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Bollinger band trading strategies forexworld

Federica betting 09.12.2020

bollinger band trading strategies forexworld

The latest buzz in the Forex world is neural networks, a term taken from the artificial Forex and Some Important Facts About Bollinger Bands. Bollinger Bands are often used to complement a trend-following trading strategy due to their ability to visually display market volatility. Forex trading strategies · Trading time is during European session · Bollinger Bands bottom line is above the bottom border of Bands. · Falling. KRAMER HORSE BETTING

In our graph above, only one condition is met strictly. Upon reaching its peak, the first shoulder is crossed by the Bollinger Wave indicator blue arrow. The neckline is bounded by the lower band rather than the moving average. You can also say that the first decline stops at the lower line red arrow. However, upon closer inspection, a slight overlap is noticeable.

This once again confirms the fact that in real trading you will rarely come across perfect shapes. The first part of the head and shoulders formation is ideally an M-top consisting of a left shoulder and a head. Most often it is expressed in the form of an M15 or M16 shape.

The next part is also an M and it includes the head and right shoulder possible shapes are M3, M4, M7 and M8. The last phase right shoulder and reverse growth before the final decline can be formed in the form of an M1 or M3 shape. M-tops are useful for identifying the tops of sustainable trends.

In the process of their formation, there is a reversal of the price movement, which opens up opportunities for effective entry into the market. Even more useful is the analysis of the interaction of the head and shoulders with the BB. It allows you to recognize the pattern before it is fully formed, which means opening a position at one of the high points and increasing the final profit from the trade. At the same time, starting from the right dip after the head, the structure has a downward slope.

This means it can be analyzed using W shapes. Reverse growth often forms as W1 or W2 shapes. As you analyze, you can get deep into the details by identifying each component of the M and W at the following levels. There should be five of them in total. But with traditional analysis, there is no need to analyze all the constituent figures. It is enough to find a few of them.

In addition, the formation is easy to read visually, as well as in terms of its interaction with Bollinger Bands and the impact on trading volumes. Three pushes to high In addition to the classic head and shoulders, you will often see a variation of this pattern, which Bollinger calls the three pushes to a high. It usually completes larger shapes. When analyzing this structure using Bollinger Bands, you can see the following patterns: The first push goes beyond the upper band.

The second push creates a new high and touches the upper level. The third push may or may not form a new high. If a new extreme point is created, it will not be much higher than the previous one. In this case, the third push does not touch the upper Bollinger band. Then the activity gradually decreases and in the final stage reaches a low. Let's take a look at an example. The peaks of the three pushes to a high are labeled with numbers. We will use them as serial numbers. The first push naturally crosses the upper Bollinger band.

The second creates a new top. However, it is only slightly higher than the previous one. Because of this and as a result of the previous rapid upward movement, the second pattern is not realized. The third spike is also not much stronger than the previous ones. Its high touches the Bollinger band, but the end point of the candlestick is below it.

A gradual decrease in volumes from the beginning of the formation to its end confirms an early reversal. I marked this phenomenon in the chart with a blue line. We will look at various methods within the day, in the lowest timeframes, learn how to squeeze the bands and use their signals in conjunction with other indicators.

I will separately talk about the Bollinger Bands strategies, which involve trend following in the presence of a breakout of important levels and additional reversal signals. How to Make Big Profits in the World of Forex, she described an unusual technique involving the use of two Bollinger Bands of the same type in the same chart.

To understand what this is about, let's add them to the chart. The first indicator will be with a period of 20 candles and two standard deviations. For the second indicator, we use slightly different Bollinger Band settings: a bar period and one standard deviation. The final Bollinger indicator consists of five lines: top red line with two standard deviations; top green line with one deviation; moving average blue ; bottom green line with one deviation; bottom red line with two deviations.

All bands, except the moving average, form trading zones that we will use to open trades: buy zone - between the upper red Bollinger band and the upper green line; neutral zone - between the upper green and lower green line; sell area is between the lower green and lower red line. The price being in the buy zone indicates the strength of the current trend. This means that there is a high probability that the price will go up for some time. For trend trading, Ketty recommends opening long positions when the close of the candlestick hits the upper quarter of the double Bollinger indicator.

