Of the hundreds of technical indicators out there, the Double Bollinger Bands are hands down our favorite . . . they provide a wealth of actionable information. They tell us whether a currency pair is in a trend or range, the direction of the trend, and when the trend has exhausted. More importantly, Bollinger Bands also identify entry points and proper places to put a stop.
That sounds like the most accurate forex indicator. Just how useful are DBBs, standard Bollinger Bands with a brilliant modification?
The most accurate Forex indicator
While standard single Bollinger Bands can provide a degree of support or resistance (s/r) in flat or gently trending markets, Bollinger Bands don’t provide reliable support and resistance in strongly trending markets, because they widen with increasing volatility, so a strong trend can continue to climb the upper or lower band for extended periods.
There’s lots of material written about standard single Bollinger Bands, so we’ll focus on their newer, less covered but far more useful variant, Double Bollinger Bands and why it is considered by experts the most accurate forex indicator today.
In addition to the standard bands set at two standard deviations’ distance from a 20-period simple moving average (SMA) at the center, add a second set of bands only one standard deviation away from that SMA.
By using Double Bollinger Bands (DBBs), we get a much better indication of:
- Whether a trend is strong enough to continue riding or to enter new positions even if it has been going on for a long time.
- Whether it’s time to take profits or to get ready to trade the reversal.
You don't need to download DBB. To create them on your chart, just insert the second set of Bollinger bands at one standard deviation on your moving average. Consult your charting platform’s help menu. We’ll clarify standard deviations later. For now just know that they are units of distance from the 20-period simple moving average (SMA), which is both the center of the DBBs and the baseline for determining the location of the other Bollinger bands.
Here is an example of why this forex indicator is super accurate, applied to the EurUsd chart.
- A1: The upper BB line that is two standard deviations away from line C, the 20-period simple moving average (SMA).
- B1: The upper BB line that is one standard deviation from the 20-period SMA.
- C: The 20-period SMA. The figure above is a weekly chart, so this is a 20-week SMA. Again, this is both the center of the DBBs and the baseline for determining the location of the other bands.
- B2: The lower BB line that is one standard deviation from the 20-period SMA.
- A2: The lower BB line that is two standard deviations from the 20-period SMA.
Notice how these bands form four separate zones and why it is such an accurate forex indicator combination. It’s these zones that provide the added information about the strength of a trend, whether it still has the momentum to continue, and where we might attempt to enter trades, even if there is no other s/r to serve as a reference point.
Continue reading for more information or start playing around in a risk-free demo account and notice how the most accurate forex indicator works in real-time.
Double Bollinger Bands Basics
- The DBB Buy zone: When the price is within this upper zone (between the two topmost lines, A1 and B1), that means the uptrend is strong and has a higher probability of continuing. As long as candles continue to close in this uppermost zone, the odds favor entering or maintaining long positions and closing or avoiding short positions.
- The DBB Sell zone: When the price is in the bottom zone (between the two lowest lines, A2 and B2), the downtrend is likely to continue. That suggests that as long as the candles close in this lowest zone, one should enter or maintain short positions and close or avoid long positions.
- The DBB Neutral zone: When the price is within the area bounded by the one standard deviation bands (B1 and B2), there is no strong trend. The 20-day simple moving average (C) that serves as the baseline for the Bollinger Bands is in the center of this zone. Typically one to three candles closing in this area are your signal to exit your trade because the trend is showing weakness.
In other words, the most accurate forex indicator tells us whether we should be trading a trend or a trading range.
- When the pair is in the buy or sell zone (above the top one standard deviation line or below the bottom one standard deviation line), we have a trend that is strong enough to continue trading; it’s probably not too late to get in, though you may want to wait for the trend to retreat to the first standard deviation line, and ideally wait for it to begin to rebound back in the direction of the trend.
- When the pair is within the neutral zone (between the one standard deviation lines), it’s in a trading range. If there’s any trend, it lacks the momentum needed to be tradable. You may be able to trade bounces off the upper and lower channels, but the trend itself lacks enough strength to assume that it will continue without excessive risk of a reversal that hits our stop loss.
As with most technical indicators, the longer the time frame of the chart on which they’re viewed, the stronger the momentum indicator that DBBs provide.
The Four Rules for Using Double Bollinger Bands
Here’s a short summary of how to use Double Bollinger Bands (DBBs). This short version focuses on just the rules for how to actually use the best forex indicator in the world.
- Rule 1: Go Short When Price Is Within or Below the Double BB Sell Zone (Bounded by the Lower Two Bollinger Bands) As long as price remains within or below the lower two BBs, the downward momentum is strong enough so that there is a high probability that the trend will continue lower. This is the time to enter new short positions. Exit and take profits when price moves above this zone.
- Rule 2: Go, Long, When Price Is Within or Above the Double BB Buy Zone (Bounded by the Upper Two Bollinger Bands). As long as price remains within or above the upper two BBs, the upward momentum is strong enough so that there is a high probability that the trend will continue higher. This is the time to enter new long positions. Exit and take profits when the price moves below this zone.
- Rule 3: Trade the Range, Not the Trend, When Price Is between the Buy and Sell Zones. When price is in the middle zone of the one standard deviation Bollinger Bands, the trend isn’t strong enough to trust, so don’t trade it unless you have enough fundamental evidence or signals from your other technical indicators that suggest the trend will continue. Otherwise, shift your thinking into range-trading mode and start looking for lows and highs that can serve as potential entry and exit points if the channel is wide enough.
- Rule 4: Minimize Risk by Waiting Until Price Retraces to the Cheaper End of the Buy or Sell Zone, or Take Partial Positions. This rule attempts to reduce the risk of buying at the top or selling at the bottom that comes when chasing a strong trend. This rule is not easy to implement. Your success depends on how well you read the other technical and fundamental evidence, and how well you are able to understand whether you’re catching a bargain or a falling knife.
Thus the key qualification to Rule 4: There should be no major contradictions from other technical indicators or fundamental data that suggest the trend is in fact exhausted. If there are, stand aside, and don’t trade until the situation clarifies.
The most accurate Forex Indicator - Conclusion and Summary
Double Bollinger Bands are incredibly useful, but, like any other technical indicator, they must be used in combination with other evidence, the precise nature of which depends on your style of trading and time frame.
Combine the most accurate Forex indicator with a Leading Indicator
To avoid missing much of the trend while it works its way into the buy or sell zone, use DBBs in combination with a leading indicator that signals you to begin taking partial positions if you’re willing to accept the risk that the trend might fail, in exchange for the greater profits of establishing part of your position at a better price.
Understanding how to use the best forex indicator is important, but if you want some help, sign-up and our trainers will help you build and trade with DBBs. Play around in a risk-free demo account and notice how Double Bollinger Bands can make you serious money today.
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