Trading strategy “Bolly Band Bounce Trade”
The “Bolly Band Bounce Trade” strategy is intended for trading on the Bollinger Band rebounds and retests on the futures market. The fact that the price is stuck in the range does not mean that there are no trading opportunities!
Trading on a clear trend is much easier than trading in a range or sideways movement. Many traders miss the opportunity to trade in the range market at all, staying away until the price finds a certain trend. However, there are strategies for making profit out of the limited range of price dynamics. This is the approach that the strategy proposes.
“Bolly Band Bounce” is based on the observed price behavior, where Bolly Bands of Bollinger form a kind of limits for short-term price dynamics. The price approaches the outer band, pushes it back to the opposite band. One way to use this behavior is to trade on strong rebounds in external bands. This is not very effective on a clearly trendy market, but when the market is in range, it can be used for short-term scalping.
The main thing for this strategy is to decide that the price is really in the range. There are many ways to do this, but with Bollinger Bands the easiest thing to do is to position the price relative to the middle band. If during a trend downwards the price rises above the middle line and during a trend upwards the price falls below the average, it may mean entering the range.
This illustration shows the price in a downward trend, turning into a range.
The signal for a possible turn from the trend market to the flat market is shown by a circle at the bottom of the diagram: the pattern “Tweezers” is formed. If this happens in a merger with other factors such as support/resistance, round number, significant beer level or Fibonacci recovery level, the signal is stronger
This illustration shows three possible inputs. Confirming signals in the first two are bearish and bullish, and in the third is a reversal candle.
Now let’s move on to entry mechanics, stop-loss and take-profit. It is very important to understand that this is essentially a scalping Forex trading strategy, so brokers will need to scalp. The idea is to enter immediately after the confirmation signal, set a stop-loss, and take profit near the opposite Bollinger Band. Once the movement is confirmed by the price, the stop-loss should be moved to a lossless position as soon as possible. If this is not done, price fluctuations in the range can lead to losses.
Of course, you need to use your own judgment as to when to move safely to break even. If you do it too early, the work will be interrupted by the usual correction, even if the price then moves in the right direction!
As a final note, this particular strategy works best in a very inactive market, without fundamental news announcements, on currency pairs that are not subject to sharp price movements. And it goes without saying that it is impossible to enter the market based only on the fact that the price has reached the external Bollinger band.
Confirmation factors that may support entry include