Tons of short-term traders give back all the profits they worked so hard for. One of the reasons is that they are having too good of a time raking in profits, getting drunk on their short-lived success, because they do not know when to leave the party and end up giving back all their profits and more.

A simple way I know when it is time for me to leave my party is my simple yet powerful Bollinger Bands Reversal setup.

The Setup

Chart 1

This is the 5-min cash chart of DJIA: Reversal candle outside Bollinger after an impulse move that broke a major support and came right back above it.

5-minute DJIA chart showing reversal candle outside Bollinger Bands
5-min DJIA — Reversal candle outside Bollinger after impulse move

How It Unfolded

Chart 2

This is how it unfolded. Notice the reversal after the candle closed outside the bands. This is the signal to exit or consider taking the opposite side of the trade.

How the reversal setup played out on 5-min chart
The reversal unfolds — time to leave the party
Chart 3

The 15-min chart confirmed the 5-min setup. Multi-timeframe confirmation gives higher probability to the reversal.

15-minute chart confirming the 5-min reversal setup
15-min chart confirmation — higher probability signal

How I Use It

This is by the way the only way I use Bollinger Bands. I know there are many uses, but I found this is the one that works for me as a short-term trader. When I see price extend outside the bands after an impulse move and then print a reversal candle, I know the move is likely exhausted.

That is when I either exit my position or, if the setup is strong and confirmed on higher timeframes, I consider taking the opposite side. It is simple. It is visual. And it keeps me from giving profits back.

Mandi
Not Financial Advice

This article is for educational purposes only. This is not financial advice. Trading involves risk. Always do your own research and consult with a licensed financial advisor before making trading decisions.

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