Identify Highly Profitable Signals With The Bollinger Bands - Stochastic Strategy

OK...this has to be one of the most powerful strategies I am putting out here for you to have a look at. I know folks who charge you an arm and a leg for such a powerful strategy. Well let’s say that it’s my little gift to you for a prosperous and healthy 2009.

Enough with the long speech...let's get down to business.

This strategy basically encompasses three different indicators, which are outlined below:

- Price Pattern
- Bollinger Band
- Stochastic Oscillator

That’s it...those are the only indicators you need. You see, pro traders like simplicity and keeping it simple allows you to make an informed decision whether to enter a trade or not.

Now, compare the example above to having 100s of indicators stacked on one chart. How would you feel? Confident?

I doubt you would.

When I started trading I did the same mistake of having multiple indicators covering my chart. It was ridiculous, I could hardly see any price patterns and the only thing I could see were the dozens of different colorful lines and dots on my screen, kind of reminded me of my days in kindergarten.

Well right now, you will learn exactly when to enter and exit a trade.

STEP 1

Open up a daily chart

STEP 2

Add the following indicators on the chart.

- Bollinger band (20,2) - Stochastic Oscillator (5,3,3)

STEP 3

Look at price touching upper or lower band for the first time.

If price touches upper band, wait for following candlestick to open. If bearish enter on next candlestick opening making sure stochastic has just started heading down.

If the price touches the lower band, wait for following candlestick to open. If it looks bullish then enter on the next candlestick opening, making sure stochastic has just started its way up.

Note: This strategy works with any timeframe, however I find it much more accurate with the higher timeframes such as 4hr or daily.

Daily Chart of GBB/USD

Stop loss for this strategy is placed at the nearest swing high/low.

Profit taking depends on the trader. I personally use the Fibonacci expansion as a profit taking. Some of my fellow traders usually take half of their profit as price touches the other end of the band and let the remaining lot run reducing their stop loss to the nearest swing high/low.

This is a highly profitable strategy where you will need to be somewhat patient at first but it is on the ball in providing great gains. However, as you know all strategies are not 100% accurate, thus good money management is crucial and must be incorporated in every strategy.

In both of the trades above the profit was nearly about 4000pips and 2500pips respectively. Massive gains indeed. Stop was 100 pips and 180 pips respectively. Not too bad when you compare the risk to reward ration, 1:40 and 1:14.

Happy trading.