Bollinger Bands Expert Advisor uses the Bollinger Bands indicator that comes with MetaTrader 5 and can successfully trade according to the price interaction with the BB bands.
There are 2 major ways to open trades according to the BB bands:
- Price Breakout– trade long whenever the price exits the Bollinger Band upwards, or trade short when the price drops below the BB lower level
- Price Reverse – trade long when the price bounces upwards from the lower BB level or trade short when the price drops after bouncing from the upper BB level
Another way to trade Bollinger Bands strategy is to simply enter long or short whenever the price crosses the middle line upwards/downwards.
Regardless of the BB entry signals, the bands can also be used to determine the overall trend. A falling BB channel signals that there is a downtrend while a rising channel means that there is an uptrend. According to the price trend, the trader can decide whether to buy or to sell and therefore increase the chance of winning a trade while decreasing the risks.
The BB EA settings allow the trader to determine what entry signals to follow. Besides the self explanatory ones such as Take Profit, SL, Lotsize, here are the BB EA specific settings explained:
- Distance from BB band – this can be used to filter fake signals and determines the distance (pips) that the entry signal must be away from the BB band, in order for the trade to open. For example, when trading breakout, if the price breaks upwards but at that moment the price is not at least 10 pips away from the upper band level (according to the settings above), the trade will not be placed. To cancel this filter enter 0.
- Maximum buys/sells determine the number of buys/sells allowed to be opened at any moment. Therefore, if there are 3 long trades opened on the chart, the EA will not open any other buys.
- When to trade:
– Middle band cross: enters a buy/sell when the price crosses the BB middle
– Upper band breakout: enters a buy when the price closes above the upper band
– Upper band reverse: enters a sell when the price bounces from the upper band and drops
– Lower band breakout; enters a sell when the price closes below the lower band
– Lower band reverse: enters a buy when the price bounces back from the lower band
Below are more details about the Bollinger Bands history, how to trade BB and other useful Bollinger Bands strategy tips:
Bollinger Bands, developed by John Bollinger in the 1980s, are a popular technical analysis tool used to measure market volatility and identify potential overbought or oversold conditions. They consist of three lines: a simple moving average (SMA) in the middle, and two standard deviation lines (upper and lower bands) that adjust based on market volatility.
Components of Bollinger Bands
- Middle Band: This is typically a 20-period SMA.
- Upper Band: This is the middle band plus two standard deviations.
- Lower Band: This is the middle band minus two standard deviations.
The bands expand and contract based on market volatility. When the market is volatile, the bands widen, and during periods of low volatility, they contract.
Trading Strategies Using Bollinger Bands
- The Squeeze: This strategy involves looking for periods where the bands contract, indicating low volatility. A squeeze often precedes a significant price movement.
- Breakouts: When the price moves outside the bands, it can indicate a strong trend. A move above the upper band suggests a bullish trend, while a move below the lower band suggests a bearish trend.
- Reversals: If the price touches the upper band, it may be overbought, and if it touches the lower band, it may be oversold.
- Double Bollinger Bands: Some traders use two sets of Bollinger Bands to identify stronger signals. For example, one set with 1 standard deviation and another with 2 standard deviations.
Bollinger Bands are a versatile tool that can help traders identify market conditions and potential trading opportunities. By understanding how to interpret and apply them in MetaTrader, traders can enhance their decision-making process and potentially improve their trading outcomes. Always remember to use Bollinger Bands in conjunction with other indicators and analysis techniques to confirm signals and manage risk effectively.
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