Tag: bollinger bands

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Forex Basic Strategies

Using Bollinger Bands to Time the Rectangle Pattern

Trading the markets is an art, which is hard to master but very fruitful in the long run. There are various tools that traders can use to time the market such as Candlestick patterns, Indicators, Trading patterns, Price action tools, etc. Traders who decided to master these tools always end up generating huge money from […]

Trading the markets is an art, which is hard to master but very fruitful in the long run. There are various tools that traders can use to time the market such as Candlestick patterns, Indicators, Trading patterns, Price action tools, etc. Traders who decided to master these tools always end up generating huge money from […]

Trading the markets is an art, which is hard to master but very fruitful in the long run. There are various tools that traders can use to time the market such as Candlestick patterns, Indicators, Trading patterns, Price action tools, etc. Traders who decided to master these tools always end up generating huge money from the market. In this beginning, it is advisable to pick only one or two trading tools and use them in conjunction with others to master the markets. Here in this article, we choose the Bollinger Bands indicator with the Rectangle Pattern to successfully time the markets.

RECTANGLE PATTERN

The rectangle is a technical chart pattern that appears during an ongoing trend in an asset. This pattern is known as the continuation pattern used by the traders to anticipate the ongoing trend. The rectangle pattern is easily identifiable by two comparable highs and two comparable lows. Connect the highs and lows to form the two parallel lines that make up the bottom and top of the pattern. The qualify as a continuation pattern, the markets must be trending. Look for two equivalent highs and lows to have a pattern on the price chart. The pattern appears on all the trading timeframes, and ideally, the higher timeframes sometimes take nearly 3 to 4 months to form a pattern, and on the lower time frame the pattern prints very often. There are various ways to trade the pattern, some like to trade it after the breakout, and some like to trade it before the breakout, and for trading it before the breakout, we must use the Bollinger band to time it successfully.

BOLLINGER BANDS

Bollinger Bands are a price envelope developed by John Bollinger. The indicator consists of 20 periods SMA and upper and lower band. When the bands tighten, it is an indication of low volume, and the wider pattern is a sign of high volume. Sometimes prices immediately go in the opposite direction and reverse before the proper trend begins, watch out for all of these fake moves before taking an entry. The price action touches the upper band, it’s a sign of selling trade, and when it touches the lower band, it is an indication to go long. When the prices continually touch the upper band, it means the markets are overbought, and when it keeps touches, the lower band is a sign of the oversold market conditions.

TRADING STRATEGIES

FOR BUYING

The image below represents the rectangle pattern in the EURNZD forex pair.

The image below represents the buying entry in the EURNZD pair. We witnessed the rectangle pattern in an uptrend, and after the pattern was a sign to go long. The price action touched the upper band; it was a clear sign that the buyers are gaining momentum, and soon we are going to witness the brand new higher high. On the other hand, Bollinger band traders were preparing to go short just because the prices approach the upper band. This is not a good approach, always uses the indicator in context with the trading pattern, and follows what the pattern is saying, and made decisions accordingly.

FOR SELLING

The image below represents the Rectangle pattern in the AUCHF forex pair.

The currency was in an overall downtrend, and during the pullback phase, the appearance of the rectangle pattern is a sign for us to look for the selling trade. After the breakout of the pattern when the price action touches the lower Bollinger band, we choose to go short. Some traders believe when the prices touch the lower band, it means to go long, and when the prices touch the upper band, it means go short. That’s not the right approach. In reality, if the prices keep touching the lower band, it means the downtrend is gaining momentum, and going short will be a good idea.

USING THE BOLLINGER BAND TO TRADE THE PATTERN BEFORE COMPLETION

The idea is to let the price for printing half of the rectangle pattern first, and when the prices touch the lower band and go above the center line, it is a sign to go long. The center line breakout is an indication of the buyers gaining momentum, and soon we can expect the breakout of the pattern.

The image below represents the buying trade in the CHFJPY forex pair.

As you can see in the image below when half of the pattern was completed, and the prices go above the center line aggressively, we choose to go short with the stops below the pattern. The stronger buyers break the pattern, and it prints the brand new higher high. In this way we can easily time our trades well and often we got a better risk to reward ratio trades.

LOOKING FOR THE FAKEOUTS TO TRADE THE RECTANGLE PATTERN

Sometimes the price action prints the fake-out first before moving to the original direction. These fake-outs are the signs that the original trend is trying to trap more and more of the opposite party to move in the original direction. When you identify any fake-out where the prices go above the pattern and immediately came back, it is a sign for us to anticipate in the market.

The image below represents the rectangle pattern in the ADUCHF forex pair.

 

In the image below, when the price forming the rectangle pattern, the buyers just went out and touched the upper band of the Bollinger. By acting as a support area, the upper band immediately pushed the prices back into the rectangle pattern. The failure of the buyers to break above the pattern is a sign to go short. We use the smaller stop loss above the Bollinger because the rectangle upper line and upper Bollinger band line was a strong level to hold the prices.

CONCLUSION

Bollinger and rectangle both are different trading tools that help the trader to identify the different market conditions and trading opportunities. One can use these two tools alone, or we can pair them with one another. If the traders use the rectangle pattern alone to trade the markets, it will give you good trades, but pairing it with the Bollinger band will give you the extra edge to time the market even before the pattern formation. Most often you will find this pattern only in the trending market conditions, and it is advisable to go big when both of these tools to lining up in one direction.

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Forex Fundamental Analysis

EUR/CAD Global Macro Analysis Part 3

EUR/CAD Exogenous Analysis

EUR/CAD Exogenous Analysis

EUR/CAD Exogenous Analysis

  • The EU and Canada Current Account to GDP differential

When a country has a high current account to GDP ratio, it means that it is running a current account surplus. That implies that the country is highly competitive in international trade as the value of its exports is higher than its imports. Conversely, a country with a low or negative current account to GDP ratio, is running a current account deficit. It means that the value of its imports is higher than exports.

In 2020, Canada’s current account to GDP is expected to hit -2.7% while that of the EU 3.4%. Thus, the current account to GDP differential between the EU and Canada is  6.1%. This means that the EUR is in higher demand in the international market than the CAD. We assign a score of 5.

In the forex market, interest rate differential helps to show investors and traders which currency will earn them higher returns. In a carry trade, forex traders tend to be bullish on the currency that offers a higher interest rate differential. This means that the currency with the higher interest rate will have a higher demand than the lower interest rate.

The European Central Bank has maintained interest rates at 0% throughout 2020, while in Canada, interest rates were cut from 1.75% to 0.25%. Thus, the interest rate differential for the EUR/CAD pair is -0.25%. We assign a score of -2.

  • The EU and Canada GDP Growth Rate differential

Since countries vary in the economy’s size, it makes it hard to compare them based on absolute GDP. However, the GDP growth rate helps filter out the effects of the economy size and instead compares countries based on their growth.

From January to September 2020, the Canadian economy has contracted by 4.3% while the EU economy has contracted by 2.9%. That means that the GDP growth rate differential between the EU and Canada is 1.4%. i.e., the Canadian economy has contracted more than the EU economy. We assign a score of 4.

Conclusion

The exogenous analysis of the EUR/CAD pair has a score of 8, which means we can expect a bullish trend for the pair in the short-term. This is supported by our technical analysis, which shows the weekly chart bouncing off the lower Bollinger band, implying that an uptrend is looming.

We hope you find this article informative. In case of any queries, please let us know in the comments below. All the best.

Categories
Forex Basic Strategies

The Most Reliable 5-Minute Forex Scalping Strategy

Introduction

Introduction

Introduction

Scalping is a type of trading that involves placing many trades in a single day to profit from minor price changes in the Forex market. Traders who use this strategy are known as scalpers. It is crucial to have a robust exit strategy for scalpers to earn large gains from small market moves.

Scalping strategies are mostly applied to the intraday markets, and the trade holding duration can vary from a few seconds to minutes. For novice Forex traders, this type of trading is not recommended as scalping involves a fast-paced activity that requires precision in timing and execution.

We must always use a smaller timeframe such as a 5-min or 1-min for scalping the Forex market. We can use various reliable indicators for scalping, but in this article, we’ll learn how to scalp the 5-minute timeframe using Bollinger Bands.

Why Bollinger Bands?

Bollinger Bands is a technical analysis tool that was developed by John Bollinger. This indicator is composed of three lines as follows – A Simple Moving Average, which is the Middle band, the Upper Band & the Lower Band. The usage of Bollinger Bands indicator goes like this – the closer the price action moves to the upper band, the more overbought the market. Likewise, the closer the price moves to the lower band, the more oversold the market. The bands in this indicator widen and contract based on the market volatility. They expand when the market activity is increased and contract in choppy or less volatile markets. Let’s use this indicator in the 5-min timeframe to identify potential trading opportunities.

Scalp Trading With Bollinger Bands

We must go long when the price hits the lower band and look out for short-selling opportunities when prices hit the upper band. This is the traditional way of trading the market using Bollinger bands which is still being used by scalp traders across the world. The reason why this strategy is famous is because of its ease of usage and its ability to milk quick buck from the market.

Scalping Ranges – Example 1

In the below price chart, you can see that we have taken five buying and four selling trades in the EUR/NZD Forex pair. In this example, we have applied this strategy in a ranging market. When the price approached the support line, and when it also hit the upper Bollinger band, it is an indication for us to go long. Similarly, when the price goes near the resistance line in a range, it is an indication for us to close our long positions and look for selling opportunities.

By doing this, we have been continuously engaged in the market and made some consistent profits overall.

Example 2

Below is another example of scalp trading the Forex market when it is in the consolidation phase. Typically in a range, both the parties have equal strength. Also, it is a known fact that it is comparatively hard to trade the consolidation markets than the ranging markets. However, using this strategy, we have managed to take five buying and three selling trades in the GBPJPY Forex pair.

Scalpers typically go long or short when the price approaches the upper or lower range lines. This is the right approach, but by pairing that strategy with an indicator like Bollinger band can drastically increase the probability of those trades. The USP of the Bollinger band indicator is that it works well in all the types of market situations. It really doesn’t matter whether you scalp the ranges, channels, or even trends; this strategy will always provide reliable trading opportunities.

Example 3

In the below price chart, the price was dragging towards the upside, indicating a buying momentum, but it ended up forming a channel. In a channel, both parties hold equal power and us being scalpers; it is easy to make money from both sides. Below we can notice that if we go either long or short, we can make an equal amount of money if we are right. This is the major benefit of using Bollinger bands in channel conditions.

Scalping Trends – Example 1

Below is the price chart of the AUD/JPY currency pair in an uptrend. As you can see, during the pullback phase, the market gave us the first buy trade. When the price action approached the upper Bollinger band, the price immediately moved in the opposite direction. As a scalper, prepare your mind for these kinds of quick moves. Follow the rules of the strategy to the point, and if any trade goes three to four pips against you, immediately exit and wait for the next opportunity.

Our third buy trade also performed, but it didn’t go for bigger targets. Instead, the price action immediately reversed, which end up generating a sell signal. The next buy trade was also ended u with minor profits. For scalpers, even a profit of 8 to 10 pips can be considered good in a single trade.

Example 2

Below is an example of buying and selling trades in an uptrend in the AUD/JPY pair. We are saying this pair is an uptrend after analyzing its higher time frame. In the lower timeframe, the market may seem to be ranging, but since we know that this pair is up-trending overall, we must consider buying opportunities over sell signals.

The markets gave us five buying and three selling trades in this pair. Even though we have identifies many sell signals, we recommend not to enter those unless you have confirmation. Always remember that trend is your friend and trade according to the trend. This is the essence of scalp trading the trending markets. Therefore, when scalping trends, always go for bigger targets by following the trend. Also, expect less accuracy on counter-trend trades.

Conclusion

It requires a lot of practice to master scalping. Since the time frame is small, you must be quick in everything you do while scalping. Also, talking additional confirmations is not possible in this form of trading because of its swift nature. Please practice these strategies on a demo account before you apply them on the live markets. All the best. Cheers!

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Forex Videos

How To Make Easy Profits Trading Forex Using Bollinger Bands & Trend Lines!

https://youtu.be/LUCZwwTeRFo

https://youtu.be/LUCZwwTeRFo

Forex Tips For Beginners – Stacking The Odds In Your Favour!

Thank you for joining this Forex academy educational video.

In this session, we will be looking at how to tilt the odds in your favour by showing you some cool tips to keep you out of trouble and tilt the odds in your favour of making successful trades.

The forex market runs 24-hours a day, 5 days a week, but typically, the busiest times, where you might expect a spike in volatility and larger price movements, is during the first hour of the beginning of a particular regional session. So, for example, at around 7:30-8:30 AM GMT, the European and UK session starts, and the FX market will usually become more active as more cash volume flows into the market. The same applies to the US session and then the Asia session as led by Sydney and followed by Japan.
Often trends will finish in one region and turn in the direction as the new region opens. This is down to differences of opinion, economic data releases, sentiment, and profit-taking as one region retires for the night. Wait until such times as the new trading session is well underway and until you can identify a potential trend.

Become a master of Bollinger bands. This technical analysis tool was invented by John Bollinger in the 1980s.

It is a chart tool that calculates two standard deviations on either side of the exchange rate, but it’s used in many different asset classes such as stocks and shares because of its success and the fact that it is highly regarded by the trading community.

One of the key components that traders look for when trading Bollinger bands is that 95% of trading activity will remain within the bands. And shown here on this one hour chart of the USDJPY pair where we have highlighted a few examples of what has happened when the price has a move outside of the bands, traders push the pair back inside, and this often results in a price action reversal.

Another major tool traders use are trendlines. A trendline is typically manually drawn onto a chart to identify price action direction. Again, using the 1-hour chart of the USDJPY pair, we have drawn in some trendlines.
An area of support and resistance, which forms the basis of a trend, is officially recognised when price action has reverted to either the support or resistance trendline on a minimum of two occasions. Here on the left side of the chart, this is clearly the case.
Three distinct trends become apparent using this technical analysis feature.

In this diagram, we have overlaid the Bollinger bands with our trendlines. Again, this is the same USDJPY pair and 1-hour time frame.

Now we can wait until a trend has been confirmed, where price action has hit either the support or resistance line on two occasions, and then we can also wait for the price action to breach the Bollinger band to increase our odds of the price action being driven back into the bands.

At position A, we have a confirmed downtrend, but where price action does not breach the Bollinger, yet it still moves higher.
At position B, we have a change in trend direction as confirmed here on the chart, but where the resistance line breach and also the breach of the Bollinger band cannot be considered as a confirmation of a reversal until such time as price action has fallen underneath the resistance line, which it clearly does. This is the time to short the pair. And, at the bottom of this move, we have a breach of the Bollinger band and where price action finds support before moving higher, which is the time to cut the short position and buy the pair.

In conclusion, use the trendlines and Bollinger bands together in this fashion to increase your odds of a successful winning trade.

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Forex Course Forex Daily Topic

150. The Easiest Way To Measure Market Volatility

Introduction

Introduction

Introduction

Measuring volatility enables traders to accurately identifying the significant trading opportunities in the currency pairs. An increase in the volatility of a currency pair occurs due to any of the major changes in the economy of that country. Market volatility measures the overall price fluctuations over a specific period, and this information is used to identify the potential breakouts.

In the Forex market, the higher the volatility, the riskier is the currency pair to trade. A higher volatility means that the asset value can be spread out over a larger range of values. A lower volatility means that an asset does not fluctuate dramatically and tends to be more steady. A few indicators help us in measuring the volatility of the currency. Using these indicators will show us the accurate representation of the market’s volatility when looking for trading opportunities.

Bollinger Bands

We have discussed a lot about Bollinger Bands in our previous course lessons. This indicator is specially designed to measure the volatility of an asset. In this case, any currency pair in the Forex market. This indicator consists of two lines (bands) plotted above and below the middle line, a moving average. The volatility representation is based on the standard deviation, which changes as an asset’s volatility increases and decreases. Both these bands contract and expand according to market volatility. When the bands’ contract, it tells us that the volatility is low, and when the bands widen, it represents an increase in volatility.

Moving Average

Moving Average is the most common indicator used by traders across the globe. It measures the average amount of market movement over a specific period. If we set the moving average to 30 periods, it shows us the last 30 days’ average movement. In short, any Moving average tells us the average price movement over a specific period. If the MA line is above the actual price, that implies the market is in a downtrend and vice versa.

Average True Range (ATR)

The ATR (Average True Range) is another reliable indicator used to measure market volatility. This indicator takes the currency price range, which is the distance between the high and low in the time frame, and then plots that measurement as a moving average.

If we set the ATR to 40 range, it will tell us the average trading range of the last 40 days. The lower the ATR reading means, the volatility is falling, and we can expect fewer trades. On the other hand, the higher the volatility means the ATR reading is rising. It is an indication that the volatility is on the rise, and by using any directional indicator, we can gauge the potential trading opportunities.

These are the three best tools you need in your arsenal to measure the market’s volatility accurately. Make sure to take the below quiz before you go. Cheers!

[wp_quiz id=”92111″]
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Forex Basic Strategies

Generating Reliable Trading Signals Using ‘The Power of Two’ Forex Strategy

Introduction 

Introduction 

Introduction 

In the previous article, we discussed a strategy that was based on three indicators, namely the RSI, Stochastic, and SMA. It was not only a bit complex in nature but involved many rules that had to be fulfilled before we could make a ‘trade.’ Also, the probability of occurrence of the signal was lower as it involved many indicators.

In today’s article, we will discuss a setup that is observed more often in the market and has a higher probability of success. Again, the strategy may not be suitable for day traders as it used a longer time frame for analysis. In this strategy, we will be examining the 4-hour time frame chart of the currency pairs. This is simpler than the previous strategy.

Time Frame

As mentioned in the previous paragraph, the strategy yields the best results when applied on the 4-hour time frame. However, the ‘daily’ is also a suitable time frame for the strategy.

Indicators

We will be using the Relative Strength Index (RSI), with a 14-bar period. The overbought and oversold levels stand at 70 and 30, respectively. We also apply the Bollinger Band indicator with its default settings.

Currency Pairs

This is the best part of the strategy, where we can apply on all currency pairs listed on the broker’s platform, including few minor and exotic pairs.

Strategy Concept

The strategy is based on a simple concept that the RSI is a very powerful indicator of a trend. It can accurately identify the highs and lows that will give rise to a new trend. This is combined with the Bollinger Band indicator to generate exact entry points for the strategy.

The trend becomes especially reliable when the reading of RSI makes a swift jump from an oversold level to a median level (above 50) and vice-versa. The Bollinger Band indicates the formation of a ‘low,’ after which we can execute a ‘long’ trade. Similarly, when Bollinger Band pin-points a ‘high,’ we execute ‘short’ trades in the market. The exact rules of ‘entry’ will be discussed in the next section of the article.

The risk-to-reward (RR) of the trades done using this strategy is highly appealing. This is because it employs a small stop-loss with a much higher take-profit. If the market is in a strong trending state, traders can ride their profits as long as they see signs of reversal.

Trade Setup 

In order to explain the strategy, we have considered the 4-hour chart of GBP/JPY, where we will be illustrating a ‘long’ trade. Here are the steps to execute the strategy.

Step 1

The first step is to open the 4-hour timeframe of the desired currency pair and plot Bollinger Band and RSI indicator on it. Just from the appearance and basic knowledge of trends, identify the trend of the market. This means if the market is making higher highs and higher lows, the market is in an uptrend. And if we see lower lows and lower highs on the chart, it is a downtrend. We can also take the assistance of a simple moving average (SMA) to get a clear picture of the trend.

In the case of GBP/JPY, it is evident from the below image that the market is in a strong downtrend.

 

Step 2

Next, we need to wait for the price to go above the highest point visible on the chart, where we will be analyzing signs of a reversal to the downside. Similarly, we need to wait for the price to go below the lowest point visible on the chart, where we will be analyzing the signs of a reversal to the upside. For example, suppose the price is near its lowest point visible on the chart. In that case, we say that market may be reversing to the upside if a bearish candle closes below the lower band of the Bollinger Band, and the immediate next candle is a bullish candle that closes above the lower band. This has to be accompanied by the RSI moving into the oversold zone (below 30).

In case of a reversal of an uptrend, a bullish candle should close above the upper band of the Bollinger band with a bearish candle that closes below the upper band. At this price, the RSI should indicate an overbought situation of the market (above 70).

Step 3

This is the easiest step of the strategy where we have to only observe the movement of price following the ‘two-candle’ pattern discussed in the previous step. Essentially, we need to see that the price starts moving in the direction of the reversal, i.e., above or below the median line of Bollinger Band. This should again be accompanied by a rising RSI for ‘long’ entry and falling RSI for a ‘short’ entry.

In the below image, we can see how the rise in price above the median line goes with a sudden rise in RSI.

Step 4

In this step, we determine the stop-loss and take-profit for the trade done using this strategy. The stop-loss is placed just below the ‘low’ or above the ‘high’ from where the market reverses. However, there is no fixed take-profit level here. We exit a ‘long’ trade once RSI goes below 50 and start moving lower. While a ‘short’ trade is exited as soon as RSI goes past the level of 50.

As we can see in the image below, the market reversed fully, and the trade turned to be extremely profitable.

Strategy Roundup

When Bollinger Band and RSI are combined to generate trade signals, we can accurately identify the market top and bottom where we take advantage of the reversal. But this can only be done efficiently after practicing well. The above strategy is suitable for swing and part-time traders.

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Forex Basic Strategies

Trading The ‘Trend Bouncer Strategy’ Using Appropriate Risk Management Techniques

Introduction The activation of a trend can be from a political decision or an improvement in the GDP of the economy. Some other reasons include the central bank policy announcement and the discovery of new resources. Trends move like waves causing long to short term price movement in both the directions of the market. In […]

Introduction The activation of a trend can be from a political decision or an improvement in the GDP of the economy. Some other reasons include the central bank policy announcement and the discovery of new resources. Trends move like waves causing long to short term price movement in both the directions of the market. In […]

Introduction

The activation of a trend can be from a political decision or an improvement in the GDP of the economy. Some other reasons include the central bank policy announcement and the discovery of new resources. Trends move like waves causing long to short term price movement in both the directions of the market.

In an uptrend, we observe that, at a certain point in time, price pullback, or retrace before continuing with the upward movement. Similarly, in a downtrend, prices retrace upward against the downward movement before continuing their way down again. This ebb-and-flow movement can be frustrating for many new traders because they are not familiar with such market moves and often get stopped out before the market starts to move in their direction later.

Experienced trend traders usually wait for a retracement before taking a trade in the direction of the major trend. This is how the trend bouncer strategy was introduced. The Bollinger band indicator provides an effective way of identifying the up and down movement of a trend.

Since this is a trend trading strategy, we will have more than one profit target. We have two specific profit levels for this strategy.

Time Frame

The trend bouncer strategy works well with the 1-hour and 4-hour time frame chart. This means each candle on the chart represents 1 hour and 4 hours of price movement, respectively.

Indicators

We will use two Bollinger bands with the following settings.

  1. Moving average 12, deviation 2
  2. Moving average 12, deviation 4

One should have a clear understanding of the Bollinger band indicator before using it for this strategy. Refer to our articles on Bollinger bands for an explanation of the indicator.

Currency Pairs

The strategy is suitable for trading in all currency pairs listed on the broker’s platform, including major, minor, and few exotic pairs. However, it is better to trade in highly liquid currency pairs.

Strategy Concept

With the Bollinger band indicator’s help, we can objectively identify the ebb-and-flow movement of a trend. When the price hits the upper band of the first Bollinger band (MA 12, Dev 2), it indicates an upward movement. In this scenario, we prepare to go long in the currency pair. As prices retrace back to the centerline of the Bollinger band (MA 12), a significant retracement has occurred, and it is time to enter for a ‘long.’

Similarly, when prices hit the lower band of the Bollinger Band (MA 12, Dev 2), it indicates a momentum to the downside, and we prepare to go ‘short’ in the currency pair. As prices retrace back to the centerline of the Bollinger band (MA 12), and it is time to enter for a ‘short.’ We will exit our ‘trade’ in two places, which we explain in the coming section of the article.

Trade Setup

In order to illustrate the strategy, we have taken the example of the USD/JPY currency pair on the 4-hour time frame, where we will find a ‘long’ opportunity in the market using the strategy. Here are the steps of the trend bouncer strategy in forex.

Step 1

Firstly, open the chart of a currency pair and plot two Bollinger bands. The moving average of the first Bollinger band is 12, with a standard deviation of 2. Moving average of the second Bollinger band is also 12 but should have a standard deviation of 4. Since it is a trend trading strategy, it is best to use the strategy on the pullback of a new trend. However, it can also be used on a reversal, but the reversal should be confirmed before applying the strategy.

In this example, we see that the market has shown signs of reversal, which could extend on the upside.

Step 2

The next step is to wait for the price to hit the upper band of the first Bollinger band, in case of an uptrend. Similarly, the price should hit the lower band when trading the pullback of a downtrend. This gives us the confirmation that a trend has been established. Now, we need to wait for a retracement of this move before we can enter the trend.

In the below image, we can see that the price exactly touches the upper band of the first Bollinger band (MA 12, Dev 2), and now we will wait for a pullback to join the trend.

Step 3

The next step is to wait for the retracement to touch the Bollinger band’s centerline. The intersection of the price and the centerline is the entry signal for the strategy. An important point to make a note here is that the pullback shouldn’t come in a single candle. This means the pullback should come in multiple candles. The longer it takes, the weaker the pullback. In such cases, the is a higher chance that the trend will continue.

In our example, we are entering for a ‘long’ as soon as the price touches the Bollinger band’s centerline. We also see that the pullback has come in 6 candles, which is desired.  

Step 4

As mentioned earlier, the strategy has two ‘take-profit‘ points. The ‘take-profit’ points are set based on the risk to reward ratio. The first one is at 1:1 RR, and the second one is at 1:2. The reason for the two ‘take-profit’ points is that since we are trading with the trend, the market has the potential to make new ‘highs’ and ‘lows.’

Strategy Roundup

Understanding the trending nature of the market helps us to identify the direction and timing of our entries. The best part of this strategy is that we bank profits in various stages. With a momentum indicator like the Bollinger band, we greatly increase the odds of being profitable in the long run.

Categories
Forex Basic Strategies

Pro Scalping Technique By Combining Stochastic With Bollinger Bands

Introduction

Introduction

Introduction

Scalping is a trading strategy that helps traders to take advantage of minor price movements on lower timeframes. It is one of the quite popular ways of trading the Forex market. There are many successful scalpers who make a lot of money by scalping the minor price moves. To be a scalper, we must be emotionally intelligent and have the ability to make quick decisions.

Scalpers place anywhere from 0 to a few hundred trades in a single day. Ideally, smaller movements in price are easier to catch compared to the longer moves. Typically while day trading, if the win/loss ratio is less than 50 percent, traders still make money. On the other hand, in scalping, it is critical to win most of the trades. Otherwise, we will end up on the losing side.

Stochastic Oscillator

Stochastic is a wonderful indicator developed by George C. Lane in late 1950. This indicator doesn’t follow the price or volume like other popular indicators in the market.  Instead, it follows the speed and momentum of the changes that occur in price before the trend formation. Stochastic is a range bounded indicator, and it oscillates between the 0 and 100 levels.

Typically, a reading above 80-level is referred to as the overbought signal, and a reading below the 20-level indicates an oversold signal. The Stochastic indicator consists of two lines, where one reflects the actual value of the indicator for each session, and another reflects its three-day simple moving average. The intersection of these lines indicates the reversal in price action.

Bollinger Bands

Bollinger Bands is a technical indicator developed by John Bollinger in the 1980s. It is a leading indicator, and it consists of two bands and a centerline. Out of the two bands, one stays above the price action, and the other stays below. Both of these bands contract and expand depending on the market’s volatility. When price action hits the lower band, it indicates a buy trade, and when it hits the upper band, it indicates a sell trade.

The Strategy

The strategy we are going to discuss is one of the most basic but effective scalping strategies ever used in the market. The idea is to apply both indicators (Bollinger Band & Stochastic) on the price chart. When the price action hits the lower Bollinger band, and the Stochastic is at the oversold area, it is an indication for us to go long. Conversely, when the price action hits the upper Bollinger band and if the Stochastic is at the overbought area, we can go short.

In the chart below, we can see that our strategy has generated a few buy/sell signals in the EUR/AUD Forex pair. The price action was in an overall uptrend. When both of the indicators gave us the signal, we took both buy and sell entries accordingly. In the chart below, the buy trades have given us some good profits, but in the sell trades, the profit was comparatively less. Always remember that these things are quite common in scalping. If you are an aggressive scalper, trade both buy sell signals. But if you are a trader who prefers to scalp the market with the trend, follow the next strategy.

Scalping The Market By Following The Trend

Buy Example

The chart below represents an uptrend in the EUR/AUD Forex pair. As you can see, by following our strategy, this pair has given us three buy signals, and all the trades were quite healthy and have performed well in the market. If you scalp the market by following the trend, it is easy to make big gains. For scalping, it is required to put smaller stops. Hence, always go for 4 to 5 pip stop-loss and 10 to 15 pip target. You can also exit your positions when the price hits the upper Bollinger band.

Sell Example

The below 3-minute chart of the GBP/JPY forex pair represents a couple of sell trades. As you can see, all the sell trades in this pair performed very well. We can also observe that every time the price action prints a brand new lower low. We took all the five selling trades on a single trading day, an all of them hit the take-profit range. So if we scalp the market by following the trend, it will be quite easy to make some profits from the market. The red arrows on the Stochastic and Bollinger Band indicators represent the sell signals.

Scalping The Ranges

Just like the trends, it is easy to scalp the ranges as well. In fact, the ranges are even easier to scalp than the trend because the support and resistance lines of the range offer extra signals for us. For ranges, all you need to do is to hit the sell when price action hits the top of the range and hit buy when prices hit the range bottom. If you add the Bollinger Bands and Stochastic indicator, the signals generated by the market will be stronger.

The chart below indicates a couple of buy/sell signals in the GBP/JPY 3-minute Forex chart. As you can see, we have gone long when prices hit the bottom of the range, combined with our strategy. The same applies to the sell-side. We have gone short when the price action hits the top of the range while respecting our strategy rules.

Conclusion

Scalping trading involves entering a trade for a shorter period of time to take advantage of small price fluctuations. When you enter a trade, it is advisable to risk lesser money and place as many trades as you can. We must have control over our inner greed and aim for smaller targets. In the beginning, it will be difficult for you to scalp the market as the smaller timeframes move way faster. You need to train your eyes a bit to understand the lower timeframes properly. Always try to scalp with a bigger trading account because the trading commissions can quickly eat up the smaller accounts.

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Forex Course Guides

Forex Course 3.0 – Complete Guide

Hello everyone,

Hello everyone,

Hello everyone,

Firstly, we want to thank you guys for following us throughout the course so well. We feel privileged that we are helping you guys in becoming better traders. Especially in Course 3.0, we have discussed some of the most crucial aspects of technical trading, which are essential for every aspiring technical trader to know. We have seen the quiz results for all the course articles that you guys have taken, and that gave us a gist of how well you’ll be following the topics discussed.

However, for the people who want to revisit a few topics, we would like to make their lives easier. So we are putting up a list of topics that we have discussed in this course. Also, this article will act as a quick revision guide for all the basics involved in Technical Analysis.

In this course, we have started by discussing the concept of Candlesticks and its fundamentals. Then we learned how to trade various candlestick patterns along with their importance. Introduction to Fibonacci trading has been done, and we also have paired the Fib levels with various indicators to generate accurate trading signals. We extended that discussion to Moving Averages and its types. Finally, we have learned the principles of indicator-based trading, where at least 10 of the most popular indicators have been discussed.

Below are the corresponding links for each of the topics that we have discussed in this course.

Candlestick Charts

Concept of Candlesticks – Introduction | Anatomy | Fundamentals

Trading Candlestick Patterns – Single Continuous | Single Reversal | Dual Continuous                                                   Dual Reversal | Triple Continuous | Triple Reversal

Deeper Insight – Candlestick Patterns Cheat Sheet | Candlestick + S&R

Fibonacci Trading

Introduction | Entry Using Fib Levels | Challenges of using Fib levels | Fib + S&R Candlestick Patterns + Fib Levels | Fib + Trendlines | Fib for TP & Fib for SL | Summary

Moving Averages

Introduction | SMA | EMA | SMA vs. EMA | MAs to identify the trend | MA Crossover Strategy | MA + S&R | Summary 

Indicator-Based Trading

Introduction | Pros & Cons | Bollinger Bands | RSI | MACD | Donchain Channel | RVI | TSI | Stochastic | Ichimoku Cloud | Parabolic SAR | ADX | ATR 

With this, we have ended our Course 3.0, and soon we will be starting our Course 4.0, where we will be discussing some of the advanced topics in Technical Trading. So stay tuned and watch this space for more interesting and informative content. Cheers!

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Crypto Videos

Using Bollinger Bands To Capture Consistent Profits Part 2

https://youtu.be/q3WCwpORGnc

https://youtu.be/q3WCwpORGnc

Trading cryptocurrencies using Bollinger Bands (part 2/2)

 


The rules of Bollinger Bands

John Bollinger is still quite active in the financial space, while his bands have 30 years of market testing. The first thing that Bollinger makes clear is that both highs and lows are relative. While the upper band signifies highs as they relate to the standard deviation, the lower band does the opposite. The terms “high” and “low” have to be used in a relative sense. This relativity can be derived from a variety of different indicators.
Bollinger stressed that each indicator has to be viewed in isolation before trying to use it in conjunction with something. Momentum, volume, sentiment, as well as many more things can be derived from Bollinger bands; however, they might not necessarily relate to one another.
He once said: “For example, a momentum indicator might complement a volume indicator successfully, but two momentum indicators aren’t better than one.”

Bollinger bands have proven to be a successful indicator if employed in a wide range of financial settings since they are simple by nature. They are made for trading equities, indices, exchanges, commodities, as well as futures. Cryptocurrencies were not there when this indicator was made, but they fit the space between the gray areas of these financial tools.
Bollinger Bands and are also flexible with regard to the time period, as long as the period that is examined contains enough details to present a meaningful view of the market.

How to use Bollinger Bands

Cryptocurrency traders, as well as investors, can use Bollinger Bands in several different ways.
The first we have to look at is the volatility of a given coin we are trading. Bollinger bands compress when standard deviations are low, which is signaling us a period of low volatility. They tend to do the opposite when volatility increases.

While this can have several meanings depending on the coin we are trading. We can look at the volatility and try to pinpoint the possibility of a breakout.
Bollinger Bands capture somewhere around 90% of the price action in a given cryptocurrency. When the price movement dives above or below a set Bollinger Band, we have to pay attention. When the price moves above the band, the coin is likely overbought, and it is possible that it will correct shortly. If, on the other hand, a price moves below the lower Bollinger Band, the coin is possibly oversold.

Movements at the Bollinger Band boundaries (upper or lower) can also be used to determine short-term price direction. If the upper band is cracked, but the price corrects to a level just at or below the upper band afterward, it’s a sign that the prices are generally moving up. The opposite is also true.

Conclusion

Bollinger bands present an easy way to visualize the cryptocurrency market price movement. In simplest terms, it shows when it is a good idea to buy or sell an asset.
However, Bollinger Bands are simply one of the many tools in a trader’s toolkit, which means that the rules are not written in stone. To confirm their decisions based on Bollinger Bands, many traders are relying on volume indicators or oscillators such as RSI or MACD before entering a position. Independently confirming trends by using other tools rather than only using the Bollinger Band system is more reliable than using just Bollinger Bands to come to a certain conclusion

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Crypto Videos

Using Bollinger Bands To Capture Consistent Profits Part 1

https://youtu.be/S4_efg95iVA

https://youtu.be/S4_efg95iVA

 

Intro to using Bollinger Bands in cryptocurrencies (part 1/2)

The wild movements of a typical cryptocurrency price chart can definitely look bewildering at first glance. While it is easy to see the general direction of a trend for any given crypto, the confusion really sets in if you zoom in to a smaller time frame and take a look at all the peaks and troughs that actually make up that trend line.

Intro to Bollinger Bands


Simple moving averages are used to describe the average price of an asset over a period of time while using exponential moving averages will give more credence as well as arithmetic weight to newer prices. Both of them are intended to filter out the hourly and daily bumps that make up a price chart. They are also making trends as well as patterns more immediately obvious.

The system of using moving averages was further refined by a financial analyst as well as author John Bollinger in the 1980s. He introduced Bollinger Bands to the world. Bollinger bands are nothing more than a system of computing bands (high and low) above an asset’s moving average by using standard deviation.

Bollinger bands are also being used to examine exponential moving averages, unlike the Keltner channel’s examination of simple moving averages. The way Bollinger Bands are used provides the measurement tool with much more sensitivity to certain changes in the market.
Bollinger Bands and Crypto

When speaking about the notoriously volatile cryptocurrency market, Bollinger Bands are used quite a lot. They are mostly used in predicting possible breakouts as well as identifying key times to enter or exit the market. This use-case is particularly useful for day traders (rather than long-term investors), who often have to make quick and tough calls with incomplete information so they could retain their profits. If they make only one significant step in the wrong direction on just one cryptocurrency, they can eliminate days or even weeks of carefully harvested small gains.

More on how to use Bollinger Bands to improve your cryptocurrency technical analysis in part 2 of our guide.

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Forex Course

80. Indicator Based Trading – Bollinger Bands

Introduction

Introduction

Introduction

In the previous course lessons, we understood the importance, types, and various pros and cons involved in indicator-based trading. From this lesson, let’s start learning some of the most widely used indicators in the market. We will be starting with Bollinger Bands, which is arguably considered as one of the most widely used indicators in the Forex Market.

What are the Bollinger Bands?

They are a technical analysis indicator, which was developed by one of the famous technical trader John Bollinger in the 1980s. This indicator consists of three lines, which are simple moving average (the middle band), an upper and a lower band. In a volatile market, the bands of the indicator expand, and it contracts in tight market conditions.

Most of the traders think that the Bollinger bands indicator is similar to the moving average envelope, but it’s not true, because the calculations of both of the indicators are different. For plotting the upper and lower bands of the Bollinger Bands indicator, the standard deviation is considered. On the other hand, for moving average envelopes, the lines are calculated by taking a fixed percentage.

Bollinger Bands Indicator Plotted on a Forex Price chart

Using The Bollinger Bands Indicator To Take Trades

Most of the market experts and chartists believe that when the price action continuously touches the upper band, it means that the market is in an overbought condition, triggering a sell signal. Conversely, the closer the price action moves towards, the lower band, the more oversold the market is, triggering a buy signal.

This is the most common way to trade the markets using the Bollinger Bands. As much as this is true, we don’t suggest to use this approach to trade the markets where traders just blindly follow this one single rule. As we all know that the trend is our friend, we must first figure out the trend. Then it is advisable to trade only buy opportunities in an uptrend and sell opportunities in a downtrend. This is one of the most reliable ways to identify the trades on any trading timeframe.

The below image represents the buying opportunities on the EUR/CAD 5 min Forex chart. As we can see, the market was in a strong uptrend. We have identified four buying opportunities in just a couple of hours. The chart clearly represents how many times the price action touched the upper band and didn’t drop instantly. This is the reason why most of the professionals use this indicator to trade the market.

Trading Ranges Using The Bollinger Bands

One more crucial applications of the Bollinger Bands indicator is while trading ranges. This is because the bands of the indicator act like dynamic support and resistance levels to the price action. Higher the timeframe we use to trade the ranges, stronger are the bands will be. That is, price relatively respects these brands than the bands in the lower time frames. Many successful traders ace the market by using this strategy alone.

As we can see in the below chart, the market generated three buying and two selling opportunities when the market is ranging. Do not place the buy or sell orders blindly when prices reach the upper or lower level of the consolidation phase. Instead, wait for the prices to hold there for a couple of candles to activate your trades. In the below image, we have activated our trades only when we saw the confirmation candles. In this way, we can filter out whipsaws and false trading signals.

Conclusion

This lesson is an attempt to give you a basic idea of the working of this indicator. There are many more aspects to this, and you will be learning them once you start exploring Bollinger Bands on the price charts. You can refer to this and this articles to get advanced trading strategies using this indicator. Bollinger Bands can also be combined with technical tools like chart patterns and other reliable indicators to generate more accurate trading signals. One such example can be found here. Cheers!

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Forex Course

78. Brief Introduction To Technical Indicators & Indicator Trading

Introduction

Introduction

Introduction

In the past two sections of this course, we have discussed two of the most important tools in Technical Analysis – Fibonacci & Moving Averages. These two are discussed in an elaborated way because you might be using them in conjunction with many of the other reliable indicators in the market. They can be used standalone not just to take trades but also for different other purposes. For instance, Moving Averages can be used to identify the direction of the trend. Likewise, Fibonacci Levels can be used to test the reliability of any support and resistance level.

Since we have completed learning these crucial tools, it’s time for us to extend our learning to understand specific technical tools known as indicators and oscillators. There are many indicators and oscillators in the market. Some are reliable, and some are not. So in the next few course lessons, we will be discussing some of the most credible and reliable indicators. In this lesson, let’s first understand what an Indicator basically is and why it is important to use them in technical analysis.

What is an Indicator?

An indicator is a tool that is used by technical traders and investors to understand the price charts and market conditions. The important purpose of any indicator is to interpret the existing data and accurately forecast the market direction. These indicators are built on various mathematical calculations by market experts.

These days, with the advent of technology, hundreds of indicators can easily be accessed. They are available on most of the charting platforms that we currently use, like MT4 & TradingView. Many of the reliable indicators we have today are a result of extensive research and back-testing. Any technical indicator considers a lot of important data like historical price and volume to predict the future price of an asset.

Indicators are an integral part of technical analysis, and the number of traders who just rely on indicators to take trades is pretty high. Typically, most of the indicators overlay on the price charts to predict the market trend. However, there are indicators that position themselves below the price chart to make users understand the overbought and oversold market conditions.

Oscillators are nothing but range-bound indicators. Which means, an oscillator can range from 0 to100 levels (0 being the floor and 100 being the roof). Essentially, if the price of an asset is at 0, it represents oversold conditions. Likewise, if the asset’s price is at 100, it represents overbought conditions.

Two Types of Indicators

Indicators are classified into two different types – Leading Indicators & Lagging Indicators. As the names pretty much suggest, leading indicators are those that predict the future price direction of any given currency pair. Essentially, these indicators precede the price action and predict the price.

Leading Indicator Examples: RSI (Relative Strength Index), Stochastic Indicator, & Williams %R.

Contrarily, lagging indicators act more like a confirmation tool. They follow the price action and help traders to understand the complex price charts better. One of the best use cases of a lagging indicator could be while testing the trend. We can confirm the trend along with its strength using a lagging indicator.

Lagging Indicator Examples: MACD (Moving Average Convergence & Divergence) & Bollinger Bands.

That’s about a brief introduction to Indicators and Indicator trading. In the next lesson, let’s understand the pros and cons involved in Indicator trading. Once that is done, we can start learning some of the most reliable indicators and how to trade the markets using them. Cheers.

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Forex Basic Strategies

Trading The New York Breakout Forex Strategy

Introduction

Introduction

Introduction

Forex is a 24 hours market, and it is open five days a week. So there are a hell lot of opportunities this market offers to the traders across the world. However, to make more profits and be successful in this market, we don’t have to trade 24 hours on all the days it is open. On any given day, the Forex market shuts down in some continents and opens in some other continents. This leads to the opening and closing of different Forex sessions.

The two most essential sessions are the New York session and the London session. Most of the traders across the globe prefer trading the New York session because, in this session, instruments often have less spread. Also, the markets are quite volatile during this session, and prominent players prefer making most of the significant trades in this session only. In this article, let’s understand different trading techniques to catch the more notable moves that occur during the opening of the New York Session.

We will also be trading the Forex market when the New York session overlaps with the London session. At this point, the volatility will increase furthermore as it is an overlap of the two biggest Forex sessions. The idea is to trade in the direction of the larger players. For each country, the New York session opens at different times. For instance, if you are trading the Forex market from England, the US Session opens for you at around 13:00 GMT. Likewise, if you are trading the market from India, the US session begins at 18:30 IST.

If you are not sure of the exact time of the opening and closing of different trading sessions, you can follow the below link to accurately identify the opening and closing of the New York session according to your local time.

|Forex Time Zone Converter|

Breakout Trading Strategy

During the New York session, all the major, minor, & exotic currency pairs move very fast. Some traders believe that we must trade the currency pairs according to the corresponding session. For example, in the Asian session, we must trade only AUD, NZD, and JPY. In the London and Frankfurt session, we must only trade GBP, EUR, & CHF. Finally, in the New York session, go for USD and CAD currency pairs.

There might be a valid reason behind this, but this shouldn’t be taken seriously. Currency pairs do not move according to the session. Instead, they move according to market circumstances. So in the New York session, we can choose any pair, but we must follow the below rules in order to trade this session profitably.

  1. Before the opening of the New York session, find a currency pair that is in a strong uptrend.
  2. Price action must be held at the major resistance area.
  3. Wait for the breakout to happen in the New York Session.
  4. Let the price action hold above the breakout.
  5. Go long.
  6. Stop-loss below the breakout line.
  7. Take-profit must be at the next major resistance area.

The same is vice-versa for a currency pair if the market is in a strong downtrend.

Buy Example

In the below image, we can clearly see that the EUR/AUD Forex pair is in a strong uptrend.

We can see the price breaking out at the opening of the US session. This indicates that the big players are ready to take over the market. The price action then holds above the breakout line, and this suggests that the breakout is real. Hence we can anticipate buy trades in this Forex pair.

Entry, Stop-loss & Take-profit

We have gone long in this pair as soon as the prices started to hold above the breakout line. The stop-loss is placed just below the support line. We can go for smaller stops when the price action respects the breakout line as it essentially indicates the opposite party giving up. Overall, it was swing trade, and we book the whole profit at the higher timeframe’s resistance area. This entire trade resulted in 150+ pip profit.

Most of the traders believe if they activate the trade in the New York session, they must close the trade in the New York session only no matter what. That’s just another myth. It is always advisable to milk the markets when there’s an opportunity to do so.

Breakout Trading Using Bollinger Bands

In this strategy, we are going to use the Bollinger Bands to trade the New York session. Bollinger Bands, as most of us know, is a quite popular indicator created by John Bollinger. This indicator consists of three lines, which are named as middle, upper, and lower band. These bands expand and contract according to market volatility. Most importantly, this indicator works very well in all types of market conditions.

The below image represents the NZD/CAD Forex pair, which was in an overall uptrend. The price action breaks the major resistance level at the opening of the New York session on the 11th of February 2020. After the breakout, prices started to hold above the breakout line, which tells that the breakout is real, and any long trade anticipated from here will lead to a fruitful result.

Entry, Stop-loss & Take-profit

In the below image, you can see that we have taken a buy entry in the 2nd half of the New York session. Sometimes, the price action breaks the major S&R level in the morning, and it goes sideways for a while before blasting out in the evening. As professional technical traders, we must trust our analysis and be patient enough even when the market is not going in the anticipated direction. We must always let the price action to tell us what is going to happen next and act accordingly.

So right after the breakout, the momentum of sellers is very weak (can be seen in the above chart). So the stop-loss can be placed just below the breakout line. The take-profit was at the higher timeframe resistance area. At first, prices failed to break the resistance line, and during the second try, prices again failed to go higher. The failed second attempt is a clear indicator to close our winning position. Overall it was a good trade, which gave us nearly 90+ pips in just a couple of hours.

Conclusion

Both of the strategies mentioned above are simple and straightforward. Did you observe that in both of our examples, we didn’t choose USD pairs? Instead, we went for minor pairs, and both of the pairs performed really well in the New York session. This proves that it is not about the currency pair of that particular session. It is about what is happening in that pair. It is critical to follow all the rules first and then make a trading decision. It is always advisable to try these strategies on a Demo account and then use it in the live markets. Happy Trading.

Categories
Forex Basic Strategies

You Must Definitely Try These Most Promising Bollinger Bands Strategies

Understanding Bollinger Bands
Bollinger Bands is one of the most famous indicators out there, developed by a technical analyst named John Bollinger in the 1980s. This indicator primarily identifies the

Understanding Bollinger Bands
Bollinger Bands is one of the most famous indicators out there, developed by a technical analyst named John Bollinger in the 1980s. This indicator primarily identifies the

Understanding Bollinger Bands

Bollinger Bands is one of the most famous indicators out there, developed by a technical analyst named John Bollinger in the 1980s. This indicator primarily identifies the volatility level of a currency pair. Bollinger bands are volatility bands placed below and above a moving average. These bands are designed such that they automatically widen when the market volatility increases and narrow or contract when volatility drops.

One of the important purposes of the Bollinger bands is to determine the relative high and low prices of the market. As simple as it gets, the prices are comprehended to be low at the lower band and high at the higher band. With this definition, we can come up with trading patterns that can help predict the upcoming market trend.

Calculation

Bollinger bands have three bands, namely, the upper band, the middle(mean) band, the lower band. And they are calculated as follows:

Upper Band = Middle band + 20-day Standard deviation x 2

Middle Band = 20-period the moving average (20 SMA)

Lower Band = Middle band – 20-day Standard deviation x 2

Below is a chart that has the Bollinger Bands embedded in it.

Setting up the Bollinger band

Every trading platform will ask you for the length of the Bollinger band. By default, the value is set to 20. And it is highly recommended to keep the default configurations to obtain optimal results from the indicator.

Now, let’s put all of the above information into action by analyzing some great strategies.

Strategy 1: Double Bottom Setup

One of the most popular trading strategies using the Bollinger bands is the double bottom setup. This is because John Bollinger himself said that, “Bollinger bands can be used in pattern recognition to define pure price patterns such as “W” bottoms, “M” tops, momentum, shifts, etc.”.

In this strategy, we will be discussing the “W” bottoms, and “M” tops.

W-Bottoms

This strategy can be applied when the market is coming from a predominant downtrend. There are four stages to consider to trade the W-bottom (double bottom) Bollinger band strategy.

  1. The reaction low must form around the lower band.
  2. From the lower band, there must be a bounce up to the middle band.
  3. Thirdly, there should be a new low, which must hold above the lower band. The hold above the previous low confirms the inability of the sellers to push the prices lower.
  4. Lastly, the price must move off the low and break the previous resistance. This confirms the start of bullishness in the market.

Example

In the below chart, the market was in a downtrend. It made a low at the lower band and went up until the middle band and held. This satisfies the first two considerations in the W-bottom strategy. Moving forward, the price comes down again, but this time, it holds above the lower band. This confirms the third consideration, as well. Finally, the market shoots up and breaks the resistance (black line), indicating a buy signal.

M-top

M-top is the opposite of the W-bottom strategy. But, the working of this strategy remains the same. That is, firstly, the price must try to go above the upper band. Secondly, the price should drop down to the middle band. Thirdly, it must go up again but not higher than the previous high. And finally, the market must drop below the support line. And once all these scenarios take place, we can prepare to go short.

Example

In the below chart, the market went above the upper band, pulled back to the middle band, shot up again, but could not go higher than the upper band, and finally, the price dropped below the support (black line). So, this is when we can confidently hit the sell.

Strategy 2: Return to the Mean or Middle of the band

If you wish to extract only small profits from the market, then this strategy will be apt for you. This strategy mainly focusses only on small movements rather than big swings. An advantage of this strategy is that you will be able to pull off consistent profits and reduce risks significantly.

The principle of this strategy is to go long when the price comes down to the middle line. However, to reduce the risk, there are some factors which are implemented when trading this strategy. Below, we have mentioned some of the techniques to trade this strategy.

In the below chart, we can see that the market shot to the upside, pulled back to the middle line, and again shot up north. Here, if we were buying at the middle line, we would have made a profit out of it. But, not always will this work in your favor.

There are some points you must consider before trading this strategy. Firstly, the initial buyers must be very strong. Secondly, the sellers (pullback) must be weaker than the preceding buyers. Thirdly, the price must hold around the mean line. The occurrence of patterns like doji, hammer, spinning top, etc. around the mean line can give additional confirmation on the trade. Therefore, once all the criteria are satisfied, you can go for the buy.

Bottom line

Bollinger band is an excellent indicator to determine the direction of the market. The bands indicate if the market is at a relatively high or low. And these highs and lows help in predicting if the market is continuing its trend or preparing to reverse. Also, chartists combine this indicator with other indicators to have an extra edge over their trade.

We hope you understood these strategies. It is highly recommended to try these in your daily trading activities. With practice, you can master this indicator and can make consistent profits if used correctly. Let u know if you have any questions in the comments below. Happy Trading!

Categories
Forex Videos

Trade Like A Forex Beast – Chart Patterns & Bollinger Bands

https://youtu.be/-UweJmM32L4
Chart Patterns
Chart patterns, or technical analysis, is how traders determine possible future price action direction by incorporating ‘technical’ tools onto their PC screens. The resulting patterns they

https://youtu.be/-UweJmM32L4
Chart Patterns
Chart patterns, or technical analysis, is how traders determine possible future price action direction by incorporating ‘technical’ tools onto their PC screens. The resulting patterns they

Chart Patterns

Chart patterns, or technical analysis, is how traders determine possible future price action direction by incorporating ‘technical’ tools onto their PC screens. The resulting patterns they see on their screens, including the current exchange rate of a Forex pair, while factoring in volume, time of day, recent and future economic data releases via fundamental analysis, provide an effective way of gauging future price action direction.

Forex trading only took off in the retail sector in the early 2000s. Before that, and largely thanks to the advent of the internet, technical trading was almost unheard of in the institutional Forex market. Today, retail Forex traders take for granted the myriad of available technical trading platforms such as the; Metatrader MT4 platform, Trade Station, Currenex, Ctrader, etc. These incredible platforms, which are mostly free to retail Traders, would have been an institutional traders dream come true in the 1970s, 80s, and 90s. Back then, traders, technical analysis depended on plotting exchange rates into a notebook or on a spreadsheet. However, time and technology have moved on, and the internet has allowed liquidity to increase exponentially year on year. People can now make a reliable living by trading in favor of recurring patterns that they see on their computer screens. It is quite amazing that many economies around the world are often affected, both negatively and positively, by exchange rate fluctuations because of patterns on traders’ screens which tell them to buy or sell.

Example A

In the example ‘A,’ we can see a 1-hour chart of the GBPUSD pair. In the chart, we are only using Japanese candlesticks. We advise that you always read a chart from left to right because it tells a story. Traders typically draw their own trendlines, and that’s what we have done here. In this diagram at section ‘A,’ we can see that there has been a bearish trend. This was followed at section B’ buy a pull-back or consolidation and then continuation to the downside. This produced an upside-down V formation, which traders look for when considering a possible continuation in the downward trend. However, price stalls in section ‘C,’ which is littered with small candlesticks. Price action then slips into a sidewards momentum. These smaller candlesticks, some of which open and close at the same exchange rate, tells traders that there is a lack of liquidity in the market during this phase. Section ‘D’ is a continuation to the downside, and where price action has gone through the support line, we drew in at section ‘C.’ The continuation is short-lived, and we had a bullish pullback, again with the v-shape formation clearly evident. However, the bearish engulfing candlestick marked ‘E’ takes out all of the candlesticks in Section ‘D’ telling traders that a large amount of liquidity has gone through at this point and that the sellers are in command. Subsequently, we see price action continue to fall.

Example B


In example ‘B’ we have added Bollinger bands to our chart. Bollinger bands were developed by John Bollinger, whose book on the subject, “Bollinger on Bollinger Bands” (2001), was transcribed into over 11 languages and is widely used in the trading community. Bollinger bands plot deviations from the exchange rate onto a chart that materialize as two lines, one either side of the and outside of price action. The theory is that over 90% of price action will remain within the bands. Therefore, traders look for certain aspects to occur during the formation of the bands to help them with their trading decisions.
During the sell-off at section ‘A’ we can see that the bands are widening while moving in a downward direction. However, as volatility gains, price moves outside of the bands. But we can see that price action moves back inside the Bollinger bands to begin the V formation at section B. During the consolidation period at section ‘C,’ we can see that the bands move together to form a narrow tunnel. Typically traders will expect larger liquidity entering the market during times of bands expansion from a narrow contraction, and during the bottom of section ‘D,’ we see an increase in liquidity which pushes through the Bollinger bands, only for the bulls to buy the pair back inside. Subsequently, we see that the bearish engulfing candlestick marked ‘E’ pushes through the Bollinger bands to the downside, before buyers bring the pair back inside again. Price action then continues to the downside, while staying inside the Bollinger bands, until the bottom right-hand side of our screenshot, where we can see some tails piercing through the Bollinger bands, only for price action to pull the candlesticks back inside.

