One of the advantages of using candlestick charts is that they can be used alongside many different technical indicators. In this guide, I'll teach you how to use Bollinger Bands alongside support and resistance levels to trade on the IQ Option platform. This trading strategy is used to trade trend reversals. Let's get started.
- 1 What must you know first?
- 2 Bollinger Bands for dummies
- 3 Guidelines for trading using Bollinger Bands Support and Resistance
- 4 Steps for trading using Bollinger Bands and Support/Resistance on IQ Option
- 5 An analysis of the effectiveness of this trading strategy
- 6 Advantages of using Bollinger Bands alongside Support and Resistance to trade on IQ Option
- 7 Trade and make your own conclusions about trading Bollinger Bands alongside Support and Resistance
What must you know first?
Before trading using Bollinger Bands and support/resistance on IQ Option you must have some prior knowledge about these two technical indicators. I have created detailed guides which cover them.
Bollinger Bands for dummies
The Guide to trading using Bollinger Bands on IQ Option will get you started with the Bollinger Bands indicator. Next, you can read the Guide to Trading using Support and Resistance on IQ Option.
As a bonus, you should also read the Guide for trading using Candles on IQ Option. Now that you've read the three guides, let's start trading using Bollinger Bands alongside support and resistance on the IQ Option platform.
Which indicator works best with Bollinger Bands?
Bollinger Bands can be used with various indicators. As it is an indicator based largely on a moving average it can be combined with the overbought and oversold areas that various oscillators give us. A good example of this would be the RSI or the Stochastic Oscillator. The default band period is 20, which is quite short. So it is easy to combine Bollinger also with a long term moving average to filter the main trend for open trades based on the bands.
In today's article, however, we will look at something more interesting. We will combine the band with the supports and resistances that arise from classic technical chart analysis. This is a 2-in-1 Bollinger Bands Support and Resistance strategy combining price action and indicator analysis.
Guidelines for trading using Bollinger Bands Support and Resistance
The first thing to do is to select one currency pair. I usually use the EUR/USD pair to trade. Second, trade a specific time frame. You should choose to trade on specific days and at specific time intervals.
This is when your chosen currency pair doesn't have a lot of volatility making it easier to follow market movements. Third, I'll trade 1-minute candles and trades will also last 1 minute only.
When using the Bollinger Bands alongside Support and Resistance, I'll only enter a trade when the trend reverses. The following rules will apply. Enter a buy order: When the price falls below the lower band on a downtrend and breaks out of the support level.
This is signaled by a long bearish candle that breaks the support. It's followed by a long bullish candle. Once the price breaks the support on the bearish candle, I'll immediately enter a buy position lasting 1 minute.
Enter a sell order: When the price rises above the upper band on an uptrend and breaks out of the resistance. This is signaled by a long bullish candle followed by a long bearish candle. As soon as the price breaks the support and goes above the upper band, I'll immediately enter a 1-minute sell position.
As you can see from the examples above this is the Bollinger Band breakout strategy. But trades are opened in the direction opposite to the direction of the breakout. So in terms of price action, we assume here that the breakout is a false breakout.
Steps for trading using Bollinger Bands and Support/Resistance on IQ Option
Set up the Bollinger Bands indicator on your 1 minute candles EUR/USD chart
After logging in to your IQ Option account, set up the EUR/USD candles chart with 1 minute intervals. Next, set up the Bollinger Bands indicator as follows: Click on the indicators feature and select volatility.
Focus on when the candle starts developing
In our trade entry rules above, you'll only enter a buy or sell trade whenever the price breaks out above or below a support or resistance. In addition, the price should also break above or below the upper or lower bands.
It's therefore important that you look at where exactly this happens. As the next different colored candle starts developing, enter your trade based on this candle color. Your trades should last 1 minute.
My trades as they occurred on 10 February on the IQ Option platform
From 12.00 to 14.00
During the first session, I saw 4 entry points. The first entry point showed a long bullish candle and I entered a sell order immediately after the bull candle ended. This trade lost because the uptrend wasn't completely exhausted.
