5-minute Trading with Bollinger Bands

If you happen to love using Bollinger Bands indicator and are also a scalping-style trader, this strategy might suit you well.

As you may already know, Bollinger Bands are used to measure market volatility by identifying overbought or oversold conditions. That being said, these "bands" work well when used as a short-term indicator, and are useful for various trading styles. As such, we will be focusing on one of the most popular strategies used by trading experts: scalping.

Before going deeper into the strategy, there are several things you need to know to optimize Bollinger Bands in its default settings:

• Time Frame – In this case, we will use a 5-minute chart in a span of day trading.
• Trading Sessions – We will base our model on UK and US markets, the top two influential markets by trade size.
• Currency Pairs – Certainly enough, we will use EUR/USD and GBP/USD.

Buying Rules

These rules are based on experts' opinions, market analysis, and historical data. As fundamental rules, do your own research and if necessary, get some in-depth knowledge about chart behavior based on market psychology. However, some technical rules in BUYING apply as follows:

1. Bollinger bands must be flat or almost flat before you take a BUY action. This would happen when the market is in a trading range. Notice the consistent flat patterns to avoid fake signals.
2. Watch the price. You can see if the price goes down and touches the lower Bollinger band. This marks the start of an OVERBOUGHT signal.
3. When it does touch the lower band, open a BUY position.
4. To maintain profitability, set a Stop Loss 10 pips BELOW the entry price.
5. Take your profit when the price reaches the UPPER band.

The pips value can be varied according to your risk aversion standards and some other calculations, but mostly, the safe number is around 10. Of course, you can do some trials around that value and see how it works for you.

Selling Rules

As the Bollinger Bands are normally used as a volatility indicator, the selling rules are also derived from the behavioral pattern of these bands. Again, watch the pattern consistency and notice if there are some changes that may affect the indicators. Here are some selling rules in 5-minute scalping with Bollinger Bands strategy.

1. The Bollinger Bands must be flat or almost flat. This would happen when the market is in a trading range. Notice the consistent flat patterns to avoid fake signals.
2. Watch the price. You can see if the price goes UP and touches the upper Bollinger band. This marks the start of an OVERSOLD signal.
3. When it does touch the upper band, open a SELL position.
4. To maintain profitability, set a Stop Loss 10 pips ABOVE the entry price.
5. Take your profit when the price reaches the LOWER band.

Here's an example of the two rules if applied on the EUR/USD chart:

And there you have it, an easy-to-digest technical knowledge about key strategies using the Bollinger Bands indicator. As you may already know, 5-minute scalping is sometimes a tricky trading style, since you take profit off of small price changes along with fast profit off reselling. It's a common strategy, yet it also requires a strict exit strategy, because many hard-fought small gains could be eliminated by just one large loss.

So, maintain your focus, do some mid-and-long term strategies, and keep optimistic. In the end, your highly-dedicated study of scalping with Bollinger Bands method will also give you a better understanding of how the market actually works, and how to react better in the future.