Bands is a technical analysis tool that works on the basis of a moving average. The upper and lower levels are equidistant from the MA. The lag rate is calculated using the standard deviation multiplied by the specified factor. The latter depends on the length of the moving average. For example, for the MA with a period of 21 bars, it is recommended to use 2 standard deviations, and for one with a period of 10 bars — 1.9. How to use the Bollinger indicator? The indicator itself provides little information. Almost all trading systems use Bollinger Bands in conjunction with the readings of other indicators. These can be both classic RSI, MACD, Average True Range (ATR), as well as more complex volume indicators or entire trading systems. The only condition is that there is no connection between the calculation of the Bollinger Bands and additional indicators. What is the best setting for Bollinger bands? The key nuance in setting up Bollinger Bands is maintaining the optimal ratio between the period of the moving average and the number of standard deviations. The classic version uses a 21 bar period and 2 deviations. If the period for some reason increases to 50 bars, you should use the ratio 2.1. And if it decreases to 10 bars, then 1.9. How accurate are Bollinger Bands? The Bollinger Bands indicator itself cannot provide accurate information about whether to open a position or close an existing one. They provide good forecasting accuracy when used with other indicators or in combination with several Bollinger Bands with different settings. How do you master Bollinger bands? I think one of the simplest and at the same time effective methods is the trend following strategy. It is used for trading instruments that follow long-term steady trends. If we are talking about volatile currency pairs, a scalping strategy is better suited for them. How do I use Bollinger Bands in intraday trading? In intraday trading, I recommend using channel strategies in combination with Bollinger bands on small timeframes. If you are a beginner, it is recommended to consider trending strategies with a horizon of at least a few days. The Double Bollinger Bands strategy is great for this. It allows you to accurately identify the buy, sell and profit-taking zones. This will increase your trading discipline and help you avoid unnecessary mistakes at the very beginning. What do fundamental investors think about Bollinger Bands? One of the most famous investors in the world Warren Buffett never mentioned that he uses Bollinger Bands. Lesser-known traders often stick to Bollinger's tools and rules. Experienced traders are captivated by the versatility of the indicator and good compatibility with any trading strategy. Bollinger Bands are often used as a confirmation filter for signals and help to figure things out when the market conditions are not obvious. Are the Bollinger Bands the most useful indicator? It is difficult to gauge the usefulness of Bollinger Band indicators. Despite its relatively young age, this tool has become classic in technical analysis. Such a phenomenon cannot be an accident. You shouldn't overestimate the capabilities of the Bollinger Bands either. One thing is certain. This indicator needs to be tested with your trading strategy. This is the only way you can understand whether this indicator is useful to you or not. Which are some good books on Bollinger Bands? Bollinger on Bollinger Bands is the only book by the author of the instrument that describes Bollinger trading in detail. What does it mean when the Bollinger bands are narrow? The narrowing of the bands indicates a decrease in volatility to a minimum. Bollinger believes that such situations occur cyclically. The narrowing is always followed by expansion, and expansion is always followed by narrowing. This pattern is used in some strategies to identify the beginning or end of a trend. ## Conclusions on Bollinger Trading Bollinger Bands, like most other technical indicators, are best not applied alone. However, they can become an integral part of your trading strategy and give a good result in combination with other trading signals. At first, you can use the above trading methods. If you are just starting out as a trader, it is best to first master the Bollinger Bands trending strategy on a large timeframe. You can get invaluable experience in trading the Bollinger Bands strategies mentioned in this article on a Litefinance demo account completely free of charge and without registering. The Bollinger Band indicator can be compared to a seasoning. Eating it with a spoon will not bring great results, but it will make any dish tastier. When you gain experience and intuitively understand the indicator signals, try additional tools and different combinations of settings and indicators to maximize your profitability. The Bollinger Band indicator is perfect for almost any strategy\! * P.S. Did you like my article? Share it in social networks: it will be the best "thank you" :) Useful links:** - I recommend trying to trade with a reliable broker [here](https://my.litefinance.org/registration?