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Day Trading with Bollinger Bands®

Day Trading with Bollinger Bands®

Warren Venketas, Markets Writer

Bollinger Band® day trading is a less popular way to utilize the Bollinger Band® indicator, however, some intraday traders do use the Bollinger Band® within their strategies. Day trading with Bollinger Bands® will lay the foundation for a Bollinger Band® scalping technique to trade consolidating forex markets during the Asian trading session.

This article explores:

  • Why trade with Bollinger Bands®?
  • How to use Bollinger Bands® in intraday trading
  • Advantages and limitations of day trading with Bollinger Bands®

This article assumes the reader has a basic understanding of Bollinger Bands®. If you’d like a refresher, read our guide to Bollinger Bands® in forex trading.

Why trade with Bollinger Bands®?

Trading with Bollinger Bands® allows traders to opt for different methods of trading the financial markets. These methods include day trading, trend trading, breakout trading as well as combining the Bollinger Band® indicator with other technical indicators. The adaptability of the Bollinger Band® makes it a popular tool used by traders from novice to expert.

The Bollinger Band® indicator was developed by John Bollinger in the 1980s. Bollinger Bands® focus on price volatility which can be implemented in all financial market trading.

How to use Bollinger Bands® in Intraday Trading

Bollinger Bands® scalping example using EUR/GBP

The below EUR/GBP five-minute chart shows an intraday Bollinger Band® scalping system used during periods of relatively low volatility (narrow bands). Use the standard 20 period, 2 standard deviation setting for this system. This period is taken from 18:00 – 06:00 GMT daily.

Periods of consolidation tend to repeat themselves during this time aligning the time of day with the strengths of the strategy. In this system the lower and upper Bollinger Bands® serves as levels of support and resistance respectively.

Day trading Bollinger Bands with EUR/GBP

The support band identifies buying opportunities while the resistance band recognizes sell signals as marked on the chart. These areas can also be used as closing levels dependent on the direction of the trade. This simple strategy gives another useful method as to how the Bollinger Band® can be used under different circumstances.

Advantages and Limitations of Day Trading with Bollinger Bands®

Easy to use strategy that can be used by novice tradersDay trading with Bollinger Bands® only works in low volatile markets
No need for any other subsidiary indicators Relatively low risk-reward ratios

Further reading on Bollinger Bands®

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.