Bollinger Bands is one of the technical analysis tools used by traders to facilitate reading the market. It can be applied in various methods and today I am going to show you a strategy based on the Bollinger Bands with a deviation of one.
Key Takeaways🔑
| →Bollinger Bands is a technical analysis tool used to facilitate market reading. |
| →The BB1 strategy based on Bollinger Bands with a deviation of 1 is simple to follow and can be applied to fixed time trades. |
| →This strategy is a trend following strategy and works best when there is a clear market trend. |
| →Always test any trading strategy on a demo account before investing real money. |
Contents
Setting up the chart
You must be logged in to your Olymp Trade trading account. Think about what specific instrument you are going to trade. Then click the indicators icon and find the Bollinger Bands indicator. It will appear over the price bars. It is formed by three lines; two bands and a middle line.
Each indicator comes with default settings. Today’s strategy requires you to change the deviation. To do that, click on the pen icon next to the indicator’s name. You will see there is the SMA with the period of 20, and the standard deviation is 2 as default. Change it to 1.
Below, you will find the chart with two Bollinger Bands attached. The deviation of the middle one is set to 1 and the deviation of the outer to 2. The middle line is common as the period of the SMA remains the same for both.
Pros and Cons of BB1 Strategy 😊 😞
Pros:
- Simple to follow and apply
- Effective for trend following
- Suitable for fixed time trades
- Does not require complex calculations or understanding
Cons:
- Requires a clear trend in the market for best results
- Not ideal for markets with high volatility
- Might give false signals in the absence of a strong trend
| BB1 Strategy Component | Role in Strategy |
|---|---|
| Bollinger Bands | Used to identify potential entry points for trades. |
| Deviation Setting (1) | Determines the sensitivity of the Bollinger Bands. |
| Price and Band Crossing | Signifies potential trade entry points. |
| Candlestick Closures | Used to confirm signals and determine trade duration. |
BB1 strategy for Olymp Trade traders
BB1 strategy is based on the Bollinger Bands with a deviation of 1. It is quite straightforward. Observe the chart and wait for the crossing of the price and the BBands line.
Long positions
If you want to open a position for the price increase, you should wait for the candle to close over the upper band of the indicator. Make sure that two previous candles have closed below this line.
At the exemplary chart below you can see that the green candle marked as candle number 3, closes above the upper band. Two preceding red candles close below. This gives you a signal to enter the trade at the very beginning of the next candle. You can keep the position open for the length of 3 consecutive candles.
Short positions
To open a short position with the BB1 strategy, wait for the candle to close below the lower band of the Bollinger Bands. Also, check whether two previous candles have closed above the BB1 lower band.
Look at the chart below. The candle marked as 3 closes below the lower band. The candles number 1 and 2 close above the indicator’s lower band. Enter a Down trade when the third candle closes or at the very beginning of the next candle. Hold the position open for three subsequent candles.
Final words
The strategy based on the Bollinger Bands with the deviation set at 1 is very simple to follow. It can be applied to the fixed time trades. It is a trend following strategy, which means there has to be a trend in the market. You trade along with the trend, so you search for opportunities to open a long position in the uptrend and a short one during the downtrend.
With the Bollinger Bands attached and the deviation changed to 1, your task is simply to observe the chart and wait for the price to close above or below the indicator’s bands. Check where two previous candles have closed and you get a trading signal or not. If all three candles close as described above, this is your setup to enter the trade. You should exit after three consecutive candlesticks.
Remember to test the BB1 strategy in the Olymp Trade demo account. It is offered to you completely for free. It gives you a chance to get to know the method well before you invest real money.
Best of luck!
Common Questions About BB1 Strategy 🧐
- Q: How do I know when to enter a trade with the BB1 strategy?
- A: Look for the crossing of the price and the Bollinger Bands line. For a long position, wait for the candle to close above the upper band. For a short position, wait for the candle to close below the lower band. Make sure the two preceding candles have closed on the other side of the band.
- Q: How long should I keep the trade open?
- A: In general, you can keep the trade open for the length of three consecutive candles.
- Q: Can I use the BB1 strategy on any asset?
- A: While the BB1 strategy can be used on various assets, it is most effective when there is a clear trend in the market. It’s crucial to perform your analysis before deciding to apply this strategy to any particular asset.
- Q: What should I do if there is high market volatility?
- A: The BB1 strategy might give false signals in conditions of high volatility or if the market lacks a strong trend. In such cases, it could be beneficial to use additional indicators to confirm signals or consider a different strategy.
- Q: Should I always test a new strategy on a demo account first?
- A: Yes, it’s always recommended to test any new trading strategy on a demo account before investing real money. This allows you to understand the strategy better and assess its effectiveness without any financial risk.