Many friends who have just started or about to start trading using Technical Analysis, look for setups which are likely to be safest and simple. One such setup uses Bollinger Bands(BB) alone.
BB alone can generate signals using either of the two criteria:
Condition1. If the last candlestick has a long upper/lower wick, and the wick goes outside the BB while the body lies inside.
Condition2. If previous trading bar goes outside the BB while today's bar lies inside.
If theese signals are tallied with support/resistance levels it is easy to achieve a good success rate.
The conditions can be tuned with trailing stop loss and stop loss for exit.
Please Note while using auto generated signals from software. Quite sometimes the OHLC values are skewed by freak (anomalous) trades/ bad prints.
The said strategy can be used to enter/exit in a trend at the earliest, eg. RSI(14) and MACD(9) are plotted on the chart above.
The default parameters (20,2,Simple) work good. However the s.d can be adjusted between 1.8-2
2 comments:
Sir,
It would be of much help, if you can provide formula for BB and explain it with example. I shall ever remain greatful to you.
Thanks
gipsy
First let’s talk about the underlying premise. The move which the given setup aims to catch is the over reaction of buyers (sellers). Such over reaction often signals the last leg of a move, or at least a healthy retracement.
Pitfall: Over reaction can be confused with momentum which rather supports the trend.
To avoid the pitfall look for volume peaks. Big volume is required to reverse the trend.
Currently I am trading only U.S. equity markets. So the eg. http://stockcharts.com/h-sc/ui
IDCC can be currently bought @18.77 with a stoploss of 18.37, and first target of 19.58.
Did you try tape reading? I do not suggest trading on tape from right away, but try relevant readings. It is extremely helpful in short term trading.
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