Traders sought out for range-bound zones when trading the forex market, and they tend to do this in a bid to spot possible breakouts.
The theme here is to spot range areas in the market, having it mind that such zones precedes a possible breakout, which are usually profit laden.
The Simple Range-bound forex strategy helps you spot profitable breakouts from range-bound trading conditions with the help of the Bollinger Bands indicator.
Chart Setup
MetaTrader4 Indicators: Bollinger Bands.ex4 (default setting), tema_custom.ex4 (default setting), Bollinger_Squeeze_v3.ex4 (default setting)
Preferred Time Frame(s): 1-Minute, 5-Minute, 15-Minute, 30-Minute, 1-Hour, 4-Hour, 1-Day
Recommended Trading Sessions: Any
Currency Pairs: Any pair
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Buy Trade Example
Fig. 1.0
Strategy
Long Entry Rules
Enter a buy order if the following indicator or chart pattern gets displayed:
- Look for the area on the activity chart where the Bollinger Bands contract for a sustained period and also lookout for the yellow line of the tema_custom.ex4 indicator as it forms a thin or no gap around the middle line of the Bollinger Bands as a signal for a range-bound market.
Once this setup is spotted, lookout for the Bollinger Bands to widen and the gap between the yellow line of the tema_custom.ex4 indicator and the middle line of the Bollinger Bands to increase, while price trades along the upper outer line of the Bollinger Bands to denote a buy signal.
Watch how the yellow line of the tema_custom.ex4 indicator almost superimposes itself on the upper outer band of the Bollinger Bands under a bullish scenario.
- If the bars (lime green and Indian red) of the Bollinger_Squeeze_v3 indicator crushes around the 0.00 signal level, such price area is said to be range-bound and if the lime green bars increases in length above the 0.00 level suddenly following the earlier range-bound condition (refer to Fig. 1.0), price is said to be bullish i.e. a buy signal.
Stop Loss for Buy Entry: Place stop loss below short-term trading support.
Exit Strategy/Take Profit for Buy Entry
Exit or take profit if the following holds sway:
- If the yellow line of the tema_custom.ex4 indicator crosses the middle line of the Bollinger Bands indicator top downward as seen on Fig. 1.0, an exit or take profit is advised.
- A trader can decide to exit or take profit if an Indian red bar forms below the 0.00 level of the Bollinger_Squeeze_v3 custom indicator.
Sell Entry Rules
Enter a sell order if the following holds true:
- Look for the area on the activity chart where the Bollinger Bands contract for a sustained period and also lookout for the yellow line of the tema_custom.ex4 indicator as it forms a thin or no gap around the middle line of the Bollinger Bands as a signal for a range-bound market.
Once this setup is spotted, watch out for the widening of the Bollinger Bands and for the gap between the yellow line of the tema_custom.ex4 indicator and the middle line of the Bollinger Bands to increase, while price trades along the lower outer line of the Bollinger Bands as an alert to go short.
The yellow line of the tema_custom.ex4 indicator almost superimposes itself on the lower outer band of the Bollinger Bands under a bearish condition.
- If the bars (lime green and Indian red) of the Bollinger_Squeeze_v3 indicator crushes around the 0.00 signal level, such price area is said to be range-bound and if the Indian red bars increases in length below the 0.00 level suddenly following the earlier range-bound condition (refer to Fig. 1.1), price is said to be bearish i.e. a sell signal.
Stop Loss for Sell Entry: Place stop loss above short-term trading resistance.
Exit Strategy/Take Profit for Sell Entry
Exit or take profit if the following rules or conditions takes precedence:
- If the yellow line of the tema_custom.ex4 indicator crosses the middle line of the Bollinger Bands indicator bottom up as depicted on Fig. 1.1, an exit or take profit is advised.
- A trader can decide to exit or take profit if a lime green bar forms above the 0.00 level of the Bollinger_Squeeze_v3 custom indicator during a sell trigger.
Sell Trade Example
Fig. 1.1
Free Download
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About The Trading Indicators
The Triple Exponential Moving Average or TEMA was developed by Patrick Mulloy and was first published in 1994.
It was designed to deal with the problem of lag experienced with trading the traditional EMAs or oscillators.
Trends can be spotted with little lag as a result of its ability to smoothen price fluctuations and filter volatility.
The Bollinger Bands consist of three bands with the outer bands being plotted as standard deviations away from the middle simple moving average band.
The indicator offers good clues on the state of volatility in the market.
The Bollinger_Squeeze_v3 custom indicator uses histograms to measure price volatility.