In this case, the two bars preceding it should close in the neutral half. Keep a long position as long as the candles close within it. On the other hand, if the price is in the sell zone, it indicates the strength of the bearish trend. By analogy, here you should open short positions provided the closing points of the two previous bars are in the neutral half and keep them until the candle closes return to the neutral zone. For an uptrend, stop orders should be set at the lowest price of the first bar that broke the upper line of the neutral zone.

For a downtrend, the stop order position is determined by the high of the first bar that breaks the lower line of the neutral zone. The initial target is set at a distance of two stop losses. When the distance of one stop loss is passed, Kathy recommends moving it to breakeven. Then it should be gradually moved along with the potential target following the price and closed manually when the last candlestick closes in the neutral zone.

After the price has entered the neutral zone, we can consider two possible scenarios: The price will move to one of the trading quarters - usually this happens when a trend reverses. You can prepare for a strong movement in either direction. The price being in the neutral zone demonstrates uncertainty.

You should refrain from entering the market and wait for the price to close in one of the quarters. Alternatively, you can go to a lower timeframe or trade short-term trades within the channel. In the latter case, the Grid trading strategy , which I talked about in one of the previous materials, may come in handy.

Now let's look at the classic strategy Double Bollinger Bands through an example. In the chart, the bar marked with a blue oval closes in the upper quarter. A buy signal appears. Open a long position at the close of the candlestick at 1. Set the stop loss at the low of the candle that has broken through the first upper line. It is marked with a red line in the chart. In the future, you can stop at the target level. But it is much better when the price grows to move the stop loss to the breakeven level, leave it at this position and wait for the signal to close the order or move it dynamically with the target.

As long as the price remains in the upper quarter, we leave the position open. In the chart above, the borders of this period are between the blue and orange ovals. Then a downtrend bar forms - see inside the orange oval. It closes in the neutral zone, which is a signal to take profit. The closing price is marked with a black line and is 1. The resulting profit will be equal to 1.

If we had stuck with the option of moving the stop loss and target, the close would have occurred automatically at the 1. In this case, net profit excluding spread would be 0. It is recommended to use the strategy of double Bollinger bands on trend instruments. You can use almost any timeframe - from M15 to D1. Here's what experienced traders think of the strategy: Bollinger Bands Scalping This strategy works on any exchange instruments. The recommended chart timeframe is M1 to M We will receive the main signals from Bollinger Bands.

We will use them to identify opportunities for opening and closing positions. The picture above shows how to set up the Bollinger Bands. The parameters are standard - the period of the moving average of 20 bars and two standard deviations. The RSI indicator is used as a signal filter. I recommend using the 8 bar period for it.

Go to the indicator settings, open the "Parameters" tab and set 8 under the "Length". We leave the upper and lower limits as is - 30 and To open a long position, the following conditions must be met: the price candlestick touches or breaks the lower Bollinger band; RSI level is below 30; one of the following candles will close within the channel. The stop loss is set just below the low level of the breakout candle.

The gap should not be less than 10 points. The optimal ratio of take profit to stop loss when using this strategy is 0. Therefore, the minimum target should be at least 6 pips above the buy price. To open a short position, the following conditions must be met: the candle touches or breaks the upper band; RSI level is above 70; enter when one of the following candles closes within the channel.

Set stop losses and take profits similarly as with long positions. Let's consider the application of the strategy using an example. We open a long position immediately after the close of the next upward candlestick within the channel. The opening price is 1. The stop loss is set below the low of the touch candle.

Since there are several such bars in a row, we take the smallest low and set the stop loss just below it. The take profit is crossed on the next candlestick after the opening. Thus, the long position is automatically closed at the price of 1. The profit from the trade is 1. We will use the bands to detect potential entry points, and the oscillator readings to filter signals.

