Podcast:

How Bollinger Bands Help Me Trade

In this weekly video:

00:28 – Selecting profit targets

01:20 - I use Bollinger bands to help me trade

02:04 – Trade when the conditions are favourable

02:40 – Trading reversal patterns

03:54 – Trading Continuation trades

04:29 – Teaching the whole package

04:55 – Sell trade on the EUR/CAD off the middle Bollinger band

05:50 – Look for the Bollinger bands to be widening

We need to give the trade room to move. Let's talk about that and more right now.

Hi Forex Traders, it's Andrew Mitchem here with The Forex Trading Coach. Video and Podcast number 240. I want to talk about giving the trade room to move. What does that mean?

Selecting profit targets

Well, a lot of people are very quick to say, "I'm going to place a trade here and I've got my stop-loss here." But a lot of people have difficulty with profit targets. What I like to see is I like to see the ability on the chart as a technical trader for the trade to get to its profit target with the least amount of support or resistance in the way of the trade depending on whether we're buying or selling. If we're buying, we want to see as few resistance levels like reasons why the trade's not going to hit a level and bounce. Why it will get to its profit target. If we're selling, we want to see as few support levels, like as few areas below where the price is right now where it might bounce. We want to see as few of those as possible. We want to give the trade room to move and allow it to get down to our profit target if we're selling with as few support areas in the way as possible.

I use Bollinger bands to help me trade

To do that, I like to use support and resistance levels but I also use Bollinger Bands. I'm going to talk about Bollinger Bands and how I use them. Bollinger Bands are quite fascinating if you can use them in the right way. They really do aid your trading. As a technical trader, I look at Bollinger Bands and I'm looking at how they're moving with the current price. If they're level, or they're flat, or they're coming together the upper or lower Bollinger Band, that tells me that there's very little price action, or there has been good price action and now it's over because the bands are getting tighter together or they're parallel. When that happens, trading conditions are not good right now. It's not a great time to be trading.

Trade when the conditions are favourable

What you need to do is to be able to trade when the price starts to move; when you get decent, active conditions in the market at the current time and the Bollinger Bands start to widen. What that means is that there is good price action right now. To give you a few examples of how I trade.

As you know, I like either reversal trades or continuation patterns, two quite different patterns. Continuation patterns are probably safer, reversal patterns look really good and really dramatic on your charts but a little bit high risk.

Trading reversal patterns

If I see a reversal pattern, and I'm seeing a bearish reversal pattern, I like to see that at or near the upper Bollinger Band. If I'm seeing a bullish reversal pattern, I like to see that at or near the bottom Bollinger Band. Then what I'm looking at doing is I'm looking ... Let's say we're taking a buy trade. We're near the bottom Bollinger Band, I'm seeing a good pattern to go long, a reversal of the previous downtrend. What I'm looking at doing is I'm looking for my profit target to ideally be before we need to break through the middle Bollinger Band. The reason for that is the middle Bollinger Band is also the 20 period moving average, and a lot of people rightly or wrongly use moving averages as support and resistance levels.