Short-Term Forex Trading Strategies: Reversal Bollinger
You may already be very familiar with Bollinger Band. Maybe you have also used it in forex trading. This time I will discuss one of the forex trading strategies that use the Bollinger Band in a simple mechanical trading system for short-term transactions.
In this simple strategy, Bollinger Band works to find a reversal in a trend. You may already know that the lines on the Bollinger Band can be used as dynamic support and resistance areas.
Unlike other trend-based indicators, the existence of the upper and lower bands on the Bollinger Band makes this indicator can be used when the sideway market, of course with certain technology. Well, this time I will discuss the technique.
Interestingly, the technique I will describe this time is quite effective when used in sideways, or trending conditions that are not too steep. But beware of sideway conditions usually followed by a narrowing of the Bollinger Band ( Bollinger squeeze ). The squeeze is often followed by a rally after a break in the upper or lower band. To minimize the risk, this technique also includes one oscillator indicator, namely RSI that can provide early information about overbought or oversold conditions. The use of RSI is expected to be able to provide a better filter
As a signal to conduct transactions, this strategy utilizes the appearance of candlestick patterns that show the occurrence of a false break above the upper band or below the lower band. Of course, this technique can only promise the potential for a short-term rebound. Thus, the placement of profit targets (TP) cannot be too far.
OK, without needing to belong, the following explanation is the rules for using this strategy.
Pair: currency pair that is not too volatile, suggested in USDCAD.
Time frame: H1 and above
- Bollinger Band:
- Period: 50
- Deviations: 2
- Apply to: close
- Period: 5
- Apply to: close
- Sell signal:
- If the high price of the candlestick is used as a reference higher than the upper band and the close price is below the upper band.
- RSI has crossed from the top 75 (down).
- Buy signal:
- If the low price of the candlestick is used as a reference lower than the lower band and the close price is above the lower band.
- RSI has crossed from below 25 (up).
- Place the SL as far as 50 pips above the reference candlestick high
- TP placement:
- Target I: a middle band
- Target II: lower band (for short positions) / upper band (for long positions)
- Tips: if the price has touched the first target, it is recommended to activate the trailing stop or partially close the position ( partial close ).
As with other simple mechanical trading systems, there is no guarantee that this strategy will always generate profits. In trading, you must integrate your forex trading system with good risk management and money management and in accordance with your capital strength.