Forex Swing Trading Strategy #2:(Bollinger Band Swing Trading System)

The Bollinger Band Swing Trading System is a very simple forex trading system to follow.

In general, here is how the Bollinger Band Swing Trading System works:

  • when price is touching the outer lines of the bollinger band, it may be due for a reversal, so you look for a reversal candlestick signal 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.

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Requirements(What You Need)

What  Currency Pairs Can you trade this system with? :Any

What is the suitable timeframe for this trading system? 4hr, anything less is not suitable.

Forex Indicators Required: Bollinger Band (settings:period 20, standard deviation 2) & stochastic indicator (13,5,5)

Anything Else Required?: Yes, ability to spot reversal candlesticks likes, dojis, inside bars, bearish and bullish haramis, shotting star, hammer etc.

( If you cannot see this chart clearly, then click to enlarge)

Ok Here are the rules of the Bollinger Band Forex Trading System 

To Buy:

(1) price must be touching the lower bollinger band line (and may close below it too)

(2)look at the stochastic indicator to see if the two lines are below 20(oversold condition).

(3)then look at the closing candlestick to identify if its a good bullish reversal candlestick? What you need to look for a bullish reversal candlesticks like, hammer, inside bar(or bullish harami formation).

(4) Once you see a suitable bullish reversal candlestick pattern, play a pending buy stop order 2-5pips above the high of that bullish reversal candlestick pattern.

(5)Place your stop loss 10-20pips below the low of the bullish reversal candlestick. You have to make sure your stop loss is not to close, otherwise you may get stopped out prematurely.

(6)For take profit target options, here are couple of options you can use:

  • the middle bollinger band line can be used are you take profit target, once price reaches it, you exit your profitable trade.
  • the middle bollinger band line can also be used as a “Take Profit Target Level 1” meaning can close half (or whatever amount) of your trade when price reaches this and you keep the rest running until price reaches the “Take Profit Target Level 2” which would be the Upper Bollinger Band Line.
  • Or you can aim to exit your trade when price reaching the upper bollinger band line so when price touches(reaches) this line, you exit immediately.

(7)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 on  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 keep 15-30 pips distance when move your stop loss to breakeven.

Sell Rules:

(1) Do the exact opposite of the buy rules.

(2) Look for bearish reversal candlestick patterns like shooting star, bearish harami(inside bar), dojis.

Pitfalls to Watch Out For with the Bollinger Band Swing Trading System

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.

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4 Responses to “Forex Swing Trading Strategy #2:(Bollinger Band Swing Trading System)”

  1. tahir says:

    how profitable is this

  2. Mangi Madang says:

    Hi Tahir,

    This Trading System Can be very profitable. If you want to use this system, here are some suggestions to improve your performance:
    (1) avoid trading on Asian Trading Session as the volume is usually low. Better to trade the London& New York Trading Sessions Only.
    (2) Use larger timeframes like 4hr & daily timeframes.
    (3) To capture large moves and lock in profits, use trailing stop and moving it and placing it behind higher swing lows(for sell order when price starts moving down) or trailing stop behind
    lower swing highs as price moves upward(for a buy or long order)
    (4)Using Reversal Candlesticks For Trade Entries Will Really Help.

  3. PPP says:

    Why use Stochastic 13,5,5 ? Tq for the explanation …

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