Toptahlil Bounce Forex Swing Forex Trading Strategy
There are many ways to approach or attack the market, different types of trading strategies and different ways of implementing such strategies. Some traders do breakouts of supports and resistances, others prefer to trade bounces off trendlines, others trade trend following strategies, others trade mean reversals. Whatever approach you take, as long as you’ve mastered your craft, you could use it to make money off the market. With this strategy however, we will be looking into taking trades based on bounces off of a dynamic support and resistance using a variation of the Bollinger Band.
Bands and Channel Based Indicators
Bollinger Bands are probably one of the most popular indicators that makes use of channels or bands although there are also other different band-based indicators. They may differ with the way the bands are computed and plotted, but they do work given the right parameters.
Band based indicators are great because for many reasons, but what I find most interesting is that because of the outer bands that these indicators have, they tend to have dynamic supports and resistances that move along with the average price. These outer bands could be used in different ways but the most basic way of using the outer bands is as an area where we could consider price to be overextended and could therefore reverse to the mean or totally reverse the trend.
Trading Strategy Concept
Many traders are familiar with the Bollinger Bands and how to use it. With this strategy however, we will be making use of a variation of the Bollinger Band, the toptahlil_bollinger_and_atr_band custom indicator. This indicator has the regular Bollinger Band, but it also has a second set of outer bands, which is based on the Average True Range (ATR). This gives this indicator two outer band sets which we could use as an area of dynamic support or resistance.
We will be trading bounces off this area whenever we spot a decent candlestick with wicks signifying a rejection of these areas. We will only be taking trades with long wicks because these candles signify a quick shift of market sentiment, a shift that takes place in just one period or candle.
However, we will not be taking the trade immediately whenever a pin bar candle appears. We will be waiting for price to crossover the average price. The toptahlil_bollinger_and_atr_band doesn’t have a midline. For this reason, we will be using a different indicator as a basis for our average price, the TMA custom indicator. This indicator is a type of moving average which could be characterized as a smooth moving indicator.
Although we are taking notice of a possible trade whenever price bounces off the outer bands of the toptahlil_bollinger_and_atr_band, if we take the trade too early, we could still be trading against the trend. Instead of trading right away as soon as price bounces off the outer bands, we will be taking the trade when the change of trend is confirmed by waiting for price to cross and close beyond the TMA custom indicator.
- toptahlil_bollinger_and_atr_band: default parameters
- TMA: default parameters
Timeframe: 1-hour or 4-hour chart
Currency Pair: any
Buy (Long) Trade Setup Rules
- Price should be bouncing off the area of the lower toptahlil_bollinger_and_atr_bands
- There should be a bullish pin bar candle or a candlestick with long wicks at the bottom, signifying price rejection
- Wait for price to cross and close above the TMA custom indicator
- Enter a buy market order at the close of the candle
- Set the stop loss below the entry candle
- Set the take profit target price at 2x the risk on the stop loss
Sell (Short) Trade Setup Rules
- Price should be bouncing off the area of the upper toptahlil_bollinger_and_atr_bands
- There should be a bearish pin bar candle or a candlestick with long wicks at the top, signifying price rejection
- Wait for price to cross and close below the TMA custom indicator
- Enter a sell market order at the close of the candle
- Set the stop loss above the entry candle
- Set the take profit target price at 2x the risk on the stop loss
Strategies that take bounces off the outer bands of a regular Bollinger Bands is a common strategy and many traders have been profitable doing that. However, there are many cases wherein the bounce off the outer bands isn’t just strong enough to reverse the trend. This could work if you are trading a simple mean reversion strategy which aims for just the middle of the Bolling Band or the average price.
If you’d like to take trades with a bit more juice in it, you should be taking trades which actually results in the reversal of the trend. This strategy allows you to do this by having an entry after the cross of the TMA custom indicator, which is our average price.
There will be many instances wherein price could start a strong trend and if you’d let the profits run, you could be earning more than twice your risk. If you feel a bit more aggressive and opt to aim for higher returns, instead of using a fixed take profit target, you could instead make use of a for trailing stop loss, or close the trade based on signs of a reversing price action. However, this would be a more aggressive route to take as price could also reverse on you or start to form a range, instead of totally reversing the trend.
1.$SPY has been in a trading range since May 9th with $267 support and $274.25 resistance. 2.Secondary support is the 100 day sma. 3.The final level of support is the 50 day ema where we did get the bounce back on Tuesday. 4.Volume was slightly higher on down days than up days last week. 5.The MACD had a bearish crossover last week as $SPY dropped under the 50 day sma on Tuesday. 5.The average true range stayed steady last week at 2.88. 7.The $VIX dropped quickly to 13.46 last week as $SPY rallied off the 50 day sma. 8.RSI is slightly bullish here at 57.57 with room to run higher before becoming overbought. 9.$IWM remains near all time highs giving the stock market a bullish bias with the possibility of other indexes returning to all time highs. 10.$SPY stays under a bullish 10 day ema / 50 day ema crossover. I remain long here using $SSO.
How many times have you entered into a trend only to find out that it has already run its course and you were too late? Many of the Forex trading strategies that we use help us predict which way the market is trending and whether to expect a bearish or bullish trend, but give little or no indication as to the strength of the trend. Sometimes these forex trading strategies will lead us to enter a trade and that trade will turn out to yield very little income, even though it went in the direction that we anticipated. ADX, or Average Directional Index, is a tool that is designed to help us anticipate the strength of a trend to avoid these kinds of situations. In combination with other Forex trading strategies the ADX can allow us to fully understand the trend and thus only enter trades that will yield big profits. ADX trading strategy is not a standalone Forex trading strategy as it only gives an indication as to the strength of the trend. It does not give any indication as to the direction of the trend and for that reason, it must be used along with other Forex trading strategies. Understanding the Average Directional Index is very easy. It ranges on a scale from 0-100, 100 indicating a very strong trend and 0 indicating a non-existent trend. If the ADX is very close to 0, expect a sideways moving trend, meaning the market will not go up or down but rather stay around the same value with small corrections. When the ADX is low it is a good time to consider closing the trade as you don’t stand to make a profit from a sideways moving market. On the other hand, if the ADX is very high, expect a fast moving trend which means that it is probably a good time to enter a trade. Don’t forget, the ADX is only an indication of the strength of the trend and does not indicate whether the price will go up or down.Values of ADX that are considered high are above 50. Whenever there is a strong trend, the ADX will be above 50. Weak trends are indicated by values under 20 on the ADX scale. This example clearly shows how we can use the Average Directional Index to analyze the trend: As you can see, in the first part of the chart there is a very strong bearish trend and the ADX (shown on the bottom) is very high. Once the trend ends, and the market begins a sideways stage, the ADX drops below 20. In this case, using the ADX could have helped us exit the trade when it had reached the end of the trend and not waste our time and resources on currency pairs that are not going anywhere. Combining the ADX indicator with your other Forex trading strategies can give you just the edge you need to increase your profits.
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).