Swing Trading - also known as the trend trading method is how you take advantage of the market trend to make a profit. In this article, I will introduce swing trading style trading with 2 indicators Bollinger Bands and ADX.

Bollinger Band: is a famous indicator used to measure the volatility of the market. Bollinger Band can forecast market reversal points based on 3 bands between, above, and below (calculated by standard deviation and moving average). In the middle area of Bollinger Band, traders usually use the 20 periods SMA.

Usage: When the price moves above the Bollinger band, the price is seen as entering the overbought zone and there will be selling pressure to push the price down from it. Conversely, when the market price is below the Bollinger Band, the price is considered oversold, and there will be buying pressure to push the price up.

ADX (Average Directional Movement Index): While the Bollinger Bands gives us the possibility of a price reversal, the ADX will tell you the current strength of the market price. ADX consists of 2 lines (+ DI) and (-DI) and 1 ADX line.

If the strength of a trend increases, the distance between –DI and + DI also increases and the ADX curve will move up. If ADX goes down, the market's trend becomes weaker and turns sideways, and the market will enter the correction period again.

In this trading system, we only use the ADX line to measure the strength of the trend, and the 2 lines (+ DI) and (-DI) will not be used, you need to pay close attention to this detail.

A trading system that combines Bollinger Band and ADX

If the price is testing the Bollinger Band above or below, we expect the price to reverse, the strength of the reversal will be measured by the trend of the ADX indicator.

Example 1: If the price is trading above the Bollinger Band, watch the ADX indicator to see if it is hitting level 40 or not, we would expect strong selling if this happens.

The chart above depicts the EURUSD pair moving above the Bollinger Band. The price closed side at 1.3265, indicating the current price scenario is overbought and one would expect to place a sell order from this point.

There is support from the ADX indicator as ADX is falling. Combining these two factors, Trader will enter orders and take profit for the first time in the middle band of the market, take profit a second time in the lower band of the Bollinger Bands.

Example 2: In case the price breaks the lower or upper band area, it means a breakout to the remaining band area. If you spot ADX sideways and break from the 20 zones, immediately enter and take profit in the opposite band area. You see the illustration.

The H4 EURUSD chart gives an example of this trade when the H4 candle closes through the middle band, you see ADX rising from the 20 zones. also acts as a strong support resistance area. But with the closing of the H4 candle (close the candle near the top), combined with the ADX signal, you will have more chances of winning orders.

You can also use ADX to exit orders instead of using the band on the Bollinger Band as in the chart above (using ADX for even higher returns).

Another example:

This chart also illustrates how to trade breakout ADX from the 20 zones but in a downward direction. You enter an order when the price closes through the middle band of the Bollinger Band, ADX moves up from the 20 zones and takes profit at the lower band.

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