Indicators are great helping tools for retail traders. The rookies love to use the indicators as it simplifies the trading method. Though some of the professional price action traders in the United Kingdom suggest not using indicators, they are a great help if used properly.
They recommended not using the indicators since rookies become obsessed with them. They use too many indicators with the hope that they will win more trades. But today we will give you a unique strategy based on a single indicator. With the help of this trading method, you can trade any time frame and manage to win more than 70 % of the time.
The strategy which we are talking about is nothing but the Bollinger band trading method. The Bollinger band indicator is a special kind of indicator created based on the moving average. The traders use the upper and the lower band to take the trades. The mid-band has multiple uses so we will discuss the mid-band once you learn how to place the trade.
Identification of the trend
Identification of the trend is the most important part of the Bollinger band trading method. You can’t trade the upper and lower band in the trend market. Find the trend using the 200 EMA. If the price is trading above the 200 EMA, the trend is bullish. If the price trades below the 200 EMA, the market is in a downtrend. The recommended time frame to use the 200 EMA is the daily and weekly chart.
Execution of the long trade
The long trades are the options for retail traders when the obvious trend is bullish. Use this link to find a good trading platform since you will be needing a premium price feed while using this method. A few seconds delay in the price feed will change the trade setup and force you to make a mistake.
Now let’s come to the execution process of the long trade. If the trade hits the lower band, you have to wait for the price to close above the lower band. The candlestick closing above the Bollinger band support level is in the indication of bullish rejection and you can take the long trade. On the other hand, if the candle closes below the Bollinger band, you should see it as a weakness in the uptrend.
Execution of the short trade
Short trades are triggered when the price rejects the upper band. But the closing of the candle must be below the upper band level. When the trades are triggered you have to place the stop loss 5 pips above the wick of the candlestick. But the stop must be above the Bollinger band résistance level. The take profit level for the trade will be set to the mid-band. But if you use the Bollinger band in the daily chart, you can set the take profit to lower band.
The risk management factor is the most important part of this trading method. Those who are taking the trades with high risk can’t make any profit with this trading method. No matter how well you are at trading you will lose some trades very often.
But if you risk only 1% of the account balance, covering the loss will not be a tough task. Think about the long term goals and try to ride the trade. If possible, use the trailing stops as it can significantly boost up the profit. But never become a greedy trader when looking at the success rate of this trading method.
Your trading strategy allows you to find good trades. But you must manage those trades. Getting excited and increasing the risk in each trade is going to place you in a very odd situation. So, think about the risk exposure while taking the trades.