Forex Strategy Using Volatility
The Forex strategy using volatility is designed to take advantage of increased price volatility in any trend direction with the use of Bollinger Bands.
What we have in our hands is a volatility based forex strategy that is formulated to spot market sessions in which price is experiencing a surge in volatility.
We can subsequently take buy/sell trade positions when we further receive double confirmation from other technical indicators in use.
The entire idea around volatility trading comes alive with the use of a Bollinger Bands based technical indicator that allows us gauge price penetration.
The strategy offers us a unique way of staying out of the market during price consolidation or reduced volatility.
Asides the forex market, our strategy is also applicable on CFDs, Stocks and Cryptocurrencies.
MetaTrader 4 Indicators: Trend_Signal.ex4 (Inputs Variable Modified; Length=12, Risk=6), MACD.ex4 (Parameters Modified; Fast EMA=17, Slow EMA=31, MACD SMA=14), cBB.ex4 (Inputs Variable Modified; Bands_period=36)
Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, 1-Day, 1-Week, 1-Month
Recommended Trading Sessions: Any
Currency Pairs: Any pair
Buy Trade Example: AUD/USD (Australian Dollar / US Dollar), M30 Chart
Long Entry Rules
Initiate a buy entry if the following indicator or chart pattern gets put on display:
- If the green upward pointing arrow of the Trend_Signal custom indicator aligns somewhat below the price bars as seen on Fig. 1.0, price is said to be driven to the upside i.e. a trigger to buy the designated currency pair.
- If the silver histograms of the MACD Metatrader 4 forex indicator aligns above the 0.00 horizontal level as shown on Fig. 1.0, bulls are said to be driving sentiments, thus a buy alert is said to be looming.
- If the red line of the cBB custom indicator breaksand runs above the 50.00 horizontal level as illustrated on Fig. 1.0, price is said to be pressured higher, as such a signal to go long on the selected currency pair.
Stop Loss for Buy Entry: Place stop loss below previous swing low support.
Exit Strategy/Take Profit for Buy Entry
Exit or take profit if the following rules or conditions takes precedence:
- If while a bullish trend is running, the Trend_Signal indicator pops up a red downward pointing arrow as depicted on Fig. 1.0, bulls power is said to be diminishing, seemingly, an exit or take profit stance is recommended.
- If the silver histogramsof the MACD forex indicator readjust below the 0.00 signal level, it is pointing to a likely bearish reversal, as such a trigger to exit or take profit forthwith.
- If the red line of the cBB indicator dips below the 50.00 horizontal level during the course of a bullish trend (see Fig. 1.0), it is a signal to exit or take profit at once.
Sell Entry Rules
Enter a sell order if the following holds true:
- If the red downward pointing arrow of the Trend_Signal custom indicator aligns fairly above the price bars as exemplified on Fig. 1.1, price is said to be dragged lower i.e. a trigger to sell the forex pair of interest.
- If the silver histograms of the MACD forex indicator align below the 0.00 horizontal level (refer to Fig. 1.1), more and more bears are said to be entering the market, thus a sell alert is said to be on the horizon.
- If the red line of the cBB custom indicator breaksand runs below the 50.00 horizontal level as demonstrated on Fig. 1.1, price is said to be dragged lower, therefore a sell signal is said to be imminent.
Stop Loss for Sell Entry: Place stop loss above previous swing high resistance.
Exit Strategy/Take Profit for Sell Entry
Exit or take profit if the following takes center stage:
- If while a bearish trend is ongoing, the Trend_Signal indicator pops up a green upward pointing arrow (checkout Fig. 1.1), bears power is said to be weaning, on the face of it, an exit or take profit stance is advised.
- If the silver histogramsof the MACD forex indicator realign above the 0.00 signal level, bears are said to be leaving the market increasingly, as such a trigger to exit or take profit straightaway.
- If the red line of the cBB indicator surges above the 50.00 horizontal level while a bearish trend is on course, it is a signal to exit or take profit immediately.
Sell Trade Example: AUD/USD (Australian Dollar / US Dollar), M30 Chart
About The Forex Technical Indicators Used
The Trend_Signal forex indicator is a superb technical indicator that offers traders information pertaining to trend at a very quick glance.
It is also known to provide an uncluttered market view regarding price action.
The Moving average convergence divergence (MACD) is a trend-following momentum indicator that reveals the connection between two moving averages of price.
The cBB custom indicator comes from the Bollinger Bands and is deployed in checking price penetration in the upper/lower bands of Bollinger Bands.
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