Forex Trading-The Best Way To Use Bollinger Bands


by Nathan Pennington - Date: 2007-02-07 - Word Count: 319 Share This!

I like Bollinger bands. I really do. And if you don't, you will in just a minute. What are the bands trying to do for us? Have you ever thought about this?

They're trying to show relative high and low via standard deviation. Why is knowing where high and low is so important to a trader? Give yourself an A+ if you said because we want to buy low and sell high (or do the opposite sell short high and buy back low).

Most of the time the price will reside inside of the bands. In fact 95% of time it will stay inside. When it pops outside, that is your opportunity to take a great fade trade (i.e. the price is going up to fast, you sell and take profits as it comes back down to normal levels).

Yeah, I know you've been told that the trend is your friend, blah, blah, blah. Sure that is true. But I want you to think of something. Is the number of people who will buy (or sell) at any given moment unlimited? No. There are only so many traders who are willing to buy at a certain time. If the price has gone beyond the top of the Bollinger bands, it's way over-extended.

Not many traders are going to want to buy just then. With a lack of buyers, where is the price going to go? Down?

Exactly!

It's a very good trade. However, I need to add one more note. If you want to trade this, wait for the price to poke out of a band. Then it must close back inside the band on the next bar. That confirms that has run out of steam and is coming back your way. Enter on the open of the next bar. Put your stop just outside the Bollinger band. Put your profit target before the middle of the bands (give yourself a little room for error).


Related Tags: forex trading, bollinger bands

Do you want to learn more about how I trade? I have just completed my brand new guide, "Forex Trading - What Finally Worked For Me".

Download it free here: Forex Trading

Nathan Pennington is a forex trader and the author of Winning Forex Trading -THE Definitive Guide

Your Article Search Directory : Find in Articles

© The article above is copyrighted by it's author. You're allowed to distribute this work according to the Creative Commons Attribution-NoDerivs license.
 

Recent articles in this category:



Most viewed articles in this category: