How to combine the Bollinger Bands with candle colours to get an effective trading strategy


Using Bollinger Bands in trading strategy

There is no need to complicate things. Simple strategies are also good. Sometimes, they are even better. You will hear it often from professional traders. And what is the simple strategy? It is the one that does not require many additional factors. It is, for example, trading based on the colors of the candles. But of course, you have to understand how to read the colors to perform any operations on the market. If you are not sure how to use the candles alone, the indicators are there to help you.

Today, I want to show you how to mix candle colors with the Bollinger Bands at Olymp Trade.

How to set up the Bollinger Bands indicator on the Olymp Trade platform

To apply the strategy that uses one of the indicators, you have to know this indicator first. So let’s start by setting up the Bollinger Bands.

The Bollinger Bands indicator, the BBands in short, is very commonly used by traders. If you need some extra information about it, please read the: Bollinger Bands. What you should know about it.

Go on the Olymp Trade platform and click the indicators feature icon. You will find it in the left down corner. Then, a list of indicators will pop up. Choose the Bollinger Bands and it will be added to your chart.

How to add Bollinger Bands indicator
How to add Bollinger Bands indicator

Now, the default period is 20 and deviation 2. You can change them, as well as the color and the width, by clicking the pen icon on the chart.

Having the indicator set, the chart will look similar to the one provided below.

Bollinger Bands settings
The Bollinger Bands settings

Trading with the Bollinger Bands

This trading strategy is down to searching for the areas where one of the indicator’s bands intersects the candle.

When it is the upper band and it cuts a green candle, you can assume the uptrend is coming. When the lower band crosses a red candle, you will expect the downtrend.

Long trade example
Long trade example

Look at the following chart. The lower band of the indicator crossed a red candle. I was trading 1-minute period candles and I opened a sell position lasting 5 minutes.

Short trade example

 

Advice for trading candle colors together with the Bollinger Bands

Your task is to observe the chart and wait for the upper or lower band to cross the candle. The length of the transaction will mainly depend on the period of the candles you are using.

I would recommend holding the position open for 5 minutes if you trade 1-minute interval candles.

Adding the compounding money management

I think this is a good idea to involve compounding money management here. In the first trade, you will invest around 3% of the account balance. For instance, with the account balance of $100, you will invest $3 in the beginning.

With every profitable trade, you increase the investment amount by adding the generated profit. So in the second trade, you will invest $3 plus the profit from the previous transaction. This can bring you up to almost 20% payout in just 3 winning trades.

Compounding money management for Bollinger Bands strategy
Compounding money management for the Bollinger Bands strategy

Psychological rules to be followed

Come to the trading prepared. Set a fixed profit you are going to earn. If, like in the above example, you aim at a 20% payout, stop right after. Do not try to gain more as you can start trading with emotions and lose. Reach a target and pause.

Do not open multiple positions based on a signal from one candle. You may think if you opened one position and you were right, you could open another one very fast and win as well. But the success of this strategy lies in the exact moment you enter the trade. It has to be at the end of the candle that is crossed by the band of indicator, or right at the beginning of the following candle. Otherwise, it makes no sense.

The strategy based on the combination of the candles’ colors and the BBands indicator is quite simple. Of course, it requires a certain portion of practice, but you can make money with it in no time. Remember, there is a free demo account at Olymp Trade you can use to implement new strategies.

If you wish to share your experience regarding trading the candle colors alongside the Bollinger Bands, use the comments section.

Best of luck!

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Bart Bregman

Full time day trading, and helping out with Olymp Trade wiki in my spare time to create an awesome platform for beginners. I'm a digital nomad that travels the world while working from everywhere!

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