Learn more about Bollinger Band Strategy at nextmarkets

The revelatory characteristic of Bollinger Bands is that they are able to give the trader more information about the behaviour of the market than a singular price average. Bollinger Bands give financial speculators indicators of when the market will move, but not where it is heading. This is why the best Forex broker should consider applying the double Bollinger band strategy while trading on their nextmarkets account.

Double Bollinger bands are calculated in exactly the same way as Bollinger bands, but they have additional markers which signal one standard deviation away from the moving average in each direction. Visually, there are now five different lines on the graph which form the bands, rather than just three.

The Double Bollinger bands strategy is simple, but effective. Bollinger bands are among the first indicators checked by experienced traders and in nextmarkets broker strategies across all different market types. This makes them possibly the most useful indicator of market behaviour that exists today. Double Bollinger bands can help to inform traders:

• When there is a strong enough market trend to continue riding the market
• When an existing market trend may be strong enough to enter the market
• When there is no clear trend visible in the market – prompting them to either change strategy or exit the trade
• When it is time to exit the trade, reverse the trade or cash in profits

The best Bollinger band settings will depend entirely on the market they are being applied to and the style of the trader using them. For example, a day trader working in the Forex market will require very different settings to a long trader buying stocks, even if both use the nextmarkets platform.

What is Forex? One of the keys to being able to use Bollinger band strategy to make successful trades is getting your settings right for you and your market. To do this, Bollinger recommends that small and incremental changes are made to the standard deviation multiplier. Large changes will throw the bands out of balance and render them useless.

Instead, Bollinger suggests making adjustments of 0.1 to the standard deviation multiplier, in line with the number of periods used to calculate the moving average. You can combine your findings with other popular day trading strategies like this one.

Quite often, when looking at market charts, there will be straight lines marked near the top and the bottom of the chart. These are known as support and resistance lines and are not to be confused with Bollinger band lines.

The resistance line, also known as a market ceiling, marked by some traders as the level which the market price seems unable to break. The market price may have come close to that value at several points during the last few months, but invisible resistance pushes it back down again.

The support lines are the inverse. These mark the price which the market does not fall below, despite coming close. These support and resistance lines show the historical range of market prices and help traders to spot when the market may turn. These lines are extremely helpful at defining the outer limits of your Bollinger band strategy. For traders on nextmarkets, implementing these strategies can be simple and effortless.

Breakouts are a key thing to look out for when following the Bollinger bands strategy. A breakout can occur after a squeeze when the Bollinger bands have come together and the market has had a period of low volatility.

If the market then closes at a price outside of the Bollinger bands, this is known as a breakout. Quite often, this might also mean that the price moves beyond one of the support or resistance lines too. A trader may decide to invest if the price breaks out above the upper Bollinger band, as this could mean the beginning of a significant upward trend.

Equally, a breakout below the bottom Bollinger band could be a good time to sell, as it may mark the start of a significant downward trend in the market price. For traders, this is an exciting time to keep a close eye on their nextmarkets account.

One of the best ways of getting to grips with the Bollinger band strategy is to have a look at past trades where you already know the outcome, and look for indicators in the historical data leading up to the trade. This Bollinger band analysis is vital when learning to read the markets. Take some trades which you know to have been successful, and look at market charts to see what the Bollinger bands were doing in the lead up to that trade.

Once you are comfortable with some of the patterns you see, take some trades on nextmarkets which you know to have been unsuccessful, and compare the behaviour of the bands. Analysing these past trades will help you to to become familiar with these indicators, and how they might be used to inform trading behaviour.

The reason that the Bollinger band strategy is so widely used by traders across all markets and on the nextmarkets platform, is due to the simple actionable insights which traders can follow at a simple glance of these lines. The easiest way to use this method is by following these double Bollinger band rules:

Buy when:

The market price sits between the top two Bollinger band lines (this implies that there is a strong upward trend which is likely to continue).

Sell when:

The market price sits between the bottom two Bollinger band lines (this implies that there is a strong downward trend which is likely to continue).

Exit when:

The price sits within the middle bands, up to one standard deviation above and below the moving average line (this implies that there is no strong trend, so it is almost impossible to tell where the market is heading).

Counter-trending is a trading methodology which assumes that the current market trend will reverse at some point. It’s important for nextmarket traders to be aware of this methodology, as it can be implemented into your personal trading strategy. Some traders liken it to betting on black on roulette after a string of red numbers has been called. It is a strategy adopted over the medium term, and Bollinger band strategy is often key to getting it right. Overall, Bollinger bands are reasonably accurate at describing where the direction of the market reverses.

Trading against the current trend can be very profitable, as it is possible to cash in on the new trend right at the beginning before the rest of the market catches up. This is of course also a risky strategy, as there is no guarantee that the market will turn when you think it may do. Risk management strategies are therefore vital when adopting this use of Bollinger band strategy.