Example trade using Bollinger Bands

Thursday, August 23, 2007

This picture is a chart of GJ where you can see my entry, SL and TP. It was taken right after I enter the market. I opened 2 post there.

This picture was taken this morning after the price has moved. Its a beautiful picture and it works most of the time.

This is a daily statement of yesterday trade. You can see that I have closed the 2 GJ post earlier than my TP target. Anyway yesterday was a good day to trade. As for today GJ continue to go uptrend with a correction coming soon. Wait for that correction and enter if the strength holds.

Trading with Bollinger Bands

Tuesday, August 21, 2007


Bollinger Bands are a technical analysis tool invented by John Bollinger in the 1980s. Having evolved from the concept of trading bands, Bollinger Bands can be used to measure the highness or lowness of the price relative to previous trades.

Bollinger Bands consist of:

1. A middle band being a N-period simple moving average
2. An upper band at K times a N-period standard deviation above the middle band
3. A lower band at K times a N-period standard deviation below the middle band

Typical values for N and K are 20 and 2, respectively.

The bands cannot, as some have supposed, be used to make reliable statements regarding what fraction of an equity's prices will lie within a certain distance of the mean value. This is because an individual equity's price does not obey known distribution functions (see stochastic process). For example, if the bands for plus or minus two standard deviations (2SD) are computed, it is wrong to suppose that ~95% of an equity's closing prices will, on average, lie within the Bollinger bands. That would require, among other things, that the prices be normally distributed, which they are generally not. It would further require that the true standard deviation be known. The standard deviation calculated as above, however, is only an uncertain estimate of the true standard deviation. Furthermore, it should be realized that the "standard deviations" of stock prices for finite time periods are not fixed parameters as required to apply classical statistical theory, but instead are variables in constant flux depending on price volatility. The bands give a visual picture of a stock's price volatility. Nevertheless, the bands can be useful in the technical analysis of prices or returns and by Chebyshev's inequality contain at least 75% of prices. These occurrences should be considered in relation to other factors before making investment decisions.

It is of interest to note that faulty interpretation of a price touching or breaching a band based on incorrect statistical assumptions has become so widespread that some traders now use these events alone as trading signals and by so doing may have unwittingly injected significance into these band-touching events that should otherwise be absent. Nevertheless, anyone can observe over time, that for a diversified group of mutual funds, say, the proportion of daily adjusted close prices that breach their 1-month 2SD Bollinger bands varies between 5% and 15% of days, with each fund having a fairly constant, characteristic long-term breach probability descriptive of its long-term, relative volatility.

When the bands lie close together a period of low volatility in stock price is indicated. When they are far apart a period of high volatility in price is indicated. When the bands have only a slight slope and lie approximately parallel for an extended time the price of a stock will be found to oscillate up and down between the bands as though in a channel.

The use of Bollinger Bands varies wildly among traders. Some traders buy when price touches the lower Bollinger Band and exit when price touches the moving average in the center of the bands. Other traders buy when price breaks above the upper Bollinger Band or sell when price falls below the lower Bollinger Band. Moreover, the use of Bollinger Bands is not confined to stock traders; options traders, most notably implied volatility traders, often sell options when Bollinger Bands are historically far apart or buy options when the Bollinger Bands are historically close together, in both instances, expecting volatility to revert back towards the average historical volatility level for the stock.


I use 2 Bollinger Bands with the same value on my technical charts. These 2 BB are for:

1. Trend Reversal Detection
2. Exit Target
3. Entry Point

Before we go on any further, a visual display is needed since we human learn faster through our visual.

As you can see in the graph, there are 2 BB with RSI. There are 5 set of circle indicating when the price cut thru Bollinger Bands. I will try to explain here according to numbers in the chart.

1. Price cut the upper BB at the same time RSI only cut thru middle band. Indicating the price is over bought while RSI is showing weakness. That is your point to short.

2. Price cut thru the lower BB and RSI is doing exactly the same. This showing that the price is according to strength. Exit at will. This also indicates a new trend has started. Take only short position from now on.

