Toptahlil Bounce Forex Swing Forex Trading Strategy

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Toptahlil Bounce Forex Swing Forex Trading Strategy

There are many ways to approach or attack the market, different types of trading strategies and different ways of implementing such strategies. Some traders do breakouts of supports and resistances, others prefer to trade bounces off trendlines, others trade trend following strategies, others trade mean reversals. Whatever approach you take, as long as you’ve mastered your craft, you could use it to make money off the market. With this strategy however, we will be looking into taking trades based on bounces off of a dynamic support and resistance using a variation of the Bollinger Band.

Bands and Channel Based Indicators

Bollinger Bands are probably one of the most popular indicators that makes use of channels or bands although there are also other different band-based indicators. They may differ with the way the bands are computed and plotted, but they do work given the right parameters.

Band based indicators are great because for many reasons, but what I find most interesting is that because of the outer bands that these indicators have, they tend to have dynamic supports and resistances that move along with the average price. These outer bands could be used in different ways but the most basic way of using the outer bands is as an area where we could consider price to be overextended and could therefore reverse to the mean or totally reverse the trend.

Trading Strategy Concept

Many traders are familiar with the Bollinger Bands and how to use it. With this strategy however, we will be making use of a variation of the Bollinger Band, the toptahlil_bollinger_and_atr_band custom indicator. This indicator has the regular Bollinger Band, but it also has a second set of outer bands, which is based on the Average True Range (ATR). This gives this indicator two outer band sets which we could use as an area of dynamic support or resistance.

We will be trading bounces off this area whenever we spot a decent candlestick with wicks signifying a rejection of these areas. We will only be taking trades with long wicks because these candles signify a quick shift of market sentiment, a shift that takes place in just one period or candle.

However, we will not be taking the trade immediately whenever a pin bar candle appears. We will be waiting for price to crossover the average price. The toptahlil_bollinger_and_atr_band doesn’t have a midline. For this reason, we will be using a different indicator as a basis for our average price, the TMA custom indicator. This indicator is a type of moving average which could be characterized as a smooth moving indicator.

Although we are taking notice of a possible trade whenever price bounces off the outer bands of the toptahlil_bollinger_and_atr_band, if we take the trade too early, we could still be trading against the trend. Instead of trading right away as soon as price bounces off the outer bands, we will be taking the trade when the change of trend is confirmed by waiting for price to cross and close beyond the TMA custom indicator.

Indicators

  • toptahlil_bollinger_and_atr_band: default parameters
  • TMA: default parameters

Timeframe: 1-hour or 4-hour chart

Currency Pair: any

Buy (Long) Trade Setup Rules

Entry

  • Price should be bouncing off the area of the lower toptahlil_bollinger_and_atr_bands
  • There should be a bullish pin bar candle or a candlestick with long wicks at the bottom, signifying price rejection
  • Wait for price to cross and close above the TMA custom indicator
  • Enter a buy market order at the close of the candle

Stop Loss

  • Set the stop loss below the entry candle

Take Profit

  • Set the take profit target price at 2x the risk on the stop loss

Sell (Short) Trade Setup Rules

Entry

  • Price should be bouncing off the area of the upper toptahlil_bollinger_and_atr_bands
  • There should be a bearish pin bar candle or a candlestick with long wicks at the top, signifying price rejection
  • Wait for price to cross and close below the TMA custom indicator
  • Enter a sell market order at the close of the candle

Stop Loss

  • Set the stop loss above the entry candle

Take Profit

  • Set the take profit target price at 2x the risk on the stop loss

Conclusion

Strategies that take bounces off the outer bands of a regular Bollinger Bands is a common strategy and many traders have been profitable doing that. However, there are many cases wherein the bounce off the outer bands isn’t just strong enough to reverse the trend. This could work if you are trading a simple mean reversion strategy which aims for just the middle of the Bolling Band or the average price.

If you’d like to take trades with a bit more juice in it, you should be taking trades which actually results in the reversal of the trend. This strategy allows you to do this by having an entry after the cross of the TMA custom indicator, which is our average price.

There will be many instances wherein price could start a strong trend and if you’d let the profits run, you could be earning more than twice your risk. If you feel a bit more aggressive and opt to aim for higher returns, instead of using a fixed take profit target, you could instead make use of a for trailing stop loss, or close the trade based on signs of a reversing price action. However, this would be a more aggressive route to take as price could also reverse on you or start to form a range, instead of totally reversing the trend.

Happy trading!!!

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