Trading forex with bollinger bands by entering and exiting a position once price hits either the lower or upper band may work for a while when price is moving up and down in a trading range. But what happens when price starts trending?
That is the problem when buying and selling currencies based on the
upper and lower bands. Mathematically, it will make sense as the
probabilities of price changing direction once it hits the outer reaches
of the bands are increased.
To make a strategy work using
bollinger bands, we need added confirmation like price resting on
support and forming a double bottom before buying as shown on the chart
We can also further improve our success rate by waiting for confirmation by reading candlestick price patterns.
Notice from the above chart how a trading system of buying and
selling between the bands would not have worked without the added
confirmation of the double bottom AND candlestick patterns.
The idea when creating a trading strategy is to select only a few indicators. Not too many. Test a combination of them and see what happens. Read more about trading strategies here.
Himanshu Jain a successful forex trader from Tokyo explains how he uses bollinger bands in conjunction with other indicators. Read his article here.