3. Same as no.2, this is your exit position. RSI agrees with the price. Continue to trade short.

4. Price cut thru the lower Bands but RSI is in the upper part of the Bands. This is a sign to start thinking of reversal. Lowest price at that point was 1.0550. Normally I would give out signals based on that lowest price.

5. Price makes a new low of 1.0530 and RSI still disagree with it. This is due to last minute trend traders who are pushing the price even lower thinking the trend is still there. I must agree, the trend is still there but the strength is gone long ago.

If I were to trade this pair, I would give out a signal to long @ 1.0550. The price hit bottom at 1.0530. Meaning there was a -20 pip position hold. Now the position is +30 and guess what. Its breaking the middle bands. Once the middle bands is broken and it cut thru upper bands and RSI agrees with it, we have ourself an uptrend. Meaning that I have trade the pair much earlier than most traders do because they are trading on trend.

At the time of writing I am holding ucad long with SL at breakeven. The worse thing that could happen is ucad reverse making a new low leaving me with nothing. If all goes well, I would like to see that upper band and make my exit there.

Of course there is no certainty in forex. In this article I am only showing the possibilities of using only BB and RSI to trade forex. Currently I am using 4 indicators to my technical analysis. Maybe some of you out there can do much better and come up with a better system.


As you can see in the picture, those circle are my entry and exit point. At the time of writing, I have already closed 2 position with +97 pip and holding 1 position with SL at +8 pip. Thats brings a confirmed total of +105 pip for ucad alone.

Looking at the chart, Ucad is still a long trade but there is not much follow thru. This maybe to the fundamental effect saying usd dollar has been so weak all this while making trader unwilling to enter on usd side.

Remove Some Advertising

I have remove some advertising. In the beginning, they are there because they are flasy, full of colours with attractive animation. Someone decided to comment that my blogs is full of advertising.

Ok, it is remove. Now I see my blog as empty. Its dark with just text. Any idea to improve the looks of my blog?

I Missed Most Of It

Sunday, August 19, 2007

Last week was a busy week + I have a bad flu. I only manage to trade on Friday last week and got out with a lot of pip. Thank god.

As for next week, opening of next week will be tricky. Last friday we saw a jump on GU, EU, GJ and EJ. That last jump really upset the downtrend. It would be very difficult to trade those pairs now.

Last hope is to use a breakout system. Hopefully next week we can see a clear direction of trade. May many pip be with you.

Looking at Elliot Wave

Sunday, August 12, 2007

This is a screenshot of EW on daily EU and GU. What do you think?

Ranging Market

Thursday, August 9, 2007

For the past 2 weeks, forex has enter the ranging mode. Ive been busy with work since I have a day time job. Merdeka celebration is coming and I am going to be extra busy. Next week I am going to KL.

As for forex, this week is not so good for me. All my technical is correct just that being unlucky sometimes. My position of long GU and GJ both hit SL on the last dip. I can never imagine it can go down that much. Thanks for EG, I manage to cover my lost and made a little profit.

Back to technical analysis, GJ has made it top at 244.06 and there is a reversal sign. GU it seems has not reached it top. There is some room to go before a reversal can be considered. Look for formation of double top and watch out for its strength. Im not going to give signal since I do not have time to trade. If I do enter the market it would be touch and go or thru stop order with sl (which is very difficult to judge).

Happy trading, may profit be with you always.

Forex Review Week 2nd August

Sunday, August 5, 2007

Last week GbpUsd/EurUsd made a last minute break. Next week we should see GbpUsd/EurUsd continue its uptrend. Take long position from now on.

GJ and EJ didn't break it last week. Eventhough it is going down now, we should see 238.40 and 162.00 level are hard to break. If those level break, be prepared for a long downtrend.

Last week is not a good week to trade, there is no real trend as the market is swinging and ranging everwhere. Hopefully next week we should see a real trend and trend traders will make it a good trade.

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