Ribbon Squeeze Forex Trading Strategy

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Ribbon Squeeze Forex Trading Strategy 1

Trading the markets is a very difficult task, especially the forex market. It requires a skill in understanding of the market’s movements and a calmness of mind required to clearly see what the market is doing. However, most people look at a chart and see only chaos. All they see are bars that crisscross across the chart with no clear direction at all. But how do seasoned traders make sense of such markets?

Seasoned traders could easily understand market movements because aside from their skills, they make use of tools that could clear out the mess and clearly show them what the market is doing. These tools or technical indicators help us identify trend direction and even reversal points. For most traders, using technical indicators would usually improve their trading.

The Ribbon Squeeze Forex Trading Strategy is a strategy that shows traders the trend direction and entry points using indicators that complement each other.

Moving Averages

Moving Averages are the most basis trading indicators available to traders. It is a line representing a simple average of the close of price for a certain period of time plotted together with price action. This could mean many things to different traders.

Mean reversion traders see this as the median where price should return to. In a way this is true. Price would always go back to its mean. I remember a senior trader saying, “What comes up, would always come down,” pertaining to how price would always go back to the mean after a rally.

On the other hand, trend following traders see moving averages as an indicator that shows the direction of price. Trend following traders determine the trend in various ways. The most basic is to identify the location of price in relation to a moving average. Other traders use a stack of moving averages and base the trend on the location of a short-term moving average in relation to a long-term moving average. Other traders use a crossover of the moving averages as an indication of the trend reversing.

Bollinger Squeeze with MACD Indicator

The Bollinger Squeeze with MACD indicator is a custom oscillating indicator which indicates trend direction based on momentum. It does this using a confluence of the Bollinger Bands indicator and the Moving Average Convergence and Divergence (MACD).

This indicator provides trading signals by plotting histogram bars on a separate window. The histogram bars change color whenever the indicator detects a shift in trend direction. It prints lime bars whenever it detects a bullish trend, red bars for bearish trends, and blue bars for inconclusive weak trends.

Trading Strategy

This strategy is a basic crossover strategy using custom moving average indicators. The longer-term moving average is a Simple Moving Average (SMA), which is shifted by two periods. The shorter-term moving averages is a modified moving average which makes use of two moving average lines. The first line is at 21-periods and the short-term moving average is at 18-periods. Trade signals are generated based on the crossing over of these moving average lines.

The trade setups are then confirmed with the trend direction of the Bollinger Squeeze with MACD indicator. Bullish crossovers should be accompanied by bullish histograms and bearish crossovers should be accompanied by bearish histograms.

Indicators:

  • MA ribbon filled.89.21
    • MA1 Period: 18
  • Simple Moving Average (green)
    • Period: 28
    • Shift: 2
  • my_squeeze_Light

Timeframe: 1-hour, 4-hour and daily charts

Currency Pairs: major and minor pairs

Trading Session: Tokyo, London and New York

Buy Trade Setup

Entry

  • The Bollinger Squeeze with MACD indicator should be printing lime histogram bars indicating a strong bullish trend bias
  • The MA ribbon filled.89.21 indicator should cross above the 28-period SMA indicating a bullish trend reversal
  • The above conditions should be somewhat aligned
  • Enter a buy order at the confluence of the above conditions

Stop Loss

  • Set the stop loss at the support level below the entry candle

Exit

  • Close the trade as soon as a candle closes below the 28 SMA line
  • Close the trade as soon as a histogram closes below zero

Ribbon Squeeze Forex Trading Strategy 1

Ribbon Squeeze Forex Trading Strategy 2

Sell Trade Setup

Entry

  • The Bollinger Squeeze with MACD indicator should be printing red histogram bars indicating a strong bearish trend bias
  • The MA ribbon filled.89.21 indicator should cross below the 28-period SMA indicating a bearish trend reversal
  • The above conditions should be somewhat aligned
  • Enter a sell order at the confluence of the above conditions

Stop Loss

  • Set the stop loss at the resistance level above the entry candle

Exit

  • Close the trade as soon as a candle closes above the 28 SMA line
  • Close the trade as soon as a histogram closes above zero

Ribbon Squeeze Forex Trading Strategy 3

Ribbon Squeeze Forex Trading Strategy 4

Conclusion

This crossover strategy is a simple crossover that makes use of mid-term moving averages in order to capture decent trends. Trading this crossover setup in conjunction with the Bollinger Squeeze with MACD indicator allows to have a more defined trend bias since this oscillating indicator also measures the strength of a trend based on momentum.

To trade this strategy more efficiently, use a sound money management system. This would allow you to survive the drawdown periods which is inherent in most crossover strategies and allow you to catch those big trending moves at the right time. It is also important that you develop good trade management skills to allow you to anticipate when to move stop losses to breakeven and trail stop losses in order to protect profits.

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