Unlike the previous one, this trading method is more like a channel strategy, with the only difference that the Bollinger channel will be used for trading. Therefore, it is very important to pay special attention to setting the indicator bands. As an example, we will use standard parameters - a bar moving average and a multiplier with a factor of 2.

Your input data may be different. Depending on the trading instrument, timeframe and market peculiarities, select the period and multiplier in such a way that the moving average of the indicator shows the correct trend direction.

At the same time, the price should not be outside the channel for longer than several candles. To add a Stochastic, click on the "Indicators" button in the upper part of the online terminal window. Select "Stochastic Oscillator" from the dropdown list.

We will use the following default parameters for the Stochastic: periods 5 for line K and 3 for line D, length 3. You can change the colors of the K and D lines, as well as the upper and lower limits in the "Style" tab. By default, K is orange and D is blue. Stop loss is set with an offset of at least 10—20 points from the low of the breakout candle in the case of a long position and the high in the case of a sell position. Set take profit on the opposite Bollinger band.

When buying, take profit will be located on the upper band, and when selling - on the lower one. At the opening of the next candle, we enter the market with a buy position at 1. Set the stop order a little lower red line. Place the take profit on the upper band. It is marked with a blue line in the chart. After a while, one of the candles reaches it and the order is automatically closed at a price of 1.

Thus, the profit from the trade is 1. If you are going to use this strategy on small timeframes, I recommend to monitor more stable trends additionally. This way you will avoid entering the market against powerful trends. When trying to answer this question, John Bollinger himself did a comparative analysis of various averages and came to the conclusion that the classical moving average is the simplest and most accurate tool for constructing reference points. Let's compare the indications of moving averages using an example.

In the chart, the blue channel represents standard bands based on a period moving average. The orange channel, in turn, was built on the basis of the period EMA. I would choose to focus more on the later as the author does have a lot of god advice to give. Not least do I appreciate her commenting on the importance of having the ability to distinguish between range bound markets and trending markets and of having the patience and psychological maturity to stay out of the first.

What is good with many of the books in the Little Book-series is that they are not merely short introductions to subjects on the financial markets; they are — when the format is at its best - the distillation of very seasoned persons hard won experiences in the market. A great book for Forex in the 'The Little Book' series; I'm sure if the author were to expand more so it would've included plenty more TA coverage sadly not as much as I'd have liked ; a quick, exciting, inspiring, interesting, book all the same.

She has been magnanimous, in her usual manner, to reveal and pour out some of her trading strategies and methodology used in trading as a professional trader. She stressed the need for preparation as a sine qua non for success and developing a good understanding of the market before plunging Great book for traders Whilst the topics may seem elementary they nevertheless represents vital information required for anyone desirous of succeeding and staying profitable in the ever complex forex market.

She stressed the need for preparation as a sine qua non for success and developing a good understanding of the market before plunging into the ocean of forex trading. Of course, she highlighted the interconnectivity of financial markets and importance of certain key economic data to being a profitable trader. Kathy, further warned readers to be wary of EAs, algos making it clear that it's never a holy grail of trading. She also touched on doing proper due diligence before choosing a broker.

I enjoyed this book as I did in her other book on day and swing trading of currency market. A good and effortless writer she is using simple and clear words to communicate her ideas. Well done Kathy. They give you a look at a topic in very broad brush strokes. Very broad. But not enough to really get involved in the subject matter. Skip these introductory books and go for the deeper book.

The books is designed to be short and to the point and it delivered just that.

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So the price wants to go up. This is the first signal. You could take a long position after this candle, but if you did not, the market would show you some more signals to go long. After candle 1, market becomes slow and Bollinger upper and lower bands become so close to each other. Candle 2 shows a breakout with the Bollinger lower band, but it is closed above it.

This candle also has a long lower shadow that reflects the upward pressure. Then the market becomes slow for several candles, BUT candle 3 assures you that the range is broken. Then some red candles are appeared, but you should know that after a range breakout, the very first reversal signal is not indeed a reversal signal. It is a continuation signal. The above breakout could be the beginning of a big trend, but it is not. Bollinger Bands strategy is a technical analysis tool provided by online brokers like ABInvesting.

