Using Bollinger Bands to spot bigger moves
Timeframe: Intraday/15 Minute
Entry Point: When price peels off the upper or lower Bollinger Band and volume dies down after an initial high volume move.
Exit Point: At the mid Bollinger Band or VWAP.
This type of strategy revolves around price and volume lining up in a specific manner. The key indicator that price will turn around is when the candlesticks on the 15 minute timeframe start looking indecisive and volume drops off significantly. It applies to any ticker and you do not need to wait for price to start moving in the opposite direction to enter. The toughest aspect of this strategy is the risk management, as it is tough to not get stopped out before the targets hit. With far away price targets, it is important to use a looser risk that still does not exceed the reward.
Here are some examples using S&P 500 Futures (/ES):
In this example, /ES sells off on high volume to start the day. Price then peels off the lower BB and the candlesticks start indicating indecisive action. Notice as price drops to a new low, volume dies off completely. This is the confirmation of the reversal to at least the mid Bollinger Band. To top it all off, the bounce started with a bullish engulfing candlestick pattern – even better. /ES proceeds to run all the way back up and hits the mid Bollinger Band and VWAP price targets.
Here is one more example:
/ES ran up on high volume early in the day. It then proceeds to peel off the upper Bollinger Band with volume dropping off entirely. Unless volume and price increase in unison, it will reverse back to the middle Bollinger Band and VWAP support levels. The signals have lined up, and it can be played short back to the price targets. Notice that in both examples, /ES hit a higher high/lower low before reversing. This is where the trade gets tough, as you need to set a looser stop order. That does not mean you abandon risk management altogether, but just need to adjust it for this trading strategy. Overall, it pays off to learn how to trade using Bollinger Bands on the 15 minute timeframe!