Bollinger Bands Archives - Spread Betting Examples

ADX and Bollinger Band

ADX and Bollinger Band spread betting strategy

Time frame: 5 Min

Indicators used / Settings:

ADX Directional Index (14)

Bollinger Bands (20, 2)

Charts used: FTSE 100

Possible other spread betting charts:GBP

********************************

Entry Rules:

When the ADX is above 25, this indicator tells you that a trend is underway. The whole point of this scalping the FTSE strategy, is to find moments when there is no trend and the FTSE 100 is trading sideways or is consolidating after a move. The whole purpose of this is to be patient. Once the FTSE 100 is consolidating you apply a mean reverting spread betting strategy.

Spread-betting long:

When the ADX is below 25, as the UK100 has stalled after a strong trend, or there is no news and the FTSE is trading sideways. Wait for the prices to drop and touch the lower band. As you see the prices reversing going back up towards the middle 20 moving average line, spread bet long.

You don’t want the price to break the band and close below the band. If the current candle closes below the lower band wait for the first candle to close back above the lower band. Then trade long.

Spread-betting short:

Again the ADX is below 25 and the FTSE is trading sideways. Wait for the prices to move up towards the upper band. As you see the prices reversing going back down towards the middle 20 moving average line, spread bet short.

Ideally you want the prices to touch the bands and move lower / higher. If the prices close above the bands wait for the next bar to close inside the bands.

Strategy does require patience.

Exit Rules:

This is a scalping strategy. Use 5 – 10 point profit and 10 – 15 point stop loss.

stop loss: 15

target: 5-10

********************************

Here is a spread betting example of this ADX and Bollinger Band strategy applied to the FTSE100

In the spread betting example below of the uk100. Prices did bounce off the lower Bollinger band, but failed to move higher. Be careful when prices do not follow through past the middle SMA heading towards the top band. , could indicate a change in trend.

This spread betting strategy can also be applied on :

FTSE, DJI, GBP, Oil

Back to spread betting scalping strategies

Bollinger Bands breakout strategy (the squeeze)

Now we will show you completely the opposite of what we showed you earlier. This is a Bollinger band breakout strategy. This spread betting strategy works especially when prices have been trading in a range and there has been no decision on direction. Then suddenly they move either lower or higher and break out of the range.

The Squeeze: This strategy is also known as the squeeze, as prices will start trading in a range before the breakout, the Bollinger upper band and lower band will squeeze

Look at the spread betting example of Xstrata (XTA.L) below:

Bollinger Band Break out – LONG

Traders trade the prices long when prices have gone into a rage or consolidation, the bands squeeze and prices break to the upside closing above the bands.

Bollinger Band Break out – SHORT

on the other hand a short occurs when prices break out of the squeeze to the downside closing below the bands. In this case, as we can see the spread betting example above, Xstrata broke it’s range to the downside, the prices closed below the band and the prices continued lower.

How to control your risk. This depends on your risk tolerance. Some traders, with a higher risk tolerance put their stop above the range, others with a lower risk tolerance would put their stop loss just above the middle of the band

Measuring the strength of a trend

This same method can be used to measure the strength of a trend. Once the break out occurs and prices remain in the top half or bottom half of the Bollinger Band. Not crossing the middle line, this indicates that the strength of the trend is strong and it likely to continue.

Previous: Bollinger Bands Mean reversion

Bollinger Bands mean reversion strategy

As we stated in our previous page the Bollinger Band is created by two bands around the 20 moving average centre line, and these two bands are the 2 standard deviation. In statistics, the 2 standard deviation contains 95.4% of the price movement. Normally, the price will move away from the centre line towards the extremes and then snap back to the middle (The mean) like an elastic band. This snapping back is a “mean reverting strategy”. So when to spread bet long or short?

Mean reverting Spread Betting strategy

Long:

When the prices move down towards the lower band, this is when spread traders will either go long to open a new position or buy to close out their short position.

Short:

When the prices move up towards the upper band, this is when spread betters will either go short to open a new position or sell to close out their long position.

Below is a spread betting example of Xstrata (XTA.l) and how to trade the bands:

The bands can be traded in many ways, above I have showed you a spread betting strategy, on the next page I will show you something completely opposite. When trading this mean reverting spread betting strategy, aggressive traders would enter as soon as the prices touch the bands, instead less aggressive spread traders would wait for the prices to turn around look for a candle that closes in the direction they want to trade, then take the trade.

For example, (in a long trade) when prices are falling a less aggressive trader would look for the prices to touch the lower band and the next candle to finish up not down, above the band. Then the trader would enter the trade long, following a long spread betting strategy.

Closing your trade. Some spread traders will close the trade when it reaches the mean (middle line – 20 MA) others will wait for the prices to reach the above band. This all depends on your risk tolerance

Next, as we said we will show you the complete opposite.

Next: Bollinger Bands breakout strategy

Previous: The Bollinger bands