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands&utm_source=blog&utm_medium=article&utm_campaign=bonus). The system allows you to trade by yourself or copy successful traders from all across the globe. - Use my promo code BLOG to get a 50% deposit bonus on the LiteFinance platform. Simply enter this code in the appropriate field when [funding](https://my.litefinance.org/deposit?category=for-beginners&slug=best-technical-indicators&slug2=bollinger-bands&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus) your trading account. - Telegram chat for traders: <https://t.me/litefinancebrokerchat>. We are sharing the signals and trading experience. - Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders <https://t.me/litefinance> [![Bollinger Bands Indicator in Forex Strategies](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/new-logo.jpg?q=75&w=1000&s=f06453fe08b2fcbd7d6fdbb8c5f87a17)](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/Bollinger-bands/new-logo.jpg?q=75&w=1000&s=f06453fe08b2fcbd7d6fdbb8c5f87a17) The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU. 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Efficient combinations of indicators. ![TTM Squeeze Indicator: How To Use It?](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/ttm-squeeze/ttm-squeeze.jpg?q=75&w=120&s=eb1521388e2d4d384d54ec5303b05651) 05 Dec. 2024 12:04 [TTM Squeeze Indicator: How To Use It?](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/ttm-squeeze/) Discover the TTM Squeeze indicator and a trading system that generated 1,270% returns in 2020. ![Technical Analysis Indicators: List and Description](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/technical-indicators-list/main.jpg?q=75&w=120&s=5d1204056172f2880906bd08e0c8cf84) 24 Jan. 2025 13:53 [Technical Analysis Indicators: List and Description](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/technical-indicators-list/) Review of the best technical indicators for Forex: tips and strategies for successful trading on MetaTrader 4, MetaTrader 5, and other trading platforms. ![SuperTrend Indicator: Mastering Market Trends and Trading Signals](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/SuperTrend-indicator/supertrend-indicator.jpg?q=75&w=120&s=809456c2fbce1bd555c7f91ba42f26ad) 24 Jan. 2025 15:32 [SuperTrend Indicator: Mastering Market Trends and Trading Signals](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/supertrend-indicator/) Maximize your returns with the SuperTrend indicator: signals, settings, and trading strategies. ![Half Trend Indicator Explained: Forex Trading Tool Guide](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/half-trend-indicator/half-trend-indicator.jpg?q=75&w=120&s=bda1a2b183910bc75fe8d634d8cf81ee) 28 Feb. 2025 13:08 [Half Trend Indicator Explained: Forex Trading Tool Guide](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/half-trend-indicator/) Half Trend indicator: how it works, its features and application in Forex trading. ![What Is the Arms Index (TRIN), and How Do You Calculate It?](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/trin-arms-index/trin-main.jpg?q=75&w=120&s=b951b37a09109962a79522b2f6123711) 13 Mar. 2025 12:42 [What Is the Arms Index (TRIN), and How Do You Calculate It?](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/trin-arms-index/) This indicator shows the ratio of advancing stocks versus declining stocks on the market, thus helping with price forecasts. ![Mastering the True Strength Index: A Comprehensive Guide for Traders](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/true-strength-intex-tsi/tsi-main.jpg?q=75&w=120&s=7a745be54c810abb0bd6f9064c4d0d4e) 14 Apr. 2025 16:52 [Mastering the True Strength Index: A Comprehensive Guide for Traders](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/true-strength-intex-tsi/) TSI: a trend and momentum indicator. Learn how to set it up