Bollinger Bands TMA Trend Forex Trading Strategy

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Bollinger Bands TMA Trend Forex Trading Strategy

Many forex traders confuse themselves between momentum trading and trend following. Although both market conditions or scenarios could technically be a bit different, both also have a lot of similarities, making it very confusing for new traders.

Momentum is basically a market scenario wherein price is moving strongly in one direction. This means that price is not only moving is one general direction, it is also moving far in a certain direction in a very short period.

Trend on the other hand also has the same element of moving in one general direction, yet it does not necessarily have to move strongly in a short time. It could move at a constant upward or downward crawl and still be called a trend. As long as price is moving in a “general” direction, it is still considered a trend.

The most basic way traders identify momentum is by observing for momentum candles. These are candles which long full bodies with little to no wicks. This means that price did move in a certain direction very fast.

On the other hand, traders identify trends based on price action by observing for a constantly rising or falling swing point pattern. This means that although retracements do occur, price is still moving in one general direction.

Although technically different, both still have a lot of similarities. The only variation is speed. As one trader puts it, “A trend is a run, and a run is a trend. The only difference is the timeframe.”

Although both strategies are implemented differently, momentum entries do tend to result in a trend. This is because price does tend to continue the direction of the momentum, which could result in a trend.

Bollinger Bands

Bollinger Bands is a classic technical indicator which is very versatile and could be used for a variety of purposes.

The Bollinger Bands indicator plots three line on the price chart. The middle line is a Simple Moving Average (SMA) line which is usually set at 20-periods. The outer lines or bands are basically standard deviations shifted from the middle line, which usually set at +/- 2 standard deviations.

The middle line functions just as a common moving average line does. It could be used to identify trend direction based on the location of price action in relation to it, as well as the slope of the line itself. It could also be used for crossover entry signals and as a dynamic support or resistance line.

The outer lines act as support or resistance. Mean reversal traders identify these lines as overbought and oversold markers. Price action rejecting these areas could indicate that price might start to reverse. Momentum traders on the other hand identify these lines as breakout points. Price action breaching strongly outside of the bands indicate a possible momentum breakout scenario coming from a market contraction phase.

Because the bands are based on standard deviations, volatility could also be identified using this indicator. A contracted Bollinger Band indicates a contracted market, while an expanding Bollinger Band could indicate a market expansion phase.

Triangular Moving Average

Triangular Moving Average (TMA) is a modified moving average type of technical indicator.

Moving averages are very useful indicators especially when identifying trends direction and trend reversals. It helps traders objectively identify trends based on the average movement of price.

However, despite its popularity, moving averages tend to have a disadvantage, which is that it tends to be very unreliable during choppy market conditions. Moving average signals tend to produce false signals whenever the market is erratic especially in a whipsaw situation.

The Triangular Moving Average is a modified moving average which drastically smoothens out the moving average line that is being plotted. This is because TMA lines are double smoothed. The result is a moving average line which is characteristically very smooth and is quite reliable.

Trend Indicator

The Trend indicator is a custom technical indicator which plots two oscillating lines on a separate window. One line is blue and the other is red. Trend direction is indicated based on how these two lines overlap. The trend bias is bullish whenever the blue line is above the red line and bearish whenever the blue line is below the red line.

This indicator can also be used to identify potential trend reversals. Crossovers between the two lines indicate a possible trend reversal. Expanding gaps between the two lines indicate that the trend is gathering momentum.

Trading Strategy

This trading strategy is a combination of a trend reversal strategy based on crossovers and a momentum strategy based on breakouts from market contraction phases.

First, the middle moving average line of the Bollinger Bands should cross the TMA line. This indicates a trend reversal. This should also be confirmed by the Trend indicator lines crossing over.

Then, a momentum candle should break outside of the Bollinger Bands in the direction of the new trend. This would confirm the trend and momentum trade setup.

Indicators:

  • TMA
    • Periods: 36
    • Apply To: 6
  • Bollinger Bands
  • Trend
    • Bands Period: 45
    • Power Period: 37

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

Currency Pairs: FX majors, minors and crosses

Trading Sessions: Tokyo, London and New York sessions

Buy Trade Setup

Entry

  • The middle line of the Bollinger Bands should cross above the TMA line.
  • The blue line of the Trend indicator should cross above the red line.
  • A bullish momentum candle should close above the upper Bollinger Band line.
  • Enter a buy order on the confirmation of these conditions.

Stop Loss

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

Exit

  • Close the trade as soon as the middle line of the Bollinger Band crosses below the TMA line.
  • Close the trade as soon as the blue line of the Trend indicator crosses below the red line.

Bollinger Bands TMA Trend Forex Trading Strategy

Bollinger Bands TMA Trend Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The middle line of the Bollinger Bands should cross below the TMA line.
  • The blue line of the Trend indicator should cross below the red line.
  • A bearish momentum candle should close below the lower Bollinger Band line.
  • Enter a sell order on the confirmation of these conditions.

Stop Loss

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

Exit

  • Close the trade as soon as the middle line of the Bollinger Band crosses above the TMA line.
  • Close the trade as soon as the blue line of the Trend indicator crosses above the red line.

Bollinger Bands TMA Trend Forex Trading Strategy 3

Bollinger Bands TMA Trend Forex Trading Strategy 4

Conclusion

Momentum breakouts using Bollinger Bands is an established working trading strategy which many momentum traders use. Combining this type of trade setup with crossovers of moving averages and a confirmation based on a trend indicator helps improve the reliability of the trade setup.

However, it still boils down to the skill of the trader in identifying high probability momentum breakouts coming from market contraction phases. Traders who can effectively identify these breakouts have a good chance of producing consistent profits using this strategy.


Forex Trading Strategies Installation Instructions

Bollinger Bands TMA Trend Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.

The essence of this forex strategy is to transform the accumulated history data and trading signals.

Bollinger Bands TMA Trend Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this strategy accordingly.

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How to install Bollinger Bands TMA Trend Forex Trading Strategy?

  • Download Bollinger Bands TMA Trend Forex Trading Strategy.zip
  • *Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
  • Copy tpl file (Template) to your Metatrader Directory / templates /
  • Start or restart your Metatrader Client
  • Select Chart and Timeframe where you want to test your forex strategy
  • Right click on your trading chart and hover on “Template”
  • Move right to select Bollinger Bands TMA Trend Forex Trading Strategy
  • You will see Bollinger Bands TMA Trend Forex Trading Strategy is available on your Chart

*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.

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