On this tutorial, I am going to show you a nice setup using 2 indicators, Bollinger Bands (BB) and CCI. BB is a simple and nice indicator that can show us current trend but also can be used to spot a retracement or reversal. CCI is an oscillator indicator such as Stochastic that will be helpful if it shows divergence. I did not recommend to trade using CCI overbought and oversold state because price can go further even the CCI is at overbought or oversold area.
Indicators and settings:
- Bollinger Bands (20 periods & 2 standard deviation)
- CCI (14 periods)
Basic technique:
Take action when price break upper or lower BB and CCI shows divergence. Do not enter if both conditions do not meet. See my example below on pair EURJPY M15. Make sure that price has made at least 2 significant swing highs or lows.
Enter Sell when:
There are at least 2 significant highs that breaks upper BB no matter if they are closed above or below BB upper.
On the example above, 1 and 2 create higher highs but the CCI does not show divergence. So we do not trade here because it does not meet our criteria. But then between 2 and 3 price makes new higher high but CCI shows lower high. On the next candle we can go short and the target is lower Bollinger Bands or simply put take profit as you want.
3 and 4 price makes higher high but the CCI also confirm it by creating higher high as well. But, if we compared 2 and 4, the CCI still shows divergence so we can go short here. We called this condition as 2nd divergence.
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