Double Bollinger Bands Strategy

Bollinger bands are one of my favourite technical indicators for trading forex. I like how they can be used to spot market reversals and breakouts. You can improve the quality of the Bollinger band signals by using double Bollinger bands. When you have 2 bands instead of one and both are using different periods, you can get extra confirmation on the buy or sell signals that the bands generate. If both Bollinger bands agree with a trade setup, that could be a stronger signal than if you were using a single Bollinger band for signals.

What are double Bollinger bands?

In order to understand double Bollinger bands, we first need to clarify what Bollinger bands are. Bollinger Bands are envelopes plotted at a standard deviation level above and below a simple moving average of the price. Because the distance of the bands is based on standard deviation, they adjust to volatility swings in the underlying price.

Double Bollinger Bands are 2 sets of BBs, using default settings set at the usual 2 standard deviation distance above and below the 20-period simple moving average line in the middle, as well as a second set of BBs plotted just 1 standard deviation above and below that central moving average.

What double Bollinger band settings should I use?

Bollinger Bands use 2 parameters, Period and Standard Deviations (StdDev). The default Bollinger band settings are 20 periods and 2 standard deviation. If you increase the Bollinger band periods, there will be less signals but they might be more reliable as they contain more price data. If you lower the periods, there might be more signals but they will be more sensitive to false entries.

I personally like to use one Bollinger band with the default settings and another with something more long term. I find this helps to remove some of the market noise as the longer-term bands calculate more market data. If both the medium and the long-term bands agree with an entry or exit, I would consider this a strong signal. However, I would still want to confirm all entries with price action analysis and maybe some other technical indicators.

How to trade the double Bollinger bands strategy

As mentioned earlier, you can use the Bollinger bands reversal or Bollinger bands breakout strategy. I would keep both strategies as options and choose the one that is more relevant to the current market conditions. For instance, if I notice that a currency pair is trading in a range, I might look to take reversal trades. On the other hand, if the price has gathered momentum in a particular direction, I may look to use a trend trading strategy instead.

Double Bollinger bands strategy reversal buy signal

  • Price is below both upper Bollinger bands
  • Bullish price action

You can see from the EUR/USD 1-hour chart below that price breached both Bollinger bands. One using 20 periods and 2 standard deviations, the other using 40 periods and 2 standard deviations. We could have exited on either of the middle bands or upper bands. You will see that we would have missed a third entry due to the 40-period Bollinger band, but this may have prevented a losing trade in another scenario.

Double Bollinger Bands Reversal Strategy Buy Signal
Double Bollinger Bands Reversal Strategy Buy Signal

Double Bollinger bands strategy reversal sell signal

  • Price is above both lower Bollinger bands
  • Bearish price action

The EUR/USD 1-hour chart below shows as taking the opposite signals to the buy signals. As the market is range bound, we could have capitalised by trading in both directions until price eventually broke the range and started trending. In this chart, you can see 3 sell signals when the price was above the upper Bollinger bands on both indicators. Exit could have been the middle band or lower band.

Double Bollinger Bands Reversal Strategy Sell Signal
Double Bollinger Bands Reversal Strategy Sell Signal

Double Bollinger bands strategy breakout buy signal

  • Price is above both upper Bollinger bands
  • Bullish price action

In the EUR/USD 1-hour chart below, you can see that price broke both of the upper Bollinger bands. We also had lots of bullish candlestick patterns, including three white soldiers and inverted hammers. This upper band breakout trade went up over 250 pips at its peak. We could have exited the trade when price closed across the middle 40-period band which would have been around 200 pips. We could even have used that middle band as the initial stop loss and trailing stop to try and get the most out of the move.

Double Bollinger Bands Breakout Strategy Buy Signal
Double Bollinger Bands Breakout Strategy Buy Signal

Double Bollinger bands strategy breakout sell signal

  • Price is below both lower Bollinger bands
  • Bearish price action

The EUR/USD 1-hour chart below shows that price broke through the lower bands in a downwards direction. There are 2 big red bars which show strong bearish price action, including a quite significant engulfing bar. The stop loss could have been above the long-term Bollinger band middle line which is around 40 pips. Considering this downtrend carried on for over 250 pips, that would have given us a good risk to reward ratio. We could again have used the 40-period band middle line as a trailing stop and exit point when price closed above it. This would have generated over 200 pips on this particular trade.

Double Bollinger Bands Breakout Strategy Sell Signal
Double Bollinger Bands Breakout Strategy Sell Signal

Double Bollinger bands strategy advantages

  • Extra confirmation on trades
  • Can be used on any currency pair
  • Can be used on any chart timeframe
  • Can trade range bound markets and trends
  • Bollinger bands indicator is free to use

Double Bollinger bands strategy disadvantages

  • Signals require confirmation
  • Need good money management
  • Will still be false signals

Conclusion: is the double Bollinger bands forex strategy any good?

Yes, I think trading with double Bollinger bands can give you extra confirmation on your trades. The Bollinger band is already considered a solid forex trading indicator on its own, so using 2 bands can help to further filter signals and give trading strategies an extra edge.

However, it does mean that you may miss some signals when compared to using one Bollinger band and you will need to time your entry and exit into the market. Not to mention, as with any forex strategy, you will need good forex money management.

You might want to try the double Bollinger bands forex strategy on a demo account to begin with. This will allow you to practice trading it and see if it is something that you can get consistent results with. The majority of forex brokers provide a free demo account which comes preloaded with virtual funds and is ideal for beginners.