Kathy lien double bollinger bands strategy forex

kathy lien double bollinger bands strategy forex

Kathy Lien recommends adopting a trading strategy which involves removing profits at various stages, by using the Bollinger Bands analysis. Ms Kathy Lien, a well-known Forex analyst and trader, described a very good technique for the Bollinger Bands indicators combo, namely, the DBB – Double. The Double Bollinger Band Strategy is a Forex trading strategy popularised by Kathy Lien, a well-known Forex analyst. SEPUTAR FOREX HARGA EMAS HARI INI On a remote from most other network, check to. The first screen and we got readiness check varies in Google Docs. For example, if some antivirus software businesses, IT support and found the.

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You might want to fix this too. Quite the same! Note that the prices you get from Yahoo Finance might be different as quotes slightly vary from broker to broker. As long as your indicator looks similar, you probably did everything correctly. Markets normally move in waves as the price tends to follow an alternating pattern of impulse and consolidation. In an uptrend, buyers keep raising the price, but from time to time, they bump into a level where supply is strong enough to overcome the buying pressure.

This is where the market enters into a consolidation phase. Shorting when the price breaks above the upper band might make sense if you believe that the market is overbought and due for a pullback. This idea uses the concept of mean reversion, which states that the price will eventually return to the long-run average. Of course, the opposite is true for buying the market if it broke below the lower band and you think a bounce is on the way.

Usually, it helps if you look for other confirmation signals such as support and resistance zones or candlestick formations. For example, below, you can see that the price reaches a major support zone where it crosses the lower band and forms an engulfing pattern.

Despite the best efforts, capitalizing on mean reversion can be challenging if the market is trending. Especially on smaller timeframes, unexpected news can quickly spark enthusiasm. You might find yourself in situations where, instead of reversing, the price is repeatedly pressing into the upper or lower band, indicating an extremely strong trend. On one hand, you can try to filter out non-trending conditions and only trade mean reversion techniques when a range is in place.

On the other hand, instead of buying and selling when the market breaks the bands, you might wait until the market returns inside the bands and buy or sell somewhere near the middle band. With this method, you only trade in the direction of the trend, which might not only increase your chances of winning , but you might also benefit from catching a strong trend. He divided these patterns into two categories resembling M and W letters.

Bollinger is a big advocate of using these M and W patterns in his book, Bollinger on Bollinger Bands. M-tops and W-bottoms can be regarded as double tops and double bottoms with a common variation being the head and shoulders and inverted head and shoulders patterns. As you might already know from our chart patterns guide , double tops are characterized by:.

This usually happens when the price breaks through the upper band. Then, the reaction pullback should take the price back inside the bands, ideally near or beyond the middle band 2. The implication of this is that the rally met with strong resistance and the price was pushed back to its normal level.

The second rally should occur without breaking the upper band 3. Once the price breaks below the retracement low, you get a short signal 4. Of course, the opposite is true for the double bottom pattern and similar logic can be applied to other patterns. Lots of people try to capture the breakout. If you want to be one of them, you need to be aware of a few things. The obvious first step is to wait for a consolidation in which the trading range narrows dramatically.

According to Bollinger, the Squeeze setup is identified when the volatility reaches a six-month low value. If you trade lower than the daily, you might translate this to a more relevant time period. This is just our suggestion. For example, six weeks for the four-hour chart or something similar if you feel that the six-month low is a bit too much.

However, you can also rely on your eyes if you wish. Either way, your job is to take notice when low volatility conditions occur and take action based on your rules. This is something you have to identify yourself using other tools such as the relative strength index or other indicators.

Kathy is a prominent figure in the Forex trading world, you can check out her profile on Investopedia and the book is available at various online retailers. Remove the middle band if your charting platform allows you to do that. If the currency pair rises to the upper Bollinger Band, it might be overbought because the move extended to an extreme level and a consolidation may occur.

