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Forex Strategy: Bollinger Bands and Fractals

Posted: 02/03/2012
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Bollinger Bands and Fractals in Forex  

Welcome back, Forex friends. Today we will kick off a series of articles dedicated to our own custom trading strategies that combine tested indicators and signals. Every trader has a personal trading strategy that uses a custom combination of technical indicators, but it takes a lot of time, testing and failures to make up a trading strategy that is actually profitable.

As a novice trader you see so many trading indicators and systems that you can easily get lost. If you browse the Internet or read some eBooks and guides, you can get buried in information about the Stochastic Oscillator, MACD, Elliot Waves and many more. But wait a minute, is it true, are they all profitable, what are the odds? Do you think that the editors of this department actually use them?

We will show you one of our own trading strategies. It`s conservative, but very successful and safe. The major forex indicators here are the Bollinger Bands and the Bill Williams’ Fractals. As we know, the Bollinger Bands indicator uses a couple of standard deviations wrapped around a standard EMA (20) and the price itself moves inside the Bollinger Bands channel. When the price touches either of the outer bands, this means that a strong move is coming or in other words, the price is extremely volatile. The fractals also provide forecast data, but they are rarely used on their own. So, let’s get started.

The strategy is very simple; we already know from the Bollinger Bands webpage that when the price closes above the upper band or below the bottom band, then we have a trading signal. This is the first signal. Earlier we said that this is our conservative strategy, so we have to wait for a second trading signal. When the next candlestick closes and a fractal shows above or below the previous one, this is our second trading signal. Basically, if the price closes above the upper band and we see a bearish fractal, we open a sell order and put the stop loss above the last fractal (see image for better illustration). The process is identical, if the price is below the lower band and the fractal is bullish. Our target is the middle Bollinger Bands line and most often we are looking at something around 25 - 30 pips.

As we said this is a conservative Forex trading strategy; CTrust Network Forex is not about gambling, but well-planned, calculated and tested methods. Please try this strategy out in a demo account as long as you need, before you apply it to your real account. Keep in mind that this is not a 100% guaranteed profit, because if the trend is very strong, the signals might mislead you.

Finally, don’t forget to trade wisely and to follow your money and risk management.

That’s all for now, we hope you found this article helpful enough to incorporate the Bollinger Bands – Fractals strategy in your trading routine. If you enjoy this article, stay tuned for the next one - Forex Trading Strategy: MA89 MACD Fractal. In the meantime, feel free to visit our Forex brokers reviews. We wish you best of luck and profitable trading!

Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

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