A lot of traders ignore the periods of flat market, waiting for a distinct trade to emerge. However, it is not only possible to trade on the flat market, many speculators successfully engage in this kind of trading. It may sound tricky but with a proper strategy, it is quite possible to trade on the market when the trend is absent.
This strategy, known as the Bolly Band Bounce, explores the possibilities of a range-bound market (when the asset price fluctuates within a certain range) and, as you probably have already guessed, puts a well-known indicator called Bollinger Bands to good use.
Are there any other indicators that you will need in order to apply this strategy? The only indicator that is absolutely required is Bollinger Bands. However, it is also possible to use additional indicators as a confirmation. But more on that later.
How does it work?
When trading according to this strategy, Bollinger Bands act as a dynamic support/resistance levels from which the price is expected to bounce off. Traders, therefore, expect the crossover of the price action and the outer band to be both an entry and an exit point. Traders may consider using stop loss and take profit functionality for better results. Stop loss can then be adjusted when the price makes a move in the right direction.
Here is how to trade using the Bolly Band Bounce strategy. First, you have to choose Bollinger Bands from the list of available indicators in the bottom-left corner of the trade room. Second, you would want to make sure that the asset is not trending and its price is actually in range. The price is trending when consistently above or below the mid-band (orange line) and makes new highs or lows. When the price bounces off one of the outer bands and makes a move in the opposite direction, touching the second outer band, the price is considered to be ranging.
From now on, you are looking for a crossover between the price and one of the two outer bands. When it happens, consider opening a long or short position depending on the expected direction of the price.
Things to consider
Note that this strategy is best applied when the market is quiet and no major announcements are made. Please be informed that the price reaching an outer band is not a trading signal itself. A confirmation is required for a reliable entry. Here is what you can use to confirm the rebound and decrease the number of false signals: support and resistance levels, Fibonacci retracement, candlestick patterns. It is also wise to remember that no trading strategy, no matter how good, can provide accurate signals 100% of the time.
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