Nov 09, · For A range trade, the center line on the Bollinger bands will be flat. We Enter trades when price touches the top or bottom bollinger band and bounces back. Once price has broken the high or low of the previous bar we have a trade. We exit the trade once the other band is hit. I .
The Bollinger Bounce
In the above example, you just buy when a stock tests the low end of its range and the lower band. Conversely, you sell when the stock tests the high of the range and the upper band. The key to this strategy is a stock having a clearly defined trading range.
This way you are not trading the bands blindly but are using the bands to gauge when a stock has gone too far. You could argue that you don't need the bands to execute this strategy. However, by having the bands, you can validate that a security is in a flat or low volatility phase, by reviewing the look and feel of the bands.
So, instead of trying to win big, you just play the range and collect all your pennies on each price swing of the stock. Like anything else in the market, there are no guarantees. Bollinger Bands can be a great tool for identifying volatility in a security, but it can also prove to be a nightmare when it comes to newbie traders. Don't skip ahead, but I will touch on this from my personal experience a little later in this article.
Not exiting your trade can almost prove disastrous as three of the aforementioned strategies are trying to capture the benefits of a volatility spike. For example, imagine you are short a stock that reverses back to the highs and begins riding the bands.
What would you do? While bands do a great job of encapsulating price movement, it only takes one extremely volatile stock to show you the bands are nothing more than man's failed attempt to control the uncontrollable.
While there is still more content for you to consume, please remember one thing - you must have stopped in place! Let me help you out if you are confused - kill the trade! While bandsdo a great job of encapsulating price movement, it only takes one extremely volatile stock to show you the bands are nothing more than man's failed attempt to control the uncontrollable. Strategy 5 - Snap back to mthe iddle band, will work in very strong markets. I have been a breakout trader for years and let me tell you that most breakouts fail.
Not to say pullbacks are without their own issues, but you at least minimize your risk by not buying at the top. Shifting gears to strategy 6 - Trade Inside the Bands, this approach will work well in sideways markets. Because you are not asking much from the market in terms of price movement.
From my personal experience of placing thousands of trades, the more profit you search for in the market, the less likely you will be right. Don't worry, I'm not about to go on a history lesson on cryptocurrencies with details of where David Chaum went to college.
I was reading an article on Forbes, and it highlighted 6 volatile swings of bitcoin starting from November through March So, I wanted to do my own research and I looked at the most recent price swings of Bitcoin in the Tradingsim platform. Let's look at the period of December 22, ,to December 27, During this period, Bitcoin ran from a low of 12, to a high of 16, Let's unpack this a little further.
Do you realize that these gains were largely made over 3 days' worth of trading? I am getting a little older now and hopefully a little wiser and that kind of money that fast, I have learned is almost impossible for me to grasp.
The psychological warfare of the highs and the lows become unmanageable. So, it got me thinking, would applying bands to a chart of bitcoin futures have helped with making the right trade? I indicated on the chart where bitcoin closed outside of the bands as a possible turning point for both the rally and the selloff.
But let's be honest here, this is a minute chart of a highly volatile security. You must honestly ask yourself will you have the discipline to make split second decisions to time this trade, just right? The one thing the bands manages to do as promised is contain the price action, even on something as wild as bitcoin. I honestly find it hard to determine when bitcoin is going to take a turn looking at the bands.
It's not that the bands are doing anything wrong or not working. Bitcoin is just illustrating the harsh reality when trading volatile cryptocurrencies that there is no room for error.
I personally do not trade bitcoin, but after looking at the most recent price swing using bands a couple of things come to mind:. Pairing the Bollinger Band width indicator with Bollinger Bands is like combining the perfect red wine and meat combo you can find. In the previous section, we talked about staying away from changing the settings. Well, if you really think about it, your entire reasoning for changing the settings in the first place is in hopes of identifying how a security is likely to move based on its volatility.
A much easier way of doing this is to use the Bollinger Bands width. In short, the BB width indicator measures the spread of the bands to the moving average to gauge the volatility of a stock.
Well, now you have an actual reading of the volatility of a security, you can then look back over months or years to see if there are any repeatable patterns of how price reacts when it hits extremes. Still, don't believe me? Look at the below screenshot using both the Bollinger Bands and Bollinger Band width. Notice how the Bollinger Band width tested the. The other point of note is that on each prior test, the high of the indicator made a new high, which implied the volatility was expanding after each quiet period.
As a trader, you need to separate the idea of a low reading with the Bollinger Bands width indicator with the decrease in price.