Traders can employ the indicator by using the trading platform provided by the broker, here MetaTrader4. The trading platform has various tools and indicators that notify the traders when a change occurs and could guide for a better trade. Read our ABInvesting Review. The Bollinger Bands indicator is displayed on the graphical charts by lines three that are referred to as the bands.

It consists of N periods which are the moving averages, K times is the upper band, and the lower band is also visualised by K times. The upper band with N period is the standard deviation above the moving average. In contrast, the K times or lower band with N period is the standard deviation below the moving average. There is the middle band which is the middle line of the three bands. It is significant for traders to analyse the market trend. Middle band is less used in the analysis process but holds the same significance as the other two bands.

With these lines or bands upper and lower , traders make their assumptions about the market movements and when they can enter or exit the market. In addition, traders can use these in different timeframes, primarily N and K for 20 and 2 days, respectively. Traders can employ the moving average or any other type of average that suits their trading instrument. Investors can use the Exponential moving average due to their high usability after moving average.

The Bollinger Bands was registered as a U. The trading strategy is a significant analysis tool as it assists traders in defining the high and lows of the price of the market instrument. If we understand it simply, when the prices are high of the instrument traded, it shows the upper band, and when the prices are low, it shows the lower band.

Thus, traders can recognise the patterns formed on charts and accordingly make their decisions. Although for this, traders require market understanding along with the trading strategy. If used properly, traders can achieve their goals and make high profits from their trades. How to use Bollinger Bands Indicator? By now, readers are aware that Bollinger Bands is a technical trading strategy that analyses the prices of the instrument to identify the overbought and oversold conditions.

But, the query that arises is how do we use the trading strategy? With the paragraph, readers will get an answer to this question. The technical tool makes traders aware of the market, whether the market is silent or loud.

This gives an idea of the action that traders have to take next. For example, say the market is silent, then traders will assume that the bands are contracting. Similarly, when the bands are loud, it is assumed that the bands are expanding. To benefit from the trading strategy, traders need to study the price movements and how Bollinger Bands work. When the price of the instrument is quiet, the bands get close, and when the price is loud, or they move upwards, the bands are spreading. Reading the chart is vital for the strategy to work, and therefore knowing what sign indicates what market changes are necessary.

The upper and lower bands of the trading strategy measure the volatility of instruments for a specific period of time. The bands keep moving or adjusting with the market changes and display the same on charts. Hence, the position of the three lines or bands is important for the traders, as they can analyse the market positions of the instrument and decide their next action for getting good market returns. The Bollinger Bands strategy has created its use in the market over time and is preferred by traders of all financial markets.

Thus, understanding it will aid traders in smooth trading. Bollinger Bounce Whenever the prices move up or low, they tend to move back to the middle position or the middle of the bands. The prices keep bouncing when they go up; they will gradually come in the middle and then down. For example, suppose the last position of the bands was up or on the top so, it is predicted that the band will next move down. This is called the Bollinger Bounce, which is created due to the nature of Bollinger Bands.

They act as the dynamic support and resistance levels. When the trader is in a longer time frame, they will have strong bands. They identify the width of the bands and check the trends for the use of the approach. In the market situation when the bands are expanding, traders should usually avoid using Bollinger Bounce as this indicates that prices are not moving in range and there is a trend followed.

Traders should look for band contraction or stability for using the Bollinger bounce approach for the trade. Bollinger Bands Behavioral Patterns The behaviour of the Bollinger Bands strategy is essential before knowing it further. The strategy has two behavioural patterns : the squeeze and the breakout. So, here are the two patterns explained for smooth use of the strategy. Bollinger Band Squeeze The Bollinger band squeeze is a self-explanatory term that means when the bands squeeze or get close together.

When the bands squeeze, it indicates that a breakout is about to happen. In such a situation, the bands are to be studied carefully. If the chart showing the bands has candles coming out of the top band, then it is considered that the move will continue upwards. When the candles breakout from the below or lower Bollinger band, then the price will move downwards.

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