and apply it in your trading. ![Donchian Channel Indicator – Trading Strategies](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/donchian-channel/donchian-channel-main.jpg?q=75&w=120&s=4e24939529fcacde14ab726bc2006b0a) 21 May. 2025 10:53 [Donchian Channel Indicator – Trading Strategies](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/donchian-channel/) Everything about the Donchian channel: how to use it, strategies, advantages, and drawbacks. ![Schaff Trend Cycle: Advanced Market Analysis for Traders](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/schaff-trend-cycle-indicator/schaff-trend-cycle-indicator-main.jpg?q=75&w=120&s=cdd513a2fddfd2b1765e640ecbd7e37b) 10 Jul. 2025 13:35 [Schaff Trend Cycle: Advanced Market Analysis for Traders](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/schaff-trend-cycle/) Exploring the STC indicator, a valuable tool for identifying trends and making profitable trades. ![What is Anchored VWAP? Trading Strategies & Examples](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/anchored-vwap/VWAP-main.jpg?q=75&w=120&s=b82f053882998560900f2c056d9d42c5) 20 Aug. 2025 16:44 [What is Anchored VWAP? Trading Strategies & Examples](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/anchored-vwap/) Everything about the Anchored VWAP indicator, strategies, and principles of its use in trading. ![Smart Money in Trading: Strategies, Insights & Techniques](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/smart-money-concept/en/smc-main.jpg?q=75&w=120&s=60e86a7911be0166f583f9436b436e45) 17 Sep. 2025 11:11 [Smart Money in Trading: Strategies, Insights & Techniques](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/smart-money-concept/) Learn how SMC strategies work in trading and how to apply them to enhance your trading performance. ![A Guide to Xmaster Formula Indicator in Forex](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/xmaster-formula-indicator/xmaster-formula-indicator.jpg?q=75&w=120&s=f708be429740936fd3267bac5ffcdcd7) 25 Sep. 2025 17:57 [A Guide to Xmaster Formula Indicator in Forex](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/xmaster-formula-indicator/) The Xmaster Formula trend oscillator: signals, advantages, disadvantages, and practical usage. ![Best Entry and Exit Indicators Every Trader Should Know](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/best-entry-exit-indicator/best-entry-exit-indicator-main.jpg?q=75&w=120&s=0d29aff190e5a256128cef43b16bf5cf) 29 Sep. 2025 17:11 [Best Entry and Exit Indicators Every Trader Should Know](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/best-entry-exit-indicator/) Learn how to spot entry and exit points using trend indicators, oscillators, and chart analysis. ![What Is Simple Moving Average (SMA) and How to Use It in Stock Trading](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/what-is-simple-moving-average-indicator-sma/sma-main.jpg?q=75&w=120&s=6649b4f02fd602026fb414ba77bed83b) 01 Oct. 2025 14:49 [What Is Simple Moving Average (SMA) and How to Use It in Stock Trading](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/what-is-simple-moving-average-indicator-sma/) The review offers a complete guide on how to use the SMA indicator in trading. ![What Is Market Facilitation Index and How to Use BW Mfi Indicator in Trading](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/what-is-market-facilitation-index/mfi-main.jpg?q=75&w=120&s=97c6e22977e2bb9ba4eba5c4c6e2531d) 07 Oct. 2025 16:58 [What Is Market Facilitation Index and How to Use BW Mfi Indicator in Trading](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/what-is-market-facilitation-index/) The essence and calculation formula of the market facilitation index indicator. Interpretation of its signals and examples of practical application. ![What Is the Kelly Criterion in Trading and How to Use It for Investing](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/kelly-criterion-trading/kelly-criterion-trading-0.jpg?q=75&w=120&s=29ffda17eea9a11e62254cec4597f3b7) 28 Oct. 2025 10:50 [What Is the Kelly Criterion in Trading and How to Use It for Investing](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/kelly-criterion-trading/) This article provides a detailed overview of the Kelly Criterion and explains how to use it effectively in quantitative trading. ![What Is Market Breadth and How Investors Use It?](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/what-is-market-breadth/what-is-market-breadth-main.jpg?q=75&w=120&s=4ac421151a5a2ee121b5615af53e245b) 