[00:03] strategy that you can use with the bollinger bands indicator so first of all we all know that it's very important to identify trends on the market however if you've been trading for a while
[00:17] you would know that trends don't usually move in a straight line like this most trends actually look like this where prices are forming higher highs and pullbacks the problem
[00:30] false signals let me give you an example let's say you're using a normal trend indicator such as the 20 ema if the trends are moving in a straight
[00:42] line like this then the 20 ema gave a perfect signal however if the trend has pullbacks like this it can be a huge problem because it gave so many false signals so that is why the
[00:58] bollinger bands is a better indicator because it can identify the direction of a trend while also taking these pullbacks into consideration pullbacks into consideration hence it can give you less false signals
[01:11] the bollinger bands is a very simple to use indicator it consists of three parts a 20 period simple moving average in the middle and two standard deviation lines above and below it
[01:25] the middle line shows the overall direction of the market that the market is on an uptrend and if the line is meaning that the market is on a downtrend
[01:41] the two standard deviation bands is used to detect the volatility of the market together it means that the market is on a low volatility period and if the bands are expanding from each
[01:55] other meaning that the market is on a high volatility period [Music] so a common mistake that i see traders bands as an overbought and oversold indicator
[02:09] so they sell when the price hits the upper bands bands now let me explain why it's a bad idea to use the strategy so in this chart notice that the middle
[02:24] is heading upwards meaning that the market is on an uptrend now we can see that the price broke above the upper bands so if you took a short position here let's see what happens
[02:38] the price instead pushes further to the upside and you would lose your money because if you are using the indicator as an overbought and oversold signals you are essentially trading against a trend which is not a good idea
[02:54] so after testing the bollinger bands indicator multiple times i actually found the most effective strategy that you can use and the strategy is called the bollinger band squeeze
[03:06] so this strategy is based on predicting price breakouts understand is that volatility of the market is constantly changing from low to high and vice versa meaning that if the
[03:21] like this eventually volatility will start to pick which can lead to big price movements and breakouts so now it's our job to find these low volatility markets
[03:36] and predict when a breakout might happen and which direction will it be this is how you do it first you need to find a market that is on a range you can identify this by looking at the middle sma line
[03:51] like this however it doesn't have to be perfectly flat next the two bands must be close to each i like to make my job easier by using an indicator called the bbw
[04:07] width this indicator shows how far apart the bands are if the bbw is low meaning that the gap between the two lines are close and if it's high meaning that
[04:21] the gap is further apart note that the two indicators needs to have the same settings for it to work next to predict the price breakout you lines to start expanding which can also be
[04:36] identified by the rising of the bbw so this means in volatility and a breakout is likely occurring so our next job is to predict the direction
[04:49] of that breakout and the way you do that is by using price action let me give you an example so in this chart we can spot a flat sma
[05:01] meaning that the market is on a range and the two bands are contracting which is also shown by a low bbw next you can see that the bands are starting to expand
[05:14] which can also be seen by the bbw rising next we can see that four red candles were formed one of them closed outside the lower so based on the price action the breakout is more likely going to happen
[05:30] so this is a good opportunity to take a sell position chart we can see that the market is on a range
[05:42] as shown by the flat sma and the gap between the two bands are close which are also represented by a low bbw next you can see that the bands are starting to expand
[05:56] which can also be seen by the rising bbw then we can see three green candles broke out of the upper line so based on the price action the upside so this is a good opportunity to take a
[06:12] buy position but remember just because a candle broke doesn't mean you automatically take a position you need to wait for signs of rising volatility another indicator that can help me confirm the direction
[06:28] is the money flow index this is how you do it first you need to change the indicator value to both value to both 50. so now you have a single line in the
[06:40] middle next if the green line crosses above the middle line it indicates that it's a bullish signal if the green line crosses below the middle line it indicates that it's a
[06:53] bearish signal so now let's combine this with the breakout strategy that i just taught you here's the pound dollar and as you can see the market is on a range as shown by the flat sma
[07:07] is on a range as shown by the flat sma and the bands are still contracting next to expand and the bbw is rising and down here you can see that the mfi crosses above the middle line
[07:22] plus a big green candle broke out of the upper standard deviation line so all these signals confirm that the breakout is more likely going to happen to the upside
[07:35] so this is a good opportunity to take a buy position let's look at another example here's the dollar yen and as you can see the sma is moving in a flat direction
[07:48] indicating that the market is on range next to expand which is also signaled by the bbw rising flow index crosses below the middle line which
[08:04] indicates a bearish signal and multiple red candles were formed one closed below the lower bands so based on the price action analysis the breakout is more likely happening to the downside
[08:19] so this is a good opportunity to take a sell position exit strategy that you can use to maximize your profits using the
[08:31] bollinger bands indicator so let's say you took a cell position and what you want to do is let your until a candle breaks out of the middle sma line
[08:45] if the candle broke out like this you close your position chart let's say you took a long position here you want to close your trade once the price broke below the middle sma line
[09:00] notice how by using this exit strategy you were able to close your trade early and still retained the majority of your profits so i just revealed to you the best strategy that you can use
[09:13] with the bollinger bands indicator now all i ask for in return is for you to invest two seconds of your time into liking the video literally takes only two clicks but it means a lot to me so thank you
[09:28] guys for watching and i'll see you in the next video