Swing Trading with Bollinger Bands - a Simple Swing Trading Strategy that Works - Advanced Forex Strategies

Swing Trading with Bollinger Bands – a Simple Swing Trading Strategy that Works

If you are a Swing Trader, then you really should consider using Bollinger Bands as part of your Swing Trading Strategy. Swing Trading with Bollinger Bands offers traders who are trading the long term markets a unique perspective. While the Bollinger Bands indicator is widely known as a volatility indicator, it can also be used to gauge the market direction by merely looking at the longer term slopes of the bands. For swing traders who want to build positions for the longer term, the Bollinger Bands indicator can prove to offer unique perspectives in the market. In this article, we illustrate how the Bollinger Bands can be used by swing traders. Due to the fact that only the daily chart time frame is used, it requires traders to pay particular attention to their equity and risk management. Therefore this trading strategy is not suited for beginners and even experienced traders need to pay close attention to their money management.

Swing Trading with Bollinger Bands – Strategy Set up

For this strategy, we only make use of the Bollinger Bands, with the default 20 period setting and 2 standard deviations. For the chart time frame, only the daily chart is used.

Gauging the markets

The first step in this strategy is to understand or build the trading context. What is the market doing, what is the underlying trend and are prices moving in a new wave in the direction of the trend or making a retracement are just some of the questions that need to be answered before going into the rules.

What is the market doing and what is the underlying trend?

This question can be answered by zooming out the daily chart time frame and simply looking at the slope of the Bollinger Bands. When you see higher slopes and higher periods of consolidation being made, it is understood that the market is in an uptrend. Also, when prices tend to frequently ‘walk the bands’ near the upper or lower Bollinger Bands; it can also be viewed as a signal for the trend strength. The chart below illustrates the above points in the context of building the landscape or trading context.

Swing Trading with Bollinger Bands
Swing Trading with Bollinger Bands – Market Context

Now that we have an understanding of the markets, the next step is to zoom back into the charts. On the left side of the above chart, we notice that prices are trading in a downtrend. Therefore, we look for short positions with rejections near previous lows. Likewise, when the context tells you that the market is in an uptrend, then look for long positions only.

Swing Trading with Bollinger Bands – Trading Rules

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Buy Rules:

  • Mark the previous higher high (which is preceded by a higher low)
  • Wait for Bollinger Bands and price to retrace back to this previous high or within the previous high and low
  • Look for price rejection near the Lower Bollinger Band at this level and enter long
  • Stops are placed at the swing low point in price
  • Book partial profits every time prices bounce back to the lower Bollinger Band

Sell Rules:

  • Mark the previous lower low (which is preceded by a lower high)
  • Wait for Bollinger Bands and price to retrace back to this previous low or within the previous low and previous high
  • Look for price rejection near the Upper Bollinger Band at this level and enter short
  • Stops can be placed at the swing high point in price
  • Book partial profits every time price bounces back to the upper Bollinger Band
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Swing Trading with Bollinger Bands – Buy/Sell Signal Examples

Buy Signal Example

Swing Trading with Bollinger Bands - Buy SignalSwing Trading With Bollinger Bands – Buy Signal Example

The above chart shows a buy signal where prices formed higher highs and lows identified by the Bollinger Band and the strong upward slope of the bands. When price makes a new higher high and retraces back to the previous higher high and higher low zone, we take a long position when prices are rejected near the lower Bollinger Band. With a second confirmation coming from the strong bullish candlestick, long position is take with stops placed near the low of the price rejection. In the first leg of the trade, price moves strongly and then dips back where partial profits are booked. In the second leg, prices make another higher lower and prices are rejected near the lower Bollinger Band, where another unit of the long position is closed.

Sell Signal Example

Swing Trading With Bollinger Bands - Sell Signal Example
Swing Trading With Bollinger Bands – Sell Signal Example

The sell signal above shows how we first looked at the highs and lows using the Bollinger Bands. When a lower high and lower low is identified, we then wait for price to move back to the previous lower low or into the zone of lower low and lower high. The next step was to look for price to be rejected near the upper Bollinger Band. When this happened, it was signaled along with an inside bar which broke to the downside. Short positions are taken here with a tight stop at the candle’s high and the trade is left to evolve. Eventually, prices bounce back to the upper Bollinger Band where we exit partially and continue to book profits every time prices bounce back and get rejected near the upper Bollinger Band.

Swing Trading with Bollinger Bands – a Simple Swing Trading Strategy that Works

As illustrated above, long term traders can only make use of the Bollinger Bands indicator and trade in the direction of the market. Because the Bands are adept at indicating periods of potential volatility breakouts, the chances of entering the market at an opportune moment ahead of the strong breakout can offer some immediate positive results. However, the risks are also the same in the event the markets make a quick turnaround. With due practice and focus on money management, swing trading with Bollinger Bands can be a simple and effective way to trade the markets for the long term.


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