We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bearish
GBP/USD
Mixed
USD/JPY
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bullish
Oil - US Crude
Bearish
Bitcoin
Bearish
More View more
Real Time News
  • Knowing how to accurately value a #stock enables traders to identify and take advantage of opportunities in the stock market. Find out the difference between a stock's market and intrinsic value, and the importance of the two here: https://t.co/QszmdZFxlk https://t.co/2mjzvYvgSn
  • Previewing the Texas Rangers new home! https://t.co/WITZGSQPlc
  • Thanks for having me on @MartinSEssex https://t.co/fg8uOe16wr
  • The MACD is often used with its default setting when entering trades. However, this versatile indicator can be customized to assist traders in exiting trades too. Learn how to better incorporate the MACD into your trading strategy here: https://t.co/HnY7gzsI2q https://t.co/5F1DSvAXyy
  • What are some factors affecting $GBP as we head into 2020, quarter one? Download your Sterling fundamental forecast with @nickcawley1 here to find out: https://t.co/YfDSYSATK9 https://t.co/ANFLIuDY4J
  • Trading Global Markets new #podcast features @DailyFX Anlayst @PeterHanksFX , who discusses what assets would benefit in the next #recession. Tune into this new podcast episode hosted by @MartinSEssex here: https://t.co/Twr44cZ1GB https://t.co/llKzvZGDpQ
  • The #Euro remains weak against a range of currencies and any move higher is struggling to gain traction as the single currency continues to be sold-off. Get your #EUR technical analysis from @nickcawley1 here: https://t.co/9B2m0kmd4d https://t.co/ZENxpC59mP
  • The Indian Rupee 2020 outlook is bearish as India faces stagflation risk amid rising onion and crude oil prices. $USDINR may rise in the medium-term as the RBI defers hiking rates. Get your market update from @ddubrovskyFX here: https://t.co/lRrlZjAQDw https://t.co/mFv1EOYMjG
  • The $GBP may be on the cusp resuming a 12-year downtrend against the US Dollar as signs of topping emerge at pivotal chart resistance. Get oyur market update from @IlyaSpivak here:https://t.co/9rM3OjWmBA https://t.co/sUWcSFruHw
  • The $NZD may be on average at risk to further losses against its major counterparts such as the US Dollar and Japanese Yen. Where to for NZD/USD and NZD/JPY from here? Find out from @ddubrovskyFX here:https://t.co/OFjePKYdCb https://t.co/eo1c6QAVd8
How to Use Bollinger Bands® in Forex Trading

How to Use Bollinger Bands® in Forex Trading

2019-08-29 15:54:00
Warren Venketas, Markets Writer
Share:

Bollinger Bands® are utilised by technical traders in all financial markets including forex. This article will introduce Bollinger Bands® and how they assist traders in technical analysis. It will also provide an overview of top strategies and tips for trading forex with Bollinger Bands® - including trading the trend and the Bollinger squeeze.

What are Bollinger Bands® and how to do they work?

Bollinger Bands® are a versatile technical analysis indicator widely used among traders. John Bollinger first developed this indicator as a solution to find relative highs and lows in dynamic markets. The indicator itself is comprised of an upper band, lower band and moving average line.

The two trading bands are placed two standard deviations above and below the moving average (usually 20 periods). Using two standard deviations estimates that 95% of price data will be contained within the two bands.

bollinger band plotted around a 20-day moving average

As a rule of thumb, prices are deemed overbought on the upside when they touch the upper band and oversold on the downside when the reach the lower band.

As price oscillates between the indicators upper and lower extremes Bollinger Bands® become an excellent tool to gauge volatility. When bands contract there is less volatility in the market, which is a great indication to use a range bound strategy. Likewise, Bollinger Bands® will expand as the market becomes more volatile. At these times traders may employ a breakout or a trend-based strategy.

How to trade Forex with Bollinger Bands®

There are several different techniques involved in using Bollinger Bands® to trade the forex markets. The most popular are:

1) Using market trends: Traders can identify entry signals using the bands as a measure of support and resistance.

2) Bollinger Squeeze: Applying the volatility indications of the bands

1) Trading the trend

EUR/USD weekly chart

trading the trend with the Bollinger Band

The chart above shows the EUR/USD chart in an uptrend – depicted by higher highs and higher lows. Using the Bollinger Band® indicator, the lower band is seen as a gauge of support. When price touches the lower band, traders use this as a signal to enter a long (buy) trade. This strategy works for both uptrends and downtrends. Take profit (limit) levels are generally taken from the upper and lower bands depending on trend. In this example, the upper band will be used as the take profit level.

In summary, trading the trend with Bollinger Bands® is relatively simple:

  • Identify the trend
  • Use upper and lower bands in conjunction with price movement to identify entry points
  • Use respective upper and lower band as target levels

2) Trading the Bollinger Band® Squeeze

EUR/USD weekly chart:

Bollinger Band squeeze

As mentioned previously, when the bands contract volatility is low and vice versa. The Bollinger squeeze looks for breakouts above/below the band depending on trend to be used as entry signs.

Highlighted in green shows these breakouts in an uptrend. Traders will look to enter at the indicated green circles. After each entry, it can be seen that the candles are ‘walking the Bollinger‘ (following the upper band). After the breakout candle the bands expand implying greater volatility in the market.

The black shaded circles illustrate the point at which traders will look to take profit before looking for further breakout signals.

To summarise, when trading the Bollinger Band® squeeze:

  • Look for low volatility (contracting bands)
  • Wait for breakout of upper/lower band
  • Close trade when price reaches moving average
Forex for Beginners
Forex for Beginners
Recommended by Warren Venketas
Build up your knowledge with our forex for beginners guide
Get My Guide

Further reading on trading Bollinger Bands® and forex

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

DISCLOSURES

News & Analysis at your fingertips.