If you had just looked at the bands, it would be nearly impossible to know that a pending move was coming. You would have no way of knowing that. This is just another example of why it's important to pair Bollinger Bands with other indicators and not use it as a standalone tool.
The above chart is of the E-Mini Futures. I want to dig into the E-Mini because the rule of thumb is that the smart money will move the futures market which in turn driveS the cash market.
Looking at the chart of the E-mini futures, the peak candle was completely inside of the bands. Other than the fact the E-mini was riding the bands for months, how would you have known there was a big break coming? Now that I have built up tremendous anticipation, let's see if there is a way to identify an edge.
Remember in Chapter 4, the Bollinger Band width can give an early indication of a pending move as volatility increases. In the above example, the volatility of the E-Mini had two breakouts prior to price peaking. If that wasn't enough to convince you, then the second break above the 8-month swing high of the Bollinger Band width was your second sign. After these early indications, the price went on to make a sharp move lower and the Bollinger Band width value spiked.
The inspiration for this section is from the movie Teenage Mutant Ninja Turtles, where Michelangelo gets super excited about a slice of pizza and compares it to a funny video of a cat playing chopsticks with chopsticks.
Does anything jump out that would lead you to believe an expanse in volatility is likely to occur? Let me tell you, when you are trading in real-time, the last thing you want to do is come late to a party.
More times than not, you will be the one left on cleanup after everyone else has had their fun. It was very subtle, but you can see how the bands were coiling tighter and tighter from September through December. During this time, the VIXY respected the middle band. There was one period in late November when the candlesticks slightly jumped over the middle line, but the candles were red and immediately rolled over.
However, in late January, you can see the candlesticks not only closed above the middle line, but also started to print green candles. Now, one could argue that this wasn't enough information to make a trading decision.
That is a fair statement. You would need a trained eye and have a good handle with market breadth indicators to know that this was the start of something real. There is the obvious climactic volume which jumps off the chart, but there was a slight pickup in late January, which was another indicator that the smart money was starting to cash in profits before the start of spring break.
This gives you an idea of what topics related to bands are important to other traders according to Google. Why is this important? It's safe to say bands is probably one of the most popular technical indicators in any trading platform. If memory serves me correctly, Bollinger Bands, moving averages and volume were likely my first taste of the life.
Well as of today, I no longer use bands in my trading. That doesn't mean they can't work for you, but my trading style requires me to use a clean chart. Therefore, the more signals on the chart, the more likely I am to act in response to said signal. This is where the bands expose my trading flaw.
For example, if a stock explodes above the bands, what do you think is running through my mind? You guessed right, sell! The stock could just be starting its glorious move to the heavens, but I am unable to mentally handle the move because all I can think about is the stock needs to come back inside of the bands.
Instead of taking the time to practice, I was determined to turn a profit immediately and was testing out different ideas. I decided to scalp trade. I would sell every time the price hit the top bands and buy when it hit the lower band. It's really bad, I know. From what I remember, I tried this technique for about a week, and at the end of this test, I had made Tradestation rich with commissions. The key flaw in my approach is that I did not combine bands with any other indicator.
This left me putting on so many trades that at the end day, my head was spinning. Flashback to , when I was just starting out in day trading; I had no idea what I was doing. One of the first indicators I put to the test was Bollinger Bands.
It's one of the most popular indicators. Al Hill Click to tweet. At the end of the day, bands are a means for measuring volatility. So, it's not something you can just pick up and use for buy and sell signals. Just as you need to learn specific price patterns, you also need to find out how bands respond to certain price movements. This level of mastery only comes from placing hundreds, if not thousands of trades in the same market.
The thing that surprised me is that I couldn't find many other famous authors or experts in the space. I'm not sure if this is because there aren't many people interested or if other traders stay out of the bands arena because John is so actively evangelizing the bands. The books I did find were written by unknown authors and honestly, have less material than what I have composed in this article.
The other hint that made me think these authors were not legit, is their lack of the registered trademark symbol after the Bollinger Bands title, which is required by John for anything published related to Bollinger Bands. Conversely, when I search on Elliott Wave, I find a host of books and studies both on the web and in the Amazon store.
I am still unsure what this means exactly. With there being millions of retail traders in the world, I have to believe there are a few that are crushing the market using Bollinger Bands. I just struggled to find any real thought leaders outside of John. I write this not to discredit or credit trading with bands, just to inform you of how bands are perceived in the trading community.
Bollinger Bands work well on all time frames. Remember, price action performs the same, just the size of the moves are different.
