How to Smartly Use Bollinger Bands Selling Strategies


Bollinger Bands are technical analysis tool, which is widely used by the professional trader as well as the beginners. It contains two standard deviations (Positively and negatively) away from a simple moving average (SMA), which can be synthesized to user requirements. Below we’re going to provide you with some of the best Bollinger Bands selling strategies, which you can use to become a profitable trader.

Jun 09 2020 | AtoZ Markets – In this Bollinger Bands selling strategies article, we are giving you an overview of the basics of Bollinger Bands. Before we begin diving deep into the topic, What are Bollinger Bands and who invented it? In the 1980s, Bollinger Bands invented by the famous technical trader John Bollinger. It designed to find trade opportunities with a high probability of identifying accurately when an asset is overbought and oversold.

Bollinger Bands contained three lines: a simple moving average (middle band) and an upper and lower band. The upper bands and lower bands are typically two stander deviations +/- from a 20-day simple moving average, but it can be modified by the user’s choice. Moreover, the main reasons for Bollinger Bands are to provide a relative definition of high and low prices of a market. By elaborate, prices are high at the upper band and low at the lower band. Bollinger Bands calculate market volatility and provide information, like –

  • The trend will continue or reverse back.
  • Upcoming volatility breakouts
  • Market’s integration
  • Possible market highs and lows, and potential price target

Bollinger Bands Calculations

The first step of Bollinger Bands calculation is, it calculate the simple moving average of the safety in question, by using a 20 day SMA. The 20 days moving average calculates the closing price of the first 20 days, as the first data point. Then it calculates the next data point and add the price on day 21 and take the average, and so on. Then the standard deviation of the security’s price will be acquired. Moreover, the standard deviation is a mathematical calculation of average variance and forms clearly in economics, statistics, accounting, and finance.

Furthermore, how the numbers spread out from an average value is measured by the standard deviation of a given data set. Besides, the standard deviation can be measured by taking the square root of the inconsistency, which is the average of the squared variety of the mean. Then standard deviation value multiplies by two, and both add and deduct that volume from every point by SMA. That results in the upper bands and lower bands.

Bollinger Bands Formula:

BOLU = MA (TP,n)+mσ[TP,n]

BOLD = MA (TP,n)mσ[TP,n]

Where:

BOLU = Upper Bollinger Band

BOLD = Lower Bollinger Band

MA = Moving average

TP (typical price) = (High+Low+Close) ÷3

n = Number of days in smoothing period (typically 20)

m = Number of standard deviations (typically 2)

σ [TP,n] = Standard deviation over last n periods of TP

Bollinger Bands Selling Strategies

Below we’re going to provide you with some of the great Bollinger Bands selling strategies that are very effective and easy to use. The strategies combined with the other indicators, which works as the confluence of the Bollinger Bands.

Bollinger Bands Riding Strategy

In this Bollinger Bands riding strategy, we will use 15 minutes chart to sell the market.

2 Indicators which applied on the chart:

  1. Bollinger Bands (20,2)
  2. Stochastic Oscillator (7, 10, 3)

Bollinger Bands Selling Strategies

To sell in this market first, you have to find the price direction. If the price is making lower lows gradually, then think of selling the market. For sell trade, the market needs to match with three entry requirements:

  1. The price made a lower low.
  2. After making a lower low market reverse back, and make a higher low and close below the upper band.
  3. Stochastic Oscillator moving downward after reaching overbought level 80

Bollinger Bands Selling Strategies

Bollinger Bands Double Top Strategy

Bollinger bands double top strategy is easy to use, which requires double touches at the resistance level and close under it. The price also needs to close below the upper band.

2 Indicators which applied on the chart:

  1. Bollinger bands (20,2)
  2. Volumes

Bollinger Bands Selling Strategies - AtoZ Markets

To sell in this market, you need to find out the direction of this market. Moreover, you can see the price made two higher lows at the same level, which is also called the double top. For sell entry, the market needs to match with three entry requirements:

  1. The price made two higher lows at the same price level, which is called double top.
  2. After making a double top, the price closed below the Bollinger Bands upper band.
  3. Volumes levels decreased from the previous levels.

Bollinger Bands Selling Strategies - AtoZ Markets

The stop loss should be above the bearish closing candle. Take the profit when the price touches the lower band or becomes volatile. You can see these types of price action in the market very often. Moreover, these types of setups require good money management and continuous observations.

Pennant Trading With Bollinger Bands

Pennant Trading with Bollinger Bands strategy is the combination of market patterns. It’s also similar to the Bollinger Bands squeeze trading method. This trading method is very effective and provides high accuracy trades.

3 Indicators which applied on the chart:

  1. Bollinger Bands (20, 2)
  2. 2 line MACD (12, 26, 9)
  3. Stochastic Oscillator (7, 10, 3)

Bollinger Bands Selling Strategies - AtoZ Markets

In this given picture you can see, how the Bollinger Bands squeeze with the pennant. As we know, Bollinger Bands squeeze is the pre-market structure of breakout, and the same method can be applied here. Besides, you can also use this strategy for swing trading. Moreover, the market needs to match with five entry requirements:

First step:

  1. The market needs to form a pennant
  2. Bollinger Bands are squeezing inside the pennant

The second step for entry:

  1. Price broke below the pennant and closed below the lower band
  2. Stochastic Oscillators lines are crossing each other downside
  3. MACD lines are crossing each other downside

Bollinger Bands Selling Strategies - AtoZ Markets

Enter a sell trade on the breakout, and the ideal stop loss should be above the pennant and take profit level according to the 1:2 ratio. The Stochastic Oscillator and MACD lines are must be moving downside or cross each other downward. Moreover, you can achieve a significant number of pips in these types of trading setup.

Conclusion

Bollinger Bands trading strategies are uncountable. Many traders use Bollinger Bands with different parameters and combination with other indicators. These trading strategies that we provided above is the most profitable and used by professionals. We hope you enjoyed reading this article. These strategies need to practice many times; when you become a master on it, you can see that the magic behind these strategies.

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