Trading strategies with Bollinger Bands

Trading strategies with Bollinger Bands

2022-04-08 • Updated

In the previous article, we explained how to trade using Moving Average. Now it’s time to look into another useful indicator called Bollinger Bands. The indicator is available not only in MetaTrader but also in FBS Trader App.

What are Bollinger Bands?

It’s a technical indicator that got its name after its maker – famous trader John Bollinger. Bollinger combined three Moving Averages in a single indicator. The middle line is a Simple Moving Average and so are the outer bands with the exception that they are shifted upper and lower to create a sort of channel.

How to use Bollinger Bands in trading?

The biggest advantage of this indicator is that it offers traders a great tool of visual analysis. It’s assumed that the price spends about 95% of the time inside the Bollinger Bands channel. As this channel is made of Moving Averages, it widens and narrows together with the swings of the price reflecting volatility. As the price spends just 5% outside the Bands, traders track the situations when it leaves the Bollinger channel. Most often, the price spends no more than four candlesticks above the upper Bollinger Band or below the lower Bollinger Band and then a correction takes place. Knowing this allows trading on the price’s reversal and return to the middle line. This approach works best when the market is in a range or a slow trend.  

Bollinger Bands1.jpg

The middle line can also act as dynamic support/resistance. In a strong uptrend, the price moves mostly between the upper band and the middle band.

Which settings to choose for Bollinger Bands?

By default, the settings are ‘20’ for the period and ‘2’ for the deviation. This is a classic set of parameters used by most traders. However, you may try other periods and deviations. The general recommendation is that the number for periods should be between 13 and 24, while the deviation should be in the range between 2 and 5. 

Bollinger settings.jpg

Period. The smaller the period, the more times the price will touch and leave the outer Bands. On the one hand, this means that there will be more signals. On the other hand, more signals will be false. At the same time, when the period is too big, the indicator becomes less sensitive. As a result, as with many other things in life, it’s necessary to find a balance.

Deviation. Higher deviation moves the outer bands further apart. If the Bands are so wide that the price never touches them, the indicator loses much of its usefulness. So start with ‘2’ and see if it’s necessary to make any changes or not.

Trading strategies with Bollinger Bands indicator

Strategy #1 – Mean reversion strategy

This strategy relies on the fact that after deviating too much from the average level, the price tends to return to it.

  1. Find a sideways (horizontal) range on the chart.
  2. Look for reversal candlestick patterns when the price reaches the upper Bollinger band:

For a BUY order

If a pin bar candlestick with a long lower shadow appears at the lower Bollinger band, open a Buy order above this candlestick. Put Take Profit at the middle/upper Bollinger Band and a Stop Loss below the pin bar’s minimum.

For a SELL order

If a pin bar candlestick with a long upper shadow appears at the upper Bollinger Band, open a Sell order below this candlestick. Put Take Profit at the middle/lower Bollinger Band and a Stop Loss above the pin bar’s maximum

You can use a 100-period Moving Average as a filter: consider only BUY trades when the price is above this line and only SELL trades when the price is below this line.  

Bollinger 3.jpg

Strategy #2 – Squeeze strategy

The strategy is built on the idea that after the market calms down, there will be a spike in volatility and a breakout.

  1. Find a situation on the chart when the price moves in a very narrow range (Bollinger bands move close together).
  2. Buy on the breakout above the upper Bollinger Band and sell on the breakout below the lower Bollinger Band.
  3. Put the Stop Loss outside the consolidation range on the opposite side of the breakout.

Bollinger Bands 2.jpg




How Do You Trade a Cypher Pattern?
How Do You Trade a Cypher Pattern?

The Cypher pattern isn’t the most famous trading formation. Nevertheless, this trading instrument can help you better understand and forecast the price moves.

8 Facts About Moving Averages
8 Facts About Moving Averages

Moving averages (MAs) are key instruments that even amateur traders use widely when they want some help with analyzing a price chart. In this article, we’ll go through the basics of moving averages and then learn some life hacks that will help you to use this tool for boosting your trading results.

Drawdown in Trading
Drawdown in Trading

Most (if not all) traders want to rule the market. It would be perfect not to have a single loss, unwise decision, or emotional trade. Unfortunately, it is impossible to forecast every market movement and trade without mistakes.

Frequently asked questions

  • How to open an FBS account?

    Click the ‘Open account’ button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading. 

  • How to withdraw the money you earned with FBS?

    The procedure is very straightforward.  Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.

  • How to start trading?

    If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.

  • How to activate Level Up Bonus?

    Open Level Up Bonus account in web or mobile version of FBS Personal Area and get up to $140 free to your account.

Deposit with your local payment systems

Be on top of your game

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.


A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

Beginner Forex book

Beginner Forex book will guide you through the world of trading.

Beginner Forex book

The most important things to start trading
Enter your e-mail, and we will send you a free Beginner Forex book

Thank you!

We've emailed a special link to your e-mail.
Click the link to confirm your address and get Beginner Forex book for free.

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera