Bollinger Bands and Stochastic Trading Strategy Using Bollinger Bands with Stochastics as a swing trading strategy is a smart play considering how powerful these two trading indicators can be. With Bollinger Bands, we are able to judge the volatility of the market and know when the instrument is too far extended or when the market is in consolidation. Swing Trading with Bollinger Bands – Buy/Sell Signal Examples. Buy Signal Example. Swing Trading With Bollinger Bands – Buy Signal Example. The above chart shows a buy signal where prices formed higher highs and lows identified by the Bollinger Band and the strong upward slope of the bands.
When price is hugging the upper band, the market is extremely strong but that type of move will come to an end. Often times strong markets end strongly as well. If price is hugging the lower band, this is extreme weakness and attempting to buy a market like this can lead to consistent losing trades.
Do not enter using market orders. It is preferable to use sell stop or buy stop orders based on reversal candlestick patterns you see. Even though the strategy may give you a sell signal with the trading indicators, is price action showing you any confirmation at all? For example, if you are looking for a buy setup due to the indicators, is price action showing strength or signs of reversing from shorts? You must understand some basic level price action trading.
This free trading resource can help you with candlestick reversals! Bollinger Bands and Stochastic Trading Strategy Using Bollinger Bands with Stochastics as a swing trading strategy is a smart play considering how powerful these two trading indicators can be. The stochastic indicator is used as a filter for the trades so we are adding some confirmation to the potential trading setup Keep in mind that with any trading strategy the key is money management.
Here are some more important details: It is also not instrument dependant What is the suitable time frame for this trading system? If you cannot see this chart clearly, click to enlarge Trading Rules To Buy: What you need to look for a bullish reversal candlesticks like, hammer, inside bar or bullish harami formation. Once you see a suitable bullish reversal candlestick pattern, play a pending buy stop order pips above the high of that bullish reversal candlestick pattern.
Place your stop loss in relation to some type of price structure or using the Average True Range indicator to set you stop For take profit target options , here are couple of options you can use: Use Price Action For All Trading Signals Even though the strategy may give you a sell signal with the trading indicators, is price action showing you any confirmation at all?
By the way, you may also be interested in reading these: Forex trading strategies that work Best trading trading strategy for capturing insane amounts of pips. So I was talking in a previous post about how Bollinger Bands have always intrigued me, and prices seem to very often bounce back and forth between the two bands. Of course this is obvious in hindsight, but there must be some system that could capture many of these trades. The system I initially developed using ProRealTime showed profitability in backtesting, but with at least one major flaw: Do your own backtesting.
Do your own forward-testing. This is not financial advice, just a fun little amusement. If one can call little snippets of computer code an amusement. You buy at the open of the following day. You sell when it hits the upper Bollinger band, and then stops piercing it with the highs. Here are the details, the parameters of which have been thoroughly tested using AmiBroker. Get a chart that shows moving averages with periods of 40 and days. The day curve should be above the day curve. Your stock should have four consecutive days with lows that are lower than the low Bollinger band.
I did test to see if the system worked better with the trigger bar being a big percentage, or if volume needed to be very much higher than the average, but the best results were as stated above. Wait for your riches to roll in! Wait patiently until the price moves upward.
Therefore, you could tweak your system to a degree, but not in the way we can continually tweak and refine our trading approach today.
Adding in the Stochastic Oscillator, we are able to have an objective view if a market is overbought or oversold.