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Swing Trading With The Help of Bollinger Band and ADX (Tue, May 7 2013)
Swing Trading With The Help of Bollinger Band and ADX (Tue, May 7 2013)
http://www.fxstreet.com/education/fundamental/swing-trading-help-of-bollinger-band-adx/2013/05/07/
1/24/16, 6:18 AM
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http://www.fxstreet.com/education/fundamental/swing-trading-help-of-bollinger-band-adx/2013/05/07/
1/24/16, 6:18 AM
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Four Hour Chart: Above mentioned four hourly chart of EURUSD describes how
to trade with the help of Bollinger band and ADX. As we can see, the quote
crossed the upper band of Bollinger closing above 1.3265, indicating overbought
scenario and expectation of profit booking. At the lower panel, a dip below 40
level in ADX also signaled change in the prevailing buying. The trend reversal
was supported with the descending trend line on ADX. The quote tested the
lower band of Bollinger near 1.3030 indicating a probable turn around in prices.
Hence, an investor should book full profits at 1.3030.
Hourly Chart: Above mentioned hourly chart of EURUSD gives another example
of how to trade with the help of ADX and Bollinger band. The quotes traded
below the lower band of Bollinger and ADX was also trending downwards
indicating a probable trend reversal from the existing liquidation. Hence, by
buying at the lower band of Bollinger and drawing a trend line, we should hold
http://www.fxstreet.com/education/fundamental/swing-trading-help-of-bollinger-band-adx/2013/05/07/
1/24/16, 6:18 AM
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our position until the quote tests upper band of Bollinger. As per above
mentioned strategy, by buying near 1.3390 and liquidating positions near 1.3430,
we can make profits of 40 bps. Example 2: If the prices give breakout from the
lower area of Bollinger (or upper area) with ADX ranging upwards from below 20
level, it is expected that prices will trade higher (lower) until the prices gave
close above upper band of Bollinger (or below lower band of Bollinger) or the
downtick in the ADX, whichever comes first.
Four Hour Chart: Looking from above mentioned four hourly chart of EURUSD, it
can be observed that sudden spurt in EURUSD quote breaking the normal range
and forcing the quote to trade above 1.2730 level was well supported by
ascending ADX above 20 level. One wouldargue that the quote have touched
upper band of Bollinger many a time which should indicateselling, But it should
be bear in mind that none of the time it has given a closing above Upper
Bollinger Band, merely trading near the upper band would not indicate an
overbought market.
http://www.fxstreet.com/education/fundamental/swing-trading-help-of-bollinger-band-adx/2013/05/07/
1/24/16, 6:18 AM
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Hourly Chart: Above mentioned hourly chart of EURUSD gives another example
of how to trade with the help of ADX and Bollinger band. As the prices were
trading in range and sudden spurt of selling initiated, one should look for the
ADX which is reversing from 20 level indicating the selling pressure has a
strength and would continue. Taking sell position at that level one should have
the target of a close below lower Bollinger band. In this example, 60 bps (the
difference between 1.3030 and 1.2970) were the gains generated with the help
of this strategy.
Rating: 3 out of 5 stars
Feedback: The strategy seems important from the swing traders point of view
but the point of limitation is stop loss orders. The strategy is mute regarding the
point of exit from the existing position in case of adverse price movement.
Hence, in order to take due care, it is always expected to use certain other
indicators which provide stop loss point in case of adverse price movement.
http://www.fxstreet.com/education/fundamental/swing-trading-help-of-bollinger-band-adx/2013/05/07/
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