Trading Strategy based on BB/KC squeeze

In this example of Bollinger Bands®, the price of the stock is bracketed by an upper and lower band along with a day simple moving average. Read The Basics of Bollinger Bands. The Squeeze.

There is no doubt we will succeed! I am one of the Bollinger Bands fans because it works. When volatility begins to increase prices usually begin moving in one direction for a short period of time.

The Bollinger Band-Width

Introduction to the Bollinger Squeeze Breakout System. There are occasions when the Bollinger band indicator is heavily contracted or squeezed, usually as a result of very little market volatility which causes the bands of the Bollinger indicator to be placed tightly together.

In particular, the use of oscillator-like Bollinger Bands will often be coupled with a non-oscillator indicator-like chart patterns or a trendline. If these indicators confirm the recommendation of the Bollinger Bands, the trader will have greater conviction that the bands are predicting correct price action in relation to market volatility. Various studies of the effectiveness of the Bollinger Band strategy have been performed with mixed results.

In , Lento et al. The authors did, however, find that a simple reversal of the strategy "contrarian Bollinger Band" produced positive returns in a variety of markets.

Similar results were found in another study, which concluded that Bollinger Band trading strategies may be effective in the Chinese marketplace, stating: A recent study examined the application of Bollinger Band trading strategies combined with the ADX for Equity Market indices with similar results.

A paper from uses Bollinger Bands to reduce variance in a Monte Carlo simulation used to forecast the Canadian treasury bill yield curve. In , Butler et al. Their results indicated that by tuning the parameters to a particular asset for a particular market environment, the out-of-sample trading signals were improved compared to the default parameters. Companies like Forbes suggest that the use of Bollinger Bands is a simple and often an effective strategy but stop-loss orders should be used to mitigate losses from market pressure.

Security price returns have no known statistical distribution , normal or otherwise; they are known to have fat tails , compared to a normal distribution. Such techniques usually require the sample to be independent and identically distributed, which is not the case for a time series like security prices.

Just the opposite is true; it is well recognized by practitioners that such price series are very commonly serially correlated [ citation needed ] —that is, each price will be closely related to its ancestor "most of the time". Adjusting for serial correlation is the purpose of moving standard deviations , which use deviations from the moving average , but the possibility remains of high order price autocorrelation not accounted for by simple differencing from the moving average.

For such reasons, it is incorrect to assume that the long-term percentage of the data that will be observed in the future outside the Bollinger Bands range will always be constrained to a certain amount. Practitioners may also use related measures such as the Keltner channels , or the related Stoller average range channels, which base their band widths on different measures of price volatility, such as the difference between daily high and low prices, rather than on standard deviation.

Bollinger bands have been applied to manufacturing data to detect defects anomalies in patterned fabrics. The International Civil Aviation Organization is using Bollinger bands to measure the accident rate as a safety indicator to measure efficacy of global safety initiatives. From Wikipedia, the free encyclopedia. Kirkpatrick and Julie R. Applied Financial Economics Letters. Quarterly Journal of Business and Economics. Bollinger Bands and the ADX". International Federation of Technical Analysts Journal: Particle Swarm Optimization of Bollinger Bands.

International Conference on Swarm Intelligence. Breakout Dead cat bounce Dow theory Elliott wave principle Market trend. Hikkake pattern Morning star Three black crows Three white soldiers. If it touches the upper band, it means the market wants to break above the range and go up. If it touches the lower band, it means the market wants to break below the range and go down.

I mean touching by the candlestick shadow is not enough. The body should somehow break out of the band. As you see on the below screenshot, the candlestick 2 body has barely touched the upper band. We could go long at the close of this candlestick, however, as the body has not touched the upper band strongly, we wait for another candlestick to form.

The candlestick 3 body has strongly touched the upper band. It does not have to be that strong and if I wanted to trade this Bollinger Bands Squeeze trade setup, I would go long at the close of the candlestick 2 or while the candlestick 3 was forming.

I would place the stop loss at the candlestick 2 low price or a little below it. It would be a 2 to 5 pips stop loss. The below chart shows two examples of Bollinger Bands Squeeze that are longer than the above example. I mean the market has been moving sideways for a longer time.

The one at the left side of the chart has something more than an ordinary trade for you to learn. As you see, after such a long time of moving sideways and inside the squeezed Bollinger Bands, candlestick 1 body touches the upper band. According to what I told you above, we would go long at the close of this candlestick while the stop loss had to be below the low price of the candlestick. However, as you see, it would not work and the market went down and triggered the stop loss.

So we could go short at the close of candlestick 3. As 3 is a long candlestick, the stop loss did not have to be at its open price and it could be set at the middle of the candlestick a 9 pips stop loss. A 90 pips target 1: The reason is clear. We need normal candlesticks to trade. Huge and exotic candlesticks are usually troublesome. So be careful and always trade like a professional trader who takes care of his capital properly. Like you, i am also a fan of Bollinger Bands.

My articles are at — http: As you see, now there is a link to your blog. People can follow it and read your articles. Publishing the articles that you have already published on your blog is not a good idea because it will be known as duplicated content. However, you can write a unique article that is not published on the web yet, send it to us and we will be more than happy to publish it on LuckScout. Hi Chris, Pls you said some times when the market becomes too slow and its not moving side ways.

Cwrt too, that we should avoid such chart…could you kindly illustrate such chart to me , this is because am a newbie in i might not be able to recognize such chart if i sees it. Or, will you be risking lesser with these trade setups? I believe that among the different strategies u explained.

Can I check with u guys if I wanna trade with your double BB and candlesticks strategies, can I be a long term profitable trader if my risk reward ratio is 1: I believe you can still be profitable with a 1: In the past I always use consolidation area or a fixed value as my stop loss. Thank you very much! Hi Chris, this morning I entered cadjpy when the 3rd candlestick closed below the BB on the daily chart.

When I came back to the trade 8 hours later, I realised that the candlestick went bullish instead. I checked weekly chart and found that the last candlestick had actually penetrated top BB and was still a strong uptrend. From my past experiences, I usually lose money if I go against such a trend.

Hi Chris, my cadjpy trade just hit stop loss a while ago. When the trade setup is not too strong by itself, then we check the longer time frames to see how they look. When they are against the trade setup, we avoid taking any positions. The solution is that we only take the too strong setups.

If so, we will not have to check any other time frame, for example when we locate a setup on the daily chart. Hi Chris, thanks for the info. I checked the daily charts for the following pairs today. Seems like none of them have score trade setup. Hi Chris You told me to stick with the TF day and week. To be honest, I hardly see Bollinger band squeeze in TF day nor week.

Mostly it will appear in smaller TF like 15 min up to 4 hours. Does it mean i can trade this system with 15 min chart? On the long time frames Bollinger Upper and Lower Bands become so close to each other too. For example, the DBB long trade setup that was formed by Since you mentioned that BB squeeze rarely forms on daily and longer timeframes, would you recommend trading BB squeeze in smaller timeframes such as H4, H1, M30, etc.

I see your examples are M15 and H1. I have some examples of BB squeeze on the daily time frame here: Should we move to BE or use trailing SL? You can move the stop loss to breakeven if you want. I recommend you to do it if the price has moved toward the target for x2 of the stop loss size. If I set RR I take two positions when a too strong trade setup forms.

Both positions have the same stop loss, but one of them has a 5 x SL target and the other one has no target. Using this method, I sometimes maximize my profit even over 1: But it takes time to locate such a setup.