Similarly, the idea is the same when it drops to the lower Bollinger Band. The problem with this approach is that strong trending markets can cause you significant losses as the price might be above or below the Bollinger Band for a long time before finally turning around.

We also talked about this issue earlier and suggested a few possible solutions such as using other indicators for confirmation or taking signals in trend-direction only. Along the same lines, we do not sell a top until the pair trades below the first standard deviation Bollinger Band. You might buy immediately at close, or 5 PM New York time. Not talked about in the strategy, but you might also use a pending order slightly above the close.

This way, you only enter if the market moves a bit more in your direction as an additional bit of confirmation that a reversal might be on the way. The recommended stop placement is 50 pips below the first standard deviation Bollinger Band. If you need more ideas on placing your stop loss, download our free PDF guide.

The first target is reached when the market moves in your direction by the risked amount. In this case, close half of your position and move the stop to breakeven on the rest. The second target is reached when the market keeps moving in your direction and reaches two times risk.

At this point, you can close or trail the stop even further if you wish. Sell at close below the first standard deviation Bollinger Band and place your stop 30 pips above the first standard deviation Band. The rules for successful exits are the same as for a long trade. That is, close half of your position when the market moves by the risked amount.

Then, move the stop to breakeven and target two times risk for the remainder of your position. In terms of reading the indicator, the SMA acts as the watershed between bullish and bearishness. It will reach 1 at the upper band and go beyond if the price keeps rising. It will reach 0 when the price is at the lower band and go below when the price is below the lower band.

As Bollinger says, it allows for all sorts of relative comparisons. You can also use it to identify the beginning and end of trends. On the other hand, during a period of high volatility, the distance between the two bands will widen and the BandWidth will increase. More importantly, Bollinger Bands also identify entry points and proper places to put a stop. While Ms. Lien refers above to currency trading, like most technical indicators, DBBs can be applied to technical analysis for any actively traded asset traded on big liquid markets like stocks, commodities, bonds, etc.

For those without a statistics background, just know that for purposes of this discussion, standard deviations function as units of distance from the period simple moving average SMA , which is both the center line between the four DBBs and thus the baseline for determining the location of the 1 and 2 standard deviation Bollinger bands.

If you want to know to know more about them, you can either search out the details online, or find further explanations in my book in chapters 4 and 8. The red BB settings are 1, 20 , 1 standard deviation that same 20 period SMA, which is shown here in purple. However we combine the middle two areas and focus on three zones: upper quarter, the middle half, and the bottom quarter. Your success with DBBs will depend greatly on how you respond when price transitions between the three zones.

As with any technical indicator, the key question is: how much confirmation of a trend change do you wait for before you open a new position? As always, when an indicator sends a signal, we seek some kind of confirmation before trading. Just like traders need confirming signals to avoid getting fooled by temporary, false breakouts beyond support or resistance, so too here we need ways to distinguish between false trend changes and real ones, between short-lived and sustained moves into different zones that could last long enough for a profitable trade.

You may simply apply the same criteria that you use to confirm breakouts beyond support or resistance for the given asset and time-frame. You may find from experience that you need to adjust those criteria to confirm moves between DBB zones. The balance that works for you will depend on both the volatility of the asset, your personal risk tolerance, and other risk and money management safeguards you already have in place that determine the damage you suffer from a given loss.

For extensive details on risk and money management, as well as examples of how we apply these tools in actual trades, see Chapters 5 and 7 of The Sensible Guide To Forex. In sum, DBBs help us decide when we should be trading a trend, a trading range, or refraining from trading. The most popular financial portals like Yahoo Finance and the like typically only allow a single set of Bollinger bands. I did a quick search and only found 2 forex content sites that offer free charts that allow you to insert multiple sets of double Bollinger bands at whatever settings you choose.

Ok, that was the background. Proceed to Part 2 for the 4 rules of using DBBs and examples of how we apply them. Those seeking just a brief summary will find one in Part 3 coming in days — just the basic rules and a chart illustration.

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