With Bollinger Bands, we are able to judge the volatility of the market and know when the instrument is too far extended or when the market is in consolidation. When price travels too far away from the middle band, usually a 20 period moving average, we should be on the lookout for the possibility of either a quick counter-trend trade or even a full scale price reversal. Adding in the Stochastic Oscillator, we are able to have an objective view if a market is overbought or oversold. While reading bollinger bands forex indicator indicators as part of your technical analysis approach to trading, one thing every trader should understand is price action.
You don’t need to be an expert price action trader but letting price dictate your actions for a trade setup while technical indicators give you information, is a smart play. How Does This Trading Strategy Work? Every trading strategy should be simple enough that a 5 year old could explain it. Let’s take a high level look at using the Bollinger Bands along with the Stochastic as a viable trading edge. When price is touching the outer lines of the Bollinger band, it may be due for a reversal, so you look for a reversal candlestick pattern to trade. The middle Bollinger band line can be used as a reference line to move a profitable trade to break even or also can be used as a profit target or as a scale out area.
Keep in mind that with any trading strategy the key is money management. Ensure your position size reflects not only your stop but also a percent amount of your account that can withstand a string of losing trades. What currency pairs Can you trade this system with? Virtually any Forex pair can be traded with this trading strategy. What is the suitable time frame for this trading system?