Without a doubt, the best market for Bollinger Bands is Forex. Currencies tend to move in a methodical fashion allowing you to measure the bands and size up the trade effectively. Next, I would rank futures because again you can begin to master the movement of a particular contract. The trader can vary the profit level according the strength of the current trend reversal.
This is ideal for capturing the strong retracements that happen at market extremes. Figure 2 below demonstrates this in a real trading scenario. The chart shows the complete sequence of four buy orders. Trade sequence from strategy run. The sequence starts at order At this instant the price action satisfies both conditions of being within the threshold of the lower Bollinger band to trigger a buy order and the bar starts to retrace back towards the center line.
The second bar triggers another buy order as the price meets the entry conditions again. The price then pulls lower and the first two positions briefly enter drawdown. Following this, there are two more bars triggering entries, which results in four executed buy orders see Figure 2. The price continues to rise. After two more bars, the exit points for and are reached.
This captures a profit of 0. At this point, the price moves high enough to trigger the exit for orders and as well. This happens in the next bars leaving profits of 0. The spread in Metatrader was set at 21 points 2. The spread again was set at 21 points. This article outlines a simple scalping strategy that can be used to trade ranges. This technique does not generate large numbers of trades as do some scalping methods so it is suited to manual trading as well as automation. This is a low yield strategy that does not work well with high leverage.
As with all scalpers, success lies in precise timing of the entry and exit points. Refinement of these factors can make this a steady profit generator.
Choice of suitable liquid currency pairs with low spreads and low slippage is also key to success. For small capital dollars. Hey Steve I know you said one should follow the newsletter but how would I go about downloading this ea now?
Thanks Steve for this great website , tool and articles.. I am currently using your FX hedge tool mt4 indicator and would like to know when exactly it will expire. Thank you and keep up the good works. This EA is for sale? I already registered and suscribed. This is an extremely consistent and workable strategy on the 1 min. It is amazing how frequently your Meta Scalper strategy works. I understand this to be a 50 setting on the Bollinger Bands vs.
Please confirm this BB, 50 setting. I see a SMA on figure 1, above. It appears that longs only are filtered below the displayed SMA and shorts only are filtered above the SMA — please confirm this unique filter. I am not sure why there is a 50 SMA shown and how it is used. Overall the results should be about the same whichever is used. Thanks for this idea.
How many trades you recommend to keep open on any single scalp run? I just wondered if there is a rule and at what you apply to manage those trades when open. How does the close work? They all close at their own stop or they all close at the same time? As a general rule I would open a trade in a batch of orders rather than in one block in almost any situation.
Scalping is no different to any other strategy in this respect. I still apply the same rule. I do this because it averages out spread and entry price. The exact number of orders would be calculated from the risk limits max order lots so the overall exposure is the same. Just register on the mailing list please as we periodically make EAs and other offerings available to subscribers. Tried this on a 5 minute charts using all major pairs. If the distance between the bands are 50 pips, SL would be 25 pips.
I made around 15 trades and won most, but the few trades that hit the SL wiped all my profits. Is there anything wrong with what I described? Or should I keep using it for longer?
Is there a specific time where this strategy work best? It can be a problem with this technique. I do try to confine the entries to tight ranges for this reason because the profits can run away very quickly if you get caught the wrong side of a strong trend.
One question, how did you code the second condition into Metatrader? In any case, do you actually trade this system using the Metatrader adviser or was it just for illustration purposes? The second condition is the tricky one and that has the most bearing on the result. I have several variations but the one I used for the tests was to wait for the candle to extend a certain threshold amount according to the volatility.
I would also look at the behavior of the previous candle to see if that gave a rise or a fall. I also put in some logic to prevent it being caught by breakouts.
So if the move is beyond a certain amount again no fixed value but based on vol measures no entry is made at that point. Leave this field empty. Strategy Overview The idea behind this scalping strategy is to catch the short wave retracements that take place when the market reaches a peak overbought or oversold state. Want to stay up to date? Just add your email address below and get updates to your inbox.
Important filters are included and make our Bollinger Bands EA, the most complete and flexible EA of its kind. Included filters: RSI, Stochastic (stoch), Moving Average (MA), Financial News, and more. The Bollinger Bands EA is a forex robot which uses Bollinger Bands to enter a trade. It has 2 different entry strategies. BreakOut: If the last bar closes above the upper band it enters a Sell Order. If the . The free Bollinger Bands EA trades the market using the indicator bearing its same name. It offers several entry conditions and very flexible position management settings. It offers several entry conditions and very flexible position management settings.