Bollinger Bands are a trading tool used to determine entry and exit points for a trade. The bands are often used to determine overbought and oversold conditions. Using only the bands to trade is a risky strategy since the indicator focuses on price and volatility, while ignoring a lot of other relevant information.

This forex trading strategy works as :

• when price is touching the outer lines of the Bollinger band, it may be a sign that the market may reverse, so you look for a reversal candlestick signals to trade.
• for example, if the price has been going up and touches the upper Bollinger band line, you go short(sell). Do the opposite when price touches the lower Bollinger band line.
• The middle Bollinger band line can be used as a reference line to move a profitable trade to breakeven or also can be used as a profit target.
• The stochastic indicator is used as a filter for the trades.

Timeframes :  15 minutes or higher timeframe.

Instrument : You can use this forex strategy for any currency pairs.

Indicators :

• Bollinger Bands:
• Period 50, Deviations 2 – Red
• Period 50, Deviations 3 – Blue
• Period 50, Deviations 4 – Orange
• RSI with Period 3;
• Stochastic 6,3,3.

Long Entry :

• The candle must touch the lower red Bollinger band.
• The RSI should be below 20 so as the Stochastic.
• Place a buy order when the next candle retrace back through the Red Bollinger Band, the RSI falls above the 20 level, and the Stochastic crosses lines above or just 40.

Short Entry : 

• The candle must touch
• The RSI should be above 80 so as the Stochastic.
• Place a sell order when the next candle retrace back through the Red Bollinger Band, the RSI falls below
• the 80 level and the Stochastic crosses lines just below 60.

Stop loss & Take Profit :

• Place stop loss on Yellow or Orange Band.
• Take profit on the middle band.

Trade Management :

• move stop loss to break-even when price touches the middle Bollinger band line.
• But you need to be aware this may not be suitable at certain times because the price may be too close and this may cause you to get stopped out only to find out later the price moves as expected. So at least try to keep 15-30 pips distance when move your stop loss to break-even.

Pros :

• this is one forex trading strategy that can sometimes pick top and bottoms…which means you sell at the very top of a price swing and you buy at the very bottom of a price swing.
• If that happens, your risk: reward ratio of this trading strategy will be very good and you can make a lot of profitable pips as a result.
• you can further enhance this strategy by using price action trading by the use of reversal candlestick patterns to time your trade entry as well.

Cons :

• In a strong trending market, prices will be hugging the upper/lower Bollinger band lines and you may find out you will get stopped out frequently if you are looking for reversals of that trend.
• Do not enter using market orders. It is preferable to use sell stop or buy stop orders based on reversal candlestick patterns you see.