To many, the forex market is full of uncertainty. Price moves erratically across the chart. It may be going up this moment and suddenly reverse the next. Price may be very stagnant for a time, then volatility would suddenly explode the next minute. To some extent, the forex market being uncertain is true. No one really knows where price would move next.
Although the forex market is uncertain, seasoned traders have learned to take an educated guess where price would be moving next. They have seen the market move so many times they could already see patterns recur again and again. They could guess with a relatively high degree of certainty that price would be doing what they think it would do. They know that certain patterns, indications and confluences have a relatively higher chance of showing the direction of price movements correctly. This is what gives them an edge.
One of these recurring patterns and market conditions that seem to work well is momentum. Although it is not perfect, most often than not, whenever a strong momentum takes shape, price would move in the direction of momentum.
Momentum works because market participants tend to think with the crowd. Whenever they see price moving in one direction, the crowd would follow, pushing price further along. This is the nature of how many traders think. This is the reason why market sentiments move the market. Traders who are adept to this could make money from the forex market by trading these market conditions.
Bull Bear Bollinger Forex Trading Strategy is one of such strategy that focuses on identifying momentum and trades according to its direction.
Super Bollinger Band
The Super Bollinger Band indicator is a modified Bollinger Band indicator.
Bollinger Bands are one of the most unique indicators as they could provide so much information using just one indicator. It indicates trend direction, volatility, momentum, as well as overbought and oversold market conditions.
Bollinger Bands are composed of three lines. The middle line is a Simple Moving Average (SMA). The outer bands are standard deviations derived from the SMA line shifted above and below the SMA line.
To identify trend direction, traders would simply look at the slope of the middle line and the location of price in relation to it, just as they would interpret a standard SMA line.
Volatility could be identified based on the contraction and expansion of the bands. During a low volatility market condition, the bands tend to contract. However, as volatility expands, the outer bands also tend to expand.
Mean Reversal traders interpret the outer bands as a marker for overbought and oversold market conditions. They are often on the lookout for bounces off the outer bands.
Momentum traders however interpret a close beyond the outer bands as a sign of strong momentum.
SEFC Bull-Bear
SEFC Bull-Bear is a momentum indicator which helps traders identify trend direction.
This indicator identifies market sentiments such as the strength of the bulls and the bears based on historical price movements.
The indicator is a binary type of indicator printing only +0.0001 and -0.0001 bars. Positive bars indicate a bullish trend while negative bars indicate a bearish trend.
Due to its nature, this indicator is best used as a trend direction filter to help traders weed out trades that are not moving in the direction of the trend.
Trading Strategy
This trading strategy trades on momentum signals based on the Bollinger Bands indicator that are in confluence with the market sentiment direction based on the SEFC Bull-Bear indicator.
Trades are filtered based on the trend direction indicated by the SEFC Bull-Bear indicator.
Trade signals are generated whenever price closes beyond the outer bands of the Bollinger Bands indicating a strong momentum. However, not all closes beyond the Bollinger Bands indicate momentum. Only trade signals that are in confluence with a momentum candle would be considered as a valid trade entry.
Indicators:
- superbollinger band mt4(default setting)
- SEFC084 (default setting)
Preferred Time Frames: 1-hour and 4-hour charts
Currency Pairs: major and minor pairs
Trading Sessions: Tokyo, London and New York sessions
Buy Trade Setup
Entry
- The SEFC Bull-Bear indicator should print positive bars.
- Price should close above the upper outer line of the Bollinger Bands.
- The corresponding candle should be a bullish momentum candle.
- Enter a buy order on the confirmation of the conditions above.
Stop Loss
- Set the stop loss a few pips below the middle line of the Bollinger Bands.
Exit
- Close the trade as soon as the SEFC Bull-Bear indicator prints a negative bar.
Sell Trade Setup
Entry
- The SEFC Bull-Bear indicator should print negative bars.
- Price should close below the lower outer line of the Bollinger Bands.
- The corresponding candle should be a bearish momentum candle.
- Enter a sell order on the confirmation of the conditions above.
Stop Loss
- Set the stop loss a few pips above the middle line of the Bollinger Bands.
Exit
- Close the trade as soon as the SEFC Bull-Bear indicator prints a positive bar.
Conclusion
Momentum trading is one of the best ways to trade the market and using Bollinger Bands as a gauge for momentum is one of the generally accepted ways to trade it.
This strategy works well if combined with candlestick patterns. Traders should be on the look out for candlestick patterns occurring prior to the entry signal. This would give them a hint on the impending momentum breakout that could occur next.
Traders who could pick the right trade entries based on price action and time their exits correctly are the ones who could make money using this strategy profitably.
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