BOLLINGER BANDS STRATEGY SIMULATIONS: EUR/USD Trade Example 1
Based on actual trading data from July 16, 2014. Using the DBBs strategy on a major currency pair, we monitor multiple time frames to select a pin point entry. The DBB signals, strength of the trend, and position of support and resistance are considered before entering at a time of day that is appropriate to this pair. The trade runs into difficulty very quickly, so the concepts of what constitutes a bad sign for a trade, and ways in which a trade can be managed according to changing circumstances, are considered.
EUR/USD Trade Example 1
Subjects Covered:
- Bollinger Band Momentum
- Signal Candles
- Position of Support/Resistance
Signal 1
DBBs applied to the daily chart shows a change of status, with a first candle closing in the sell zone. This is a signal to look and see whether there are any other indications also supporting opening a long trade. The BBs are flat, and we are close to a previously supportive area. Therefore it is best to wait and watch for the time being.
Trade Decision
After 3 more days, the price has not moved back into the neutral zone. The latest daily candle has closed bearishly after a failed attempt to move back into the neutral zone. The BBs are now pointing down, and we have already tested, and exceeded, the supportive area. The price has been falling quite strongly for the past 3 weeks. We decide to go short with a small position if the low of this daily candle is broken tomorrow, and to add a larger position if last week's low is broken. We will place the stop loss just above today's high. It is a relatively small daily candle, which will improve our reward to risk ratio if the trade is a winner.
Trade Entry
Today the price fell sharply, triggering both of our entries. An advantage of the DBBs trading strategy is that you wait for the price to pull back into the neutral zone for a few days before exiting, so you have an automatic signal. We will wait for such a pull back to happen before exiting.