The second entry point occurred when the long bullish candle broke the upper resistance line. It also slightly broke the upper band. I immediately entered a 1 minute sell order. This was a winning trade. The third entry point occurred when the price fell under the lower band.
Notice I didn't have a support level drawn here. But relying on the break under the lower band, I immediately entered a 1 minute buy position which was a winner. The fourth and final entry point occurred when the price also broke through the support. It also fell under the lower band. I entered a 1-minute buy order as a winner.
From 13.30 to 14.00
Before my 13.00 to 14.00 trading session ended, I found only 1 entry point. This was during the downtrend. Notice the first false entry point? Here, the prices fell below the lower band. However, the reversal was pretty minimal and I decided not to take the risk. The true entry point occurred when the price fell below the support and the lower band. Here, it was safe to enter a 1 minute buy position which turned out a winner.
An analysis of the effectiveness of this trading strategy
It's hard to trade it with 1 minute intervals
Although I used 1 minute candles to trade in my examples, I usually recommend trading longer candle intervals (5 minutes or more). 1-minute intervals have too many fluctuations such that a 2 second fluctuation can result in a trade going against you. The 5-minute or longer intervals, however, makes it easy to spot possible entry points when using this strategy. 1-minute intervals, on the other hand, show more trend reversals per given session. That's the only reason why I used it in my examples.
It works best when trading trend reversals
The objective of using Bollinger Bands alongside support and resistance it to identify possible trade entries where trend reversals occur. This makes it an efficient strategy for trading even when markets are affected by news items. All you need to analyze are the candle patterns.
In some instances, trend reversal doesn't occur immediately or the reversal is too minimal to result in a winning trade. Remember my first trade? It therefore requires a bit of patience studying the price charts to identify the best trade entry points.
You will get very few trade entry points
At times, you'll get several good entry points in a trading session. But in most instances, your entry points will be few and scattered. However, many of these will give the right signals resulting in winning trades.
Advantages of using Bollinger Bands alongside Support and Resistance to trade on IQ Option
High probability of winning trades
One thing that sets this strategy apart is that has a very high probability of winning trades. I recommend you test this out on your IQ Option practice account. The reason for this is that you're essentially using 2 indicators alongside candles. In addition, you should only enter into a trading position when specific conditions are met.
The lower Bollinger Band line is usually a dynamic support line for the price. The upper Bollinger Band line is a dynamic price resistance line. Dynamic here means only that it is not a horizontal line and the position of these lines changes with each candle. The idea behind the strategy discussed today is to combine Bollinger Bands support and resistance with support and resistance levels derived from price action.
All you need to do is study the price charts, draw your support and resistance levels and wait for prices to cross these lines before entering a single trade.
A good strategy to build patience
Patience is one of the most essential skills every trader must develop. If you rely on this strategy to make money, you're likely to spend hours waiting for the right conditions to present themselves. Once you've developed patience using this strategy, making money on IQ Option becomes quite easy.
Proper money management keeps your account healthy
If you look at my money management chart above, you'll notice that my intention is to trade $10 on each trade. If I had $200 in my account, I'd have to get 20 consecutive losing trades for my account balance to become depleted.
However, given the high winning odds of this strategy, it's very unlikely that your account will become depleted.
As a beginner trader, your main goal should be ensuring that your account balance doesn't drop beyond say 20%. Once you've managed to do this, your next goal should be growing your account balance with a certain percentage every month. That's how many successful traders manage to remain in the game.
Trade and make your own conclusions about trading Bollinger Bands alongside Support and Resistance
I used 1-minute candles to trade using this strategy on IQ Option. However, I advise you to use longer time frames to get better results. Start by trading on your IQ Option practice account. Make notes about how well or poorly this strategy fits in with your trading style.
Find the best time to trade a specific instrument. Practice sound money management techniques. Most of all, be patient and wait for the right conditions to present themselves.
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