After a sell off USDCHF tested S2 Pivot point (1.1504).  We buy 2 pips + spread above the S2 and place stop loss 2 pips below the low of the test.  A 20+ pips profits is realized during the first 15 minutes.  More patient trades could gain 70 pips from this trade.

On 1 hour chart EURUSD is testing teh 50 period Exponential Moving Average which is a very could level of support or resistance.

We move on a lower time frame (15 minutes) to look for better entry point.  A double bottom pattern is forming which means that the market is bottoming and preparing for rally.  A hammer candlesticks reversal pattern will be our entry point. We place buy stop order above the high of the hammer @ 1.2902 and a protective stop loss below the low @ 1.2871.  You can see that a very nice rally follows and depending on our position management rules we cane make a profit of 30 to 180 pips.

One of the great joys of having invented an analytical technique such as Bollinger Bands is seeing what other people do with it. While there are many ways to use Bollinger Bands, following are a few rules that serve as a good beginning point.

1. Bollinger Bands provide a relative definition of high and low.

2. That relative definition can be used to compare price action and indicator to arrive at rigorous buy and sell decisions.

3. Appropriate indicators can be derived from momentum, volume, sentiment, open interest, inter-market data, etc.

4. Volatility and trend have already been deployed in the construction of Bollinger Bands, so their use for confirmation of price action is not recommended.

5. The indicators used for confirmation should not be directly related to one another. Two indicators from the same category do not increase confirmation. Avoid colinearity.

6. Bollinger Bands can also be used to clarify pure price patterns such as M-type; tops and W-type bottoms, momentum shifts, etc.

7. Price can, and does, walk up the upper Bollinger Band and down the lower Bollinger Band.

8. Closes outside the Bollinger Bands can be continuation signals, not reversal signals–as is demonstrated by the use of Bollinger Bands in some very successful volatility-breakout systems.

9. The default parameters of 20 periods for the moving average and standard deviation calculations, and two standard deviations for the bandwidth are just that, defaults. The actual parameters needed for any given market/task may be different.

10. The average deployed should not be the best one for crossovers. Rather, it should be descriptive of the intermediate-term trend.

11. If the average is lengthened the number of standard deviations needs to be increased simultaneously; from 2 at 20 periods, to 2.1 at 50 periods. Likewise, if the average is shortened the number of standard deviations should be reduced; from 2 at 20 periods, to 1.9 at 10 periods.

12. Bollinger Bands are based upon a simple moving average. This is because a simple moving average is used in the standard deviation calculation and we wish to be logically consistent.

13. Be careful about making statistical assumptions based on the use of the standard deviation calculation in the construction of the bands. The sample size in most deployments of Bollinger Bands is too small for statistical significance and the distributions involved are rarely normal.

14. Indicators can be normalized with %b, eliminating fixed thresholds in the process.

15. Finally, tags of the bands are just that, tags not signals. A tag of the upper Bollinger Band is NOT in-and-of-itself a sell signal. A tag of the lower Bollinger Band is NOT in-and-of-itself a buy signal.

My book, “Bollinger on Bollinger Bands” provides a comprehensive guide on how to use Bollinger Bands, which indicators to use for confirmation, trading systems utilizing Bollinger Bands and the basics of technical analysis. For an autographed copy and free shipping in the US see http://www.bollingerbands.com.

Please also visit http://www.BollingerOnBollingerBands.com. The site features four trading systems based on Bollinger Bands and provides stocks that meet the criteria for each of the trading systems, updated on a daily basis including long and short positions. There is also a powerful custom-charting program with a wide variety of indicators and an extensive stock-screening program.

Good Trading,

John Bollinger, CFA, CMT
(c) John Bollinger 2001
—————————————-
Bollinger Capital Management Inc.
http://www.BollingerBands.com

GBPUSD makes new high but as you can see the MACD is not confirming this. We place sell stop order 2 pips below the previous high and protective stop @ 1.4781. You see that the reversal is sharp and it is better to take 20 pips profit or use trailing stop.

A Hanging man Candlesticks reversal pattern forms on the 15 minutes chart. We place a sell stop order below the low of the pattern @ 1.2820. After the position is opened a protective stop loss order is placed @ 1.2840. We close the position at the mid Bollinger band @ 1.2790.

The Stochasticks oscillator is one of the best tools for ranging markets. Before the release of the Non-farm Payrolls report on 02/06/2009 USDJPY was in consolidation. The Stochastics crossed above 80 and indicated that the market is overbought and is due for another move down. We place a Sell stop order below the low of the signal candle @ 91.32 with a protectvie stopp loss above the high @ 91.55.  In the next period we see the pairs goes down. We take our profits around the mid Bollinger around 91.10.

This is one of the best set ups – inside bar + NR4. As you can see a nice 50+ pips profit is generated.

There is a false break out above previous swing high here. It happens above the upper Bollinger band. It is a good place to enter short.

Short entry is 2-3 pips below the swing high. Stop Loss – 15-20 pips above the swing high. Target – near to the Bollinger middle line.

This time we have reversal candlesticks pattern at the upper Bollinger band confirmed by CCI signal. A nice 60 pips profit is gained for 45 minutes.

In this case MACD is below the 0 line and shows that the market is in a downtrend. After a retracement the Stochastics goes above 80 level which shows overbought conditions. %K crosses %D above the 80 level and we place sell stop order below the low of the signal candle.  After the position is opened we place stop loss order above the high of the signal candle (in this case the stop should be @ 1.1498 but we place the order above the 1.15 round number). As you can see a quick 30 pips profit could be made with this set up.