Trend Bar Bollinger Bounce Forex Trading Strategy

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Trend Bar Bollinger Bounce Forex Trading Strategy

When buying goods, what do you usually look for? Are you look for the premium placed on top of fair price or are you looking for a discount? Chances are, if you are anything like me, you would be looking for a discount. Only crazy rich people would want to buy things that are more than fair value.

The same is true with trading. Traders often look for a discount when taking a buy trade and are looking to sell at a premium when making a sell trade. This is basic logic, right?

But how do we look for discounts when taking buy trades and how do we identify if price is at a premium when we are taking a sell trade? One of the most effective techniques is by looking for overextended market prices. These are prices that are either oversold or overbought. If prices are oversold, then it might be a good time to buy. If prices are overbought, then it would be a good time to sell.

Trend Bar Bollinger Bounce Forex Trading Strategy trades with this concept. It looks for imbalances in price using indicators.

Trend Bars

Trend Bars indicator is a custom technical indicator which provides traders an insight as to where the market is heading. It identifies trends and indicates the information as an oscillator.

This indicator displays histogram bars that could oscillate between negative and positive figures. Positive figures indicate a bullish trend while negative figures indicate a bearish trend. The bars also change color depending on the direction of the trend. The bars are colored sky blue during a bullish trend, and red during a bearish trend.

Bollinger Bands

The Bollinger Bands indicator is one of the most versatile indicators available to forex traders. It provides a wealth of information with just one indicator. It is a trend, momentum, volatility, overbought and oversold indicator rolled into one.

It is composed of the three lines. The middle line is a 20-period Simple Moving Average (SMA) line. The outer bands are standard deviations derived from the 20 SMA line.

Since the middle line is a moving average line, it could be used as a trend indicator much like most moving average lines are used. Trend is identified based on how the moving average line slopes.

The outer bands could be used as a momentum, volatility, and overbought or oversold indicator.

As a momentum indicator, momentum is typically based on how price reacts as it breaches the outer bands. If a price candle signifies a strong momentum on the breach, price is said to be gaining momentum.

The same outer bands that is used to identify momentum, could also be used to observe for mean reversals caused by overbought or oversold prices. Prices that are beyond the upper bands are considered overbought and prices that are below the lower band are considered oversold. Price candles that show signs of rejective the area near the outer lines could indicate that price is about to reverse.

Lastly, the behavior of the outer bands could also be used to identify volatility. If the outer bands are contracting, then the market is also said to be in a contraction phase. If it is expanding, then volatility might be increasing, and the market might be entering a market expansion phase.

Trading Strategy

Mean reversals could just be the start of a larger scale trend reversal. This strategy aims to capitalize on such conditions by using price action as a basis for entering and exiting trades.

Trade direction is initially identified using the Trend Bars indicator. This allows us to identify the direction of the long-term trend and align our trades with it. This also allows us to take trades that could start as a mean reversal trade, which could gather momentum and start a fresh trend. To do this, trades are filtered based on whether the trend bars are positive or negative.

As soon as we determine the direction of the trade we will be taking, we will wait for price to touch the outer bands opposite to the direction of the trend. We will then observe how price reacts around that area. If price shows signs of price rejection such as long wicks or engulfing candles pushing against the outer bands, then it is a signal that price might reverse. This would be our entry signal.

Trades are then kept open until an opposing reversal signal takes shape.

Indicators:

  • Bollinger Bands
  • Trend_Bars (default setting)

Preferred Time Frames: 1-hour and 4-hour charts

Currency Pairs: major and minor pairs

Trading Sessions: Tokyo, London and New York session

Buy Trade Setup

Entry

  • The Trend Bars indicator should be printing positive histogram bars.
  • Price should be in a long-term uptrend.
  • Wait for price to retrace and touch the lower outer line of the Bollinger Bands.
  • Enter a buy order as soon as price shows signs of reversal such as a bullish pin bar or engulfing pattern.

Stop Loss

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

Exit

  • Close the trade as soon as price shows signs of a bearish reversal based on price action.

Trend Bar Bollinger Bounce Forex Trading Strategy

Trend Bar Bollinger Bounce Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The Trend Bars indicator should be printing negative histogram bars.
  • Price should be in a long-term downtrend.
  • Wait for price to retrace and touch the upper outer line of the Bollinger Bands.
  • Enter a sell order as soon as price shows signs of reversal such as a bearish pin bar or engulfing pattern.

Stop Loss

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

Exit

  • Close the trade as soon as price shows signs of a bullish reversal based on price action.

Trend Bar Bollinger Bounce Forex Trading Strategy 3

Trend Bar Bollinger Bounce Forex Trading Strategy 4

Conclusion

This is one of the most popular type of Bollinger Bands strategy, and it is popular for one reason – it works.

Many traders prefer to trade this solely as a mean reversal strategy that could lead to a long-term trend reversal. This allows them to take high yield trades that could allow them to squeeze out huger profits from the market.

However, trading based on price action requires a lot of practice. Traders should learn to read market reversals effectively without hesitation. This comes with experience and time. However, once mastered, these skills could propel your trading to greater heights.

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