07 Nov. 2025 14:41 [What Is Market Breadth and How Investors Use It?](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/what-is-market-breadth/) Determining market breadth in the stock market. Indicators and their use in investment strategies. ![RSI vs MACD: Which Trading Indicator Is Better and How to Combine Them](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/rsi-vs-macd/rsi-vs-macd-main.jpg?q=75&w=120&s=12a52ac9a695478863f3e35aa0eb7e03) 10 Nov. 2025 11:07 [RSI vs MACD: Which Trading Indicator Is Better and How to Combine Them](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/rsi-vs-macd/) How to use RSI and MACD in trading. ![What Is the McClellan Oscillator and How to Use It in Trading](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/what-is-mcclellan-oscillator/what-is-mcclellan-oscillator-main-min.jpg?q=75&w=120&s=a6817872be3094f573fcee4d8b660985) 10 Nov. 2025 16:09 [What Is the McClellan Oscillator and How to Use It in Trading](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/what-is-mcclellan-oscillator/) Explore the McClellan Oscillator as well as its formula and signals, and learn how to use it in trading. ![What Is CVD Indicator and How to Use Cumulative Volume Delta in Trading](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/cvd-indicator/cvd-ind.jpg?q=75&w=120&s=ae90c7e0ece572aa10957c9da3938e97) 04 Dec. 2025 15:11 [What Is CVD Indicator and How to Use Cumulative Volume Delta in Trading](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/cvd-indicator/) The cumulative volume delta CVD indicator: Practical examples of trend confirmation and trend reversal. ![Best Indicators for Swing Trading: Ultimate Guide to Technical Analysis](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/best-indicators-for-swing-trading/main.jpg?q=75&w=120&s=b47f33661e47647957c1f6fc8e40aa9d) 08 Dec. 2025 13:30 [Best Indicators for Swing Trading: Ultimate Guide to Technical Analysis](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/best-indicators-for-swing-trading/) Learn how to generate profits using the most popular indicators for swing trading. ![McGinley Dynamic Indicator: Trading Guide](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/mcginley-dynamic-indicator/mcginley-dynamic-indicator-main.jpg?q=75&w=120&s=56457d5d352450ebc49dae46c1414399) 14 Jan. 2026 16:15 [McGinley Dynamic Indicator: Trading Guide](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/mcginley-dynamic-indicator/) Learn all about the McGinley dynamic indicator and how to trade using it. ![Coppock Curve Indicator Explained: Calculation, Formula, and Trading Strategies](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/what-is-coppock-curve-indicator/curve-main.jpg?q=75&w=120&s=c7e92b2f1698c1afb1194c75badf904a) 20 Jan. 2026 09:36 [Coppock Curve Indicator Explained: Calculation, Formula, and Trading Strategies](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/what-is-coppock-curve-indicator/) The Coppock Curve: calculation formula and effective long-term trading strategies. ![Know Sure Thing (KST) Indicator: Trading Guide for Beginners](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/kst-indicator/kst-indicator-main.jpg?q=75&w=120&s=2bbf5960e1f9a6310e1f466a08262ae6) 21 Jan. 2026 14:14 [Know Sure Thing (KST) Indicator: Trading Guide for Beginners](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/know-sure-thing-kst-indicator/) The KST indicator: formula, interpretation, signals, and examples of trading strategies. ![Ease of Movement Indicator: Trading with EOM](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/ease-of-movement-indicator/eom-main.jpg?q=75&w=120&s=7d26ff0e687eb21455b219d4ae189e32) 26 Jan. 2026 17:04 [Ease of Movement Indicator: Trading with EOM](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/ease-of-movement-indicator/) The Ease of Movement indicator: principles, signals, and trading strategies. ![Leading and Lagging Indicators in Trading: Key Differences](https://cdn.litemarkets.com/cache/uploads/blog_post/blog_posts/leading-and-lagging-indicators/leading-and-lagging-indicators-main.jpg?q=75&w=120&s=91f164348fbcfa18fe051cf6a439302b) 12 Mar. 2026 14:02 [Leading and Lagging Indicators in Trading: Key Differences](https://www.litefinance.org/blog/for-beginners/best-technical-indicators/leading-and-lagging-indicators/) Discover leading and lagging indicators, their key differences, and their benefits and limitations. 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