In diagram ‘D,’ we have added another favorite tool as used by technical traders: a moving average. The blue line is a 14 period, simple, moving average. It calculates the highest point and the lowest point of each of the previous 14 candlesticks and plots the average measurements on the screen in the form of a line. In our example we can see that once price action falls below our moving average at section ‘A’, it begins to form an invisible area of resistance, where price action moves up to it on a number of occasions at sections ‘B’, ‘C’, ‘D’ and ‘E’ before price action continues to the downside. Trainers typically use several moving averages on their screens in order to determine price direction, consolidation, continuation, and price reversal areas.

There are hundreds of technical analysis tools available to Forex traders. However, the more you have on your screen is not necessarily more of an advantage! In fact, too many analysis tools may hamper your trading by clouding your judgment. The best technical tool will always be the price action itself, which is a leading indicator. So, here at Forex.Academy, we recommend that you do not overload your screens with technical analysis tools. Keep things as simple as possible when deciding which technical tools to implement in your trading style and methodology.

 

Categories
Forex Indicators

Bollinger Bands

Bollinger Bands
Bollinger Bands are a type of volatility oscillator created by the great technical analyst John Bollinger. If this is your first time seeing this indicator, it probably looks

Bollinger Bands
Bollinger Bands are a type of volatility oscillator created by the great technical analyst John Bollinger. If this is your first time seeing this indicator, it probably looks

Bollinger Bands

Bollinger Bands are a type of volatility oscillator created by the great technical analyst John Bollinger. If this is your first time seeing this indicator, it probably looks both daunting, confusing, and somewhat silly. But it is a powerful tool for trading and identifying when prices are contracting and then when they finally breakout. There are some critical components of Bollinger Bands.

  1. The middle line is just a moving average, by default, a 20 SMA.
  2. The lines above and below the middle line are the volatility bands, observe how the ‘bubble’ gets expands as price moves up or down in a significant fashion.
  3. Most important is what is called the ‘Squeeze’ or a ‘Bollinger Squeeze.’ The Squeeze signifies decreased volatility and is evident when the bubble gets smaller, and the lines become very close. Squeezes are extremely important to watch.

Let’s look at a chart and see these concepts.

  1. Notice the bands contracting, ‘squeezing’ into each other.
  2. Notice the release, price is continuously pushing higher against the bands, and the bubble is expanding.
  3. Again, notice how price begins to consolidate and form another squeeze.
  4. The release after the squeeze.

 

Top touches do not mean “sell”, and bottom touches do not mean “buy”

Too often, new traders view indicators and oscillators with certain upper and lower boundaries as conditions to trade to the contrary. Bollinger Bands are no exception. People often assume, incorrectly, that when prices touch the upper band, then the price is somehow ‘oversold,’ and then a short trade should be taken. The inverse is true with bottom band touches.

In reality, prices will often ‘walk’ the bands. You should look at any instrument and see how often prices will trend higher by piercing and riding the bands higher or lower. This frequently occurs after both the upper and lower bands converge closer together, and the space between them constricts. This pattern is known as ‘The Squeeze.’

 

The Squeeze

Mr. Bollinger himself wrote that The Squeeze was a condition that created more questions than any other component in his Bollinger Band system. At the beginning of this article, I mentioned that Bollinger Bands are a volatility indicator – that is precisely what the upper and lower bands represent. When volatility increases, the bands expand and move farther away from one another. When volatility decreases, that is when we see the bands constrict, forming The Squeeze. Squeezes always precede increased volatility, and squeezes always occur after a period of significant volatility – a classic chicken or the egg problem. Regardless of which happens first, The Squeeze should be recognized as an opportunity to identify when a future explosive move may occur.

One should observe the direction of the breakout almost with suspicion. You will often find many false breakouts occur where price begins to trade in one direction at the beginning of a squeeze, only to reverse and start trending in the opposite direction. There are many ways to filter and interpret which breakouts are genuine and which are false – but that is for a lesson for another time.

Key Points

  1. Bollinger Bands are a measure of volatility.
  2. Price touching the upper or lower bands does not mean an automatic inverse trading move.
  3. Price will often ride the bands in a trend.
  4. Squeezes present opportunities.
Categories
Forex Indicators

Five Great Things you’ve Never Heard about Bollinger Bands

 

Everybody knows Bollinger Bands, that kind of rivery thing surrounding prices. But almost nobody knows what to do with them. Maybe we can help a bit with that.
1

 

Everybody knows Bollinger Bands, that kind of rivery thing surrounding prices. But almost nobody knows what to do with them. Maybe we can help a bit with that.
1

 

Everybody knows Bollinger Bands, that kind of rivery thing surrounding prices. But almost nobody knows what to do with them. Maybe we can help a bit with that.

1 – Bollinger Bands and Trends

Bollinger Bands are based on Moving Averages. Therefore the central line is the 20-period moving average. As a corollary, if the price of an asset is above the mid-BB-Line, it usually is trending UP. Conversely, if it is below the mid-BB-Line, it tends to be trending down.

Fig 1 – Uptrends see prices moving near the +1 Bollinger line

2 – Bollinger Bands Are more Useful Customized

There is no need to use only the standard 2-StDev Bollinger bands. We, as traders, can create different band types. In my case, I use to draw 1-StDev and 3-StDev bands. The reason will come clear in the next bullet point.

Fig 2 – 1,2 and 3 sigma Bollinger Bands as a Map of the Price Action

3 – Bands and Price Action

Bollinger Bands maps the price action. By that, I mean we can assess how much the price is away from the mean. If we think of the mean price as the consensus of value at a particular moment, Bollinger bands help evaluate if the asset is overpriced or underpriced and profit from that information. That is so because the lines are pictured at a standard distance from the mean.

There is one theorem about a broad class of probability distributions called Chebyshev’s inequality (also called Bienaymé–Chebyshev inequality). The Chevyshev’s inequality guarantees that there is a minimum of data values within a certain distance from the mean value of a distribution. And it does not need to be a normal or bell-shaped distribution for this theorem to hold. It only needs to have a finite average.

From these figures, we can see that if we spot prices moving beyond the +2 Bollinger line, there is a 75% chance the price moves back. If that price extension goes to the +3 BB-Line the chance of it retracing is 89% and so on. That applies to the negative side as well so, prices below -2BB-line and -3BBline have 75% and 89% chance of reversing.

That means Bollinger bands are terrific overbought and oversold indicators. Consequently, it pays to have visible at least a couple of bands in our charts. There bands: +1, +2 and +3 Sigma bands will map your price action beautifully.

 

4 – Prices Tends to Visit the Mean

From the extremes, the price tends to find support on its Mean price. That means the price tends to visit the mean Bollinger line before resuming the trend (of course, this also happens when the trend changes). One recurring pattern is for the price to move beyond +2 BB-line, creating one or two candlesticks with a large upper wick and closing lower. Then, the following candles move steadily back (or sideways) to visit the mid-BB line, and then start a new leg up. That also applies to downward trends. The price moves below the -2BB-line and even the -3BBline and then creates a large lower wicked candlestick to, then, move back to the mean.

Since the mean is a moving average, the mean continues moving up or down in the subsequent bars, so, it is not uncommon that the price moves quite horizontally as can be seen on the chart.

 

5- From Impulses to Corrections

Bollinger Bands warns about pauses and the end of a trend. It also warns about the continuation of the trend.

Bollinger Bands expand with volatility and shrink with le lack of it. When we spot that the Bollinger bands are starting to shrink, it is almost sure the trend has stopped moving. It might be a consolidation period or a reversal. Therefore, band shrinkage is a flag for traders to take some profits out of the table.

Sideways range-bound movements make the bands shrink. When a breakout of the range occurs, the bands expand, signaling a new period of increased volatility and price movements.