Easy Forex Strategy Review

Search for: Currency Trading, Forex Trading, Learn Forex, Bollinger Bands

 

In a market, normally there are two kinds of trading conditions that will repeat regularly to form a flowing chart, range bound and trending states. These kinds of condition usually happened when traders extremely overbought or oversold their share of market. These two contradictory conditions forces against each other and then causing the development of the relative support and resistance levels to approach one another. By then, there is a phenomenon that the shape of a triangle consolidation pattern can be drawn from the chart. Sooner or later, sure there is one side, whether the buying or selling side will takes over in that phenomenon, and then develops a new trend (either new highs or new lows) in the market. And this kind of phenomenon will keep on repeat over and over again when either the buying or selling side fails to maintain itself at the high or low levels, then a new trend will now develop.

As usual, the trending and ranging conditions will repeat regularly while the Bollinger Bands develop a new flowing of chart according to its volatility condition. Trending markets and range bound condition work in a contradictory condition. The Bollinger Band Width indicator in trending market will always rises as the lines that measures always expand from each other. However, for range bound states, it always in a fall condition as the lines will always contract to each other. By noting the recent trading flowing on the chart, it is easy to know the ultimate high and low points even though Bollinger Band Width may not be a prefect measurement to value the low or high extremes of the market. But what is important is that traders should remember a key point, that it will fall after reaching the highest point, or it will rise after reaching the lowest point.

How to well use this Bollinger Band Width in normal daily trading operations? It is very simple. For example, let’s have the following 2-hour chart. The GBP/USD has taken some time to form four triangle patterns in different lines. It is happened when the Bollinger Band Width line rises and falls respectively. As a triangle develops, we can enter a market near the support levels and sell the share near resistance levels. By then, we may gain a lot of profit until the line of the Bollinger Band Width reaching the bottom line and then reverses. For a trending market, traders may enter a market when the market is in a new uptrend or sell when the market is in a new downtrend. It is more important to note the current direction of the line as it is showing us the future market movements that which are the right track to go in the future. Note how each triangle finally breaks into a new trend just as the Width line reaches an extreme low and reverses to the upside (circled below). This kind of situation can be considered as the inflection point where a range will soon becomes a trend and it is advisable that all traders should have a thinking that the market will change accordingly.

The 15 Rules of Bollinger Bands

1. Bollinger Bands provide a more relative of high and low definitions.


2. Those definitions is use to compare price action and determine when to buy and sell.


3. Some aspects such as momentum, volume, sentiment, open interest, inter-market data and etc. are important indicators.


4. It is not recommended to use Bollinger Bands for confirmation of price.


5. For confirmation, Bollinger Bands can be use with other indicators as states above. It is advisable to avoid co-linearity (not to use two same indicators) as it will not increase confirmation..


6. Bollinger Bands also useful in clarifying the pure price patterns such as M-type; tops and W-type bottoms, momentum shifts, etc.


7. The market price may reach the upper and lower of Bollinger Band.


8. Breakouts sometimes mustn’t be a reversal signal, but a continuation signal as it had proven by the use of Bollinger Bands-breakout systems.


9. The 20 periods for the moving average and standard deviation and two standard deviations is not the only standard bandwidth as each and every market will be different from time to time.


10. The average points should be explanatory of the intermediate-term trend but not the best crossovers.


11. If the average is lengthened, the number of standard deviations needs to be increased; from 2 at 20 periods, to 2.1 at 50 periods. If the average is shortened, the number of standard deviations should be reduced; from 2 at 20 periods, to 1.9 at 10 periods.


12. Bollinger Band is based on a simple moving average with the use of standard deviation calculation to make Bollinger Band more consistent.


13. Be careful about making statistical conclusions from the Standard deviation calculation as most of the sample size of Bollinger Bands is too small for accurate statistic.


14. Indicators can be shown in %.


15. Tags are not signals. A tag of the Upper Bollinger Band is NOT a definite sell signal and a tag of the lower Bollinger Band is NOT a definite buy signal.

Article Source: Easy Forex Strategy

About the Author

 Secret Sebastian

Professional Forex Trader

Learn Forex Trading

Copy and Paste Article Code.

Remember: The article body, title, author bio and links may not be changed or removed. By publishing this article, you agree to all the terms in our Terms of Service.

Rating: Not yet rated

--Choose-- 0 1 2 3 4 5

Comments

No comments posted.

Add Comment

You do not have permission to comment. If you log in, you may be able to comment.

More articles in this Category

1: Forex Secrets Exposed

2: Doji Stars

3: Doji

4: Bollinger Band Width And Trading Ranges

5: Bollinger Bands explained when to trade and when to fade Forex