Bollinger Bands Contract Trading Strategy

I. Core Principles of Bollinger Bands

Bollinger Bands consist of three lines:

• Middle Band: 20-day Moving Average (MA20)

• Upper Band: Middle Band + 2 standard deviations

• Lower Band: Middle Band - 2 standard deviations

Standard deviation reflects price volatility. When market volatility increases, the Bollinger Bands expand; when volatility decreases, they contract.

II. Key Points for Using Bollinger Bands

1. Price Position Judgment

• Near the upper band: price is relatively high, possibly overbought

• Near the lower band: price is relatively low, possibly oversold

• Near the middle band: price is in a relatively balanced position

2. Bollinger Band Pattern Signals

• Band Expansion: trend initiation, increased volatility

• Band Contraction: consolidation, potential for a breakout

• Three lines flattening: sideways consolidation, waiting for a breakout

III. Simple Trading Strategies

Strategy 1: Bollinger Band Contraction Breakout

Entry Conditions:

• Bollinger Bands are continuously narrowing (volatility decreasing)

• Price breaks above the upper band or below the lower band

• Volume confirms the breakout

Operation:

• Break above the upper band: go long

• Break below the lower band: go short

• Set stop-loss at the low/high of the breakout candle

• Take profit at the middle Bollinger Band or the opposite band