Double Bollinger Bands Strategy is a mechanical trading strategy. It means it doesn’t need analysis and interpenetration to decide whether the formed trade setup is strong enough to enter the market, or it is weak and you’d better to skip it and wait for a better one. It is either black or white. It means either a trade setup is formed which means you should enter the market, or there is no trade setup at all.
Such a mechanical trading system is good for those who have no patience and knowledge for analyzing the markets and locating the trade setups based on the technical analysis or candlestick signals. It just tells them to enter a market or stay out. Therefore, sometimes it can have a very low success rate, specially in some months because markets’ conditions change and a mechanical trading system can’t be used as a reliable tool to trade any market any time. This is what you have to note if you want to use such trading systems.
The reason I am sharing this system here is that some people always ask about it. This system has been introduced to Forex traders as an ultimate trading system that makes money for them consistently. I just want to clarify that it is not the Holy Grail, and because it is mechanical, it can generate consecutive losses sometimes.
What Is Double Bollinger Bands Trading Strategy?
This trading strategy, which is called “Double Bollinger Bands” or DBB is very simple because although you use candlesticks in this system, you don’t have to be worried about candlestick patterns. You don’t have to know the weak and strong candlestick patterns and differentiate them from each other. You don’t have to know anything about technical analysis and other complicated techniques.
In spite of such a simplicity, this trading system can generate more trade setups, while you don’t have to spend any extra time in front of your computer. You just check the daily charts for few minutes per day, and if there is any trade setups based on this system, you take the positions, set the stop loss and target orders, and come back the next day. So, this trading system is good for those who like to take some positions every day and can’t handle a day or a few days of having no trade setup. However, you must strongly consider that having more trade setups and taking more positions don’t necessarily mean more profit. In most cases it means more losses.
You don’t have to spend any extra time and energy to follow this system. You don’t have to manage your positions too. It is a completely mechanical trading system, which means it is either white or black, and it doesn’t need any analysis and interpretation. There is either a trade setup on the chart, so you take your position, or there is no trade setup, and so you check the chart the next day. You don’t have to analyze and consult different time frames, indicators, lines etc. to decide whether you should go for the trade setup or you’d better to skip it because it is not a strong trade setup. It is not like that at all. There are only two conditions: (1) there is a trade setup formed on the chart, so that you take it, and (2) there is no trade setup on the chart, so that you check it again the following day. It doesn’t take you more than a few seconds to check each chart and see whether there is any trade setup already formed or not.
How Does Double Bollinger Bands Strategy Work?
All you have to do is adding two sets of Bollinger Bands indicator. That is why this trading system is called “Double Bollinger Bands Trading Strategy”.
Use the default settings for the first Bollinger Bands:
In this article, I refer to this Bollinger Bands indicator as BB2, because its deviations is set to 2.
The “deviations” of the second BB indicator, has to be set to 1:
In this article, I refer to this Bollinger Bands indicators as BB1, because its deviations is set to 1.
So the only difference of these two Bollinger Bands is in the deviations setting. The first one is set to 2 and the second one is set to 1.
That is all you have to have on your charts. After adding the above BB indicators, your chart should look as below:
The outer BB has the default settings and its deviations is set to 2. The inner BB is the one that its deviations is set to 1. Bollinger Middle Band will be the same because deviations settings has nothing to do with it. Of course, in this trading system we don’t use the Middle Band. We only use it to hold the positions to maximize our profit, but it has no role in forming the trade setups and taking the positions.
Double Bollinger Bands Trading Strategy is good for trading trending, as well as ranging and sideways markets.
Here is how the trade setups form based on Double Bollinger Bands Trading Strategy:
Long Trade Setups:
To go long (to buy), you have to wait for one of the candlesticks to close above BB1 upper band. Then you should check the previous two candlesticks to see whether their close prices are below BB1 upper band or not. If so, you have a long trade setup (buy signal). Please see the below chart. It is USD/JPY daily chart. As you see, candlestick #3 closed above BB1 upper band, and at the same time the two previous candlesticks (#1 and #2) closed right below BB1 upper band. This is a long trade setup. It means you should buy at close of candlestick #3:
Stop loss has to be set at the low price of the candlestick which has pierced the BB1 upper band (I mean candlestick #3), and the target can be at least twice of the stop loss size (2 x SL). You can move the stop loss to breakeven if the price moves according to the trade setup for 1 x SL. For example, when your stop loss is 60 pips, then you can move the stop loss to breakeven if the price goes up for 60 pips. Of course I will tell you how to trail the price to maximize the profit in case you don’t want to get out with a 2 x SL target.
Here is another example of a long trade setup:
Another example of a long trade setup on EUR/USD daily chart:
Sometimes, candlestick #3 not only breaks above BB1 upper band, but also it reaches BB2 upper band too. This happens when the security is trending strongly:
This also occurs when there is a strong uptrend and we are not already in:
Note: When candlestick #3 is too long, you can set the stop loss higher than its low price, not to have a too wide stop loss.
Short Trade Setups:
To go short (to sell), you have to wait for one of the candlesticks to close below BB1 lower band. Then you should check the previous two candlesticks to see whether their close prices are above BB1 lower band or not. If so, you have a short trade setup (sell signal), and you can go short (sell) at the close of the candlestick which has broken below BB1 lower band.
Candlestick #3 on the chart below has closed below BB1 lower band while candlesticks #1 and #2 have closed above. This is a short trade setup. Like in long trade setups, stop loss has to be set at the high price of candlestick #3, and target can be at least twice of the stop loss size (2 x SL). You can move the stop loss to breakeven if the price goes down for 1 x SL.
How To Maximize Your Profit?
As I explained above, this trading system is good in catching the trends. Therefore, you’d better to take the advantage of the strong movements and maximize your profit.
When there is a strong trade setup, you can also take two positions with the same stop loss, when there is a trade setup based on Double Bollinger Bands trading system. Set a 2 x SL target for the first position, and no target for the second one. If the first position hits the target, move the second’s position’s stop loss to breakeven and hold it.
In case of a long position, hold the second position as long as candlesticks form between the BB1 and BB2 upper bands, or above Bollinger Middle Band. Close the second position when candlesticks start crossing the BB1 upper bands, or when one of the candlesticks breaks below Bollinger Middle Band:
In case of a short position, hold the second position as long as candlesticks form between BB1 and BB2 lower bands, or below Bollinger Middle Band. Close the second position when candlesticks start crossing BB1 and BB2 lower bands, or when one of the candlesticks breaks above Bollinger Middle Band:
Of course, markets don’t trend all the time. Indeed they trend 30% of the time. It means you should not expect to make hundreds of pips from each trade setup. You can trail the stop loss if you like. For example when your initial stop loss is 80 pips, then you can move your stop loss further for every 80 pips that it moves accordingly.
What Time Frame?
Double Bollinger Bands Trading Strategy works on all time frames, but I use it on the daily and longer time frames, because it is easier, safer and more profitable. Never think that you will make more profit if you apply this trading system on 5min or 15min charts. Trading shorter time frames is nothing but headache, and you will not make more profit.
I spend about 15-30 minutes checking the charts every day, but I am more profitable than day traders who sit at the computer for several hours per day, every day.