Tops and Bottoms on Bollinger Bands Strategy

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Forex trading strategy #16 (Picking tops and bottoms on Bollinger Bands)

Submitted by Lino

Picking tops and bottoms on Bollinger Bands

By using multiple time frames and candle stick formation we will uncover how to pick tops and bottoms while trading in the trend of the bigger time frame.

We begin by looking at the daily chart to ascertain what direction we looking to trade by using the common Bollinger Band indicators middle line. A pair trading above the 20SMA is in short term up trend. A pair trading below the 20SMA is in a short term down trend.

Once we find our direction we move to the smaller time, 4hour and 1hour, there we look for weakness in a uptrend (touch of bottom bands) and strength in a down trend (top of bands).

Picking Tops and Bottoms on Bollinger Bands© For Binary Options Trading

Full Review of the Picking Tops and Bottoms on Bollinger Bands© Strategy for Binary Options

We are constantly looking for the best trading strategy, the best way of getting a sense of direction and the best entry point. When a trader finally settles on a trading system and is happy with the results, the trading journey is almost over and everything becomes routine: wait for a good setup – trade according to it and according to the money management rules – make money – repeat – buy Malibu house, cars, a boat, another car and last but not least, donate to charity. Cool, but most of us are not there yet and we are still looking for a way to improve so today I’m going to explain another strategy, originally found here: http://forex-strategies-revealed.com/basic/tops-and-bottoms-on-bollinger-bands.

How to pick Tops and Bottoms on Bollinger Bands©

This strategy uses Bollinger Bands, just like the name implies, but I think its true strength comes from the use of multiple time frames. First we need to apply Bollinger Bands to a daily chart and then do the same thing on a H4 or hourly chart. Here are two charts with Bollinger Bands on both of them:

I know what you’re thinking: “Wow, this dude really can’t draw”. And you are right; I really can’t, but my drawing skills are really not that important. Instead, what matters is the fact that my crappy drawing shows a period when price was below the middle line of the Bollinger tool. The strategy uses the default 20 setting for the Bollinger and according to it, when price is under the middle line, the market is in a downtrend and when price is above it, we are trading in an uptrend. This is the way the strategy identifies the trend with the use of the Bollinger Bands and it is pretty reliable. It is not fail proof, but then again, nothing is.

Ok, now that we identified trend on a higher time frame, we will move down to a smaller time frame (H4 or Hourly according to the strategy) and we must find “weakness in an uptrend” and “strength in a down trend”. On the comments section of the site where the strategy is posted there are some guys who don’t really understand what that means so I will try to explain it: a down trend is characterized by weakness of the underlying asset, but price doesn’t travel in a straight line and even if the overall direction is down, price will have moments of strength before dropping lower. The opposite thing happens in an uptrend: there is overall strength but also moments of weakness, when price moves lower. This is the well known “retracement”.

So for our next step, we must identify strength in the down trend (remember that on the Daily chart from our picture we identified a down trend). This strength is represented by a touch of the upper Bollinger band (point “1” on the chart) so when we see price reaching the top band, we place a Put. That’s about it; now we wait calmly for the expiry time and think about the Malibu house…but in the mean time, let’s recap the entry rules:

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Call Entry:

Price on the Daily chart must be above the middle Bollinger line

Price on the H4 chart must touch the lower Bollinger Band

Put Entry:

Price on the Daily chart must be below the middle Bollinger line

Price on the H4 chart must touch the upper Bollinger Band

Why does the Strategy Suck?

If you can see the bigger picture, and understand the principle, this strategy doesn’t Suck at all. But for the people who have problems understanding “weakness in an uptrend” and “strength in a down trend” (in other words, the principle of identifying a trend and then trading the retracement), this strategy will suck big time.

Why the Strategy Doesn’t Suck?

Any trade taken in the direction of the overall trend has a higher probability of being successful. The strategy makes you trade only in the direction of the main trend and if the trader manages to keep disciplined and follow the simple rules, this one can be a money maker.

Wrapping it up:

Multiple time frame analysis has always been one of my favorite ways of trading and I’m sticking to it, so my personal opinion is that you can pick tops and bottoms with this strategy, but it needs testing and definitely adapting to each trader’s personality and style. Extra filters could be a great addition, but be careful not to overcomplicate things.

Find out more about Picking Tops and Bottoms on Bollinger Bands© For Binary Options Trading

Tops and Bottoms on Bollinger Bands Strategy

Traders are always looking for the most ideal strategy – one that can help them earn more with lesser effort exerted and one that help get them the best entry points and directions. Well, it is hard to find such strategy since everything requires some amount of effort to get the greatest rewards. Some traders may find what they want and do the same thing all over again to gain more but the truth is there are actually better and easier strategies. This strategy is known as Tops and Bottoms on Bollinger Bands.

HOW TO USE IT?

Tops and bottoms is the actual strategy and it uses Bollinger Bands just as the name says it. However, the true strength of this strategy comes from using multiple time frames. The first things you need to do are the application of Bollinger Bands to your daily charts and then do it all over again on an hourly chart or H4.

In Bollinger Bands, you drawing skills are not that important. What matters is that your drawing can show a single period when prices are just below the center line of the tool. This strategy makes use of 20 as its default setting for Bollinger. According to the strategy, once prices are below the center line, the market is in a downward trend and once prices are above, you are trading in an upward trend. This is how the strategy recognized trend using Bollinger Bands and this is actually dependable.

When you already have the trend on a time frame that is higher, you can now move down to a time frame that is smaller. This can be hourly as per the strategy. You also need to look for the weakness in an upward trend and the strength in a downward trend. There may be many users of this strategy who do not fully understand it but it can be quite easy to grasp. A downward trend comes with weakness of assets but prices do not progress in a straight line. Even when the total direction is going down, prices will still have strong moment before it drops lower. The exact opposite happens in an upward trend. There is total strength however, there are also times when trend is weak and prices move lower. This is popularly known as a retracement.

The next step is to know strength in a downward trend. Put in mind that in a daily chart you may have identified the down trend. This market strength is symbolized by the upper Bollinger Band’s touch. Thus, when you see the price heading to the topmost band, you can then place the Put.

WHY IS THIS STRATEGY BAD?

If you can fully understand the idea of the Bollinger Band strategy, you will realize that it does not actually suck. However, for those who are having a headache understanding its aspects, just put in mind that weakness is an upward trend and strength is the exact opposite. If you do not understand this strategy then it will surely suck.

WHY IS THIS STRATEGY GOOD?

Any trade that comes from the direction of the total trend has a bigger possibility of success. This can make you trade on at the main trend’s direction and if you manage to be disciplined enough at following the simple steps then you can really earn lots of money from it.

FINALE

If you are a fan of Multiple time frame analysis then you can surely use this strategy. You can stick to it if you understand it. With this strategy, you can pick tops and bottoms but you have to test it first. You can even use extra filters but be careful not to exaggerate your decisions.

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