Bollinger Heiken Ashi Trend Forex Trading Strategy

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Bollinger Heiken Ashi Trend Forex Trading Strategy

The internet is inundated with traders posting after the fact trades showing how they made huge sums of money in just a short amount of time. This creates different responses from different people, especially new traders and those who would want to be traders. Some would feel excited thinking about all the possibilities in trading. Others will feel confused because it is very far from what they are experiencing. Others are skeptical thinking they are smart enough not to believe it. Still, the question remains. “Is it possible?”

The short answer to this is yes. It is possible because anything is possible in trading. Traders could make as much money as they want in a few minutes, but they could also lose as much money as they can at the same time. Anything can happen in trading. The market can spike and depending on which direction you are trading, you could either go bankrupt or hit a homerun.

There are certain market conditions and trading scenarios that are prime for such kind of occurrences. One type of market that allows for such huge moves is a market that is trending strongly. In these types of markets, price could skyrocket at any moment.

Often, traders are left behind without the chance of taking the trade and making profits out of such strong move. However, there are ways to trade such markets even when the strong trend has already started. The market is gracious enough to provide traders such opportunities to join in on the party. We just have to know how to spot these opportunities.

Bollinger Heiken Ashi Trend Forex Trading Strategy is one of the strategies that could be used to trade such strong trending markets. It allows traders to take trades even when the market has already gained momentum.

Bollinger Bands

The Bollinger Bands indicator is an all in one technical indicator. It could be used to identify trends, momentum, volatility and mean reversals.

It is composed of three lines. The middle line is a Simple Moving Average (SMA) usually set at 20-periods by default. It also has outer lines which are standard deviations derived from the middle line. By default, the outer lines usually have a deviation of 1 or 2.

The middle line of the Bollinger Bands could be used to identify trend direction, much like a regular moving average line is used. Trends could be identified based on the slope of the line.

The outer lines could be used to identify momentum, volatility and mean reversals. Momentum is identified whenever price closes strongly beyond the outer lines. Mean reversals on the other hand is indicated whenever price rejection occurs on the area near the outer lines. Volatility is identified based on the expansion and contraction of the outer lines.

Heiken Ashi Candlesticks

The Heiken Ashi Candlesticks is a unique way of looking at price movements. Heiken Ashi basically means average bars, and that is exactly what the Heiken Ashi Candlesticks are.

The most popular type of price charting is probably the Japanese candlesticks. It shows the open, close, high and low of a candle, which are vital information that traders could use. It also allows traders to identify patterns which could indicate trade signals based on reversals or momentum.

The Heiken Ashi Candlesticks displays price movements differently. It also shows the high and low of price movements. However, instead of showing the actual open and close of price, it computes for the average of the open, high, low and close. This creates a chart with candlesticks that change directions only when the average price has changed direction.

The Heiken Ashi Candlesticks allow traders to identify short-term momentum and trend reversals. These indications could be used as an entry or exit signal which is very responsive to price movements.

Trading Strategy

This strategy is a trend following strategy that trades on extremely strong trends using the Bollinger Bands and the Heiken Ashi Candlesticks.

First, trades are filtered based on trend direction. To do this, we will be using a 50-period Simple Moving Average (SMA). Trend direction is based on the slope of the 50 SMA line. On top of this, traders should also visually identify if the market is trending. When trading this strategy, traders should only look for markets that are trending strongly. These are characterized by steep sloping price action and moving average lines.

This strategy uses the Bollinger Bands quite differently. It resets the parameters to create a tight Bollinger Band. The bands are then used as a dynamic support or resistance area. If the market is trending strong, price would tend to bounce off the Bollinger Band lines.

As price pushes during the strong trending pulses, the Heiken Ashi Candlestick’s color will indicate the direction of the trend. However, during the minor contraction or retracement phases, the Heiken Ashi Candlestick’s color will temporarily reverse.

Trades are taken if price would bounce off the area of the Bollinger Bands and cause the Heiken Ashi Candlesticks to resume the color of the trend.

Indicators:

  • 50 SMA (Green)
  • Bollinger Bands
    • Period: 10
    • Deviations: 0.5
  • Heiken Ashi (default setting)

Preferred Time Frames: 5-minute, 15-minute, 30-minute, 1-hour and 4-hour charts

Currency Pairs: major and minor pairs

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • Price should be above the 50 SMA line.
  • The 50 SMA line should be sloping up.
  • Price should be pushing above the Bollinger Band lines.
  • The Heiken Ashi Candlesticks should be color spring green.
  • Price should retrace causing the Heiken Ashi Candlesticks to temporarily change to red.
  • Price should bounce off the Bollinger Band lines.
  • The Heiken Ashi Candlesticks should change back to spring green.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss on the fractal below the entry candle.

Exit

  • Close the trade as soon as the Heiken Ashi Candlesticks change to red.

Bollinger Heiken Ashi Trend Forex Trading Strategy

Bollinger Heiken Ashi Trend Forex Trading Strategy 2

Sell Trade Setup

Entry

  • Price should be below the 50 SMA line.
  • The 50 SMA line should be sloping down.
  • Price should be pushing below the Bollinger Band lines.
  • The Heiken Ashi Candlesticks should be color red.
  • Price should retrace causing the Heiken Ashi Candlesticks to temporarily change to spring green.
  • Price should bounce off the Bollinger Band lines.
  • The Heiken Ashi Candlesticks should change back to red.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

  • Set the stop loss on the fractal above the entry candle.

Exit

  • Close the trade as soon as the Heiken Ashi Candlesticks change to spring green.

Bollinger Heiken Ashi Trend Forex Trading Strategy 3

Bollinger Heiken Ashi Trend Forex Trading Strategy 4

Conclusion

This strategy is a high yield trading strategy. Trades could be taken with tight stop losses and winning trades could be allowed to run as long as the short-term momentum is still in place. Because of this, it is not uncommon to see reward-risk ratios as high as 4:1.

However, this strategy requires discipline. Markets do not trend most of the time. Traders should avoid using this strategy if the market is not trending or if the trend is not strong enough.

Heiken Ashi Candlesticks also do not show the actual price action. Traders could benefit using multiple charts, one with a Heiken Ashi Candlestick charting and the other with a standard Japanese candlestick. This would allow traders to see the actual price movements.

If used in the correct market condition, this strategy could do wonders.

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