Quality trade setups are powerful trade setups that fully meet the entry criteria of a proven profitable trading method.

Quality trade setups do not appear often, so traders often have to wait quite a long time for a signal to trade.

This trading setup is also quite unique, it is based on the simultaneous intersection of 3 indicators Bollinger Bands (BB), Stochastic, and MACD. We will however incorporate more support and resistance into this setup to increase the quality of the strategy.

Indicator settings
  • Stochastic: 5, 5, 3
  • MACD: 12, 26, 9
  • Double Bollinger Bands (20), in which 1 band has a standard deviation of 2, the other band 1.
In the examples below, black BB has a standard deviation of 2, blue BB has a standard deviation of 1.

Trading principles

Principle of entry
  • The price needs to cross and trade inside the upper band (on an uptrend) or the lower band (in a downtrend).
  • The stochastic indicator intersects in the same direction as BB (ie it will increase when there is a bullish signal of BB). A stochastic crossover occurs from oversold or overbought levels.
  • The final confirmation is the signal on MACD also gives the same signal (if BB and Stochastic both increase, MACD will also show a crossover in an uptrend).
  • “Crossing at the same time” on all 3 indicators creates a higher probability of success and we should trade if such setups appear.
Additional additions: Before entering orders, you can also go down to a lower time frame to find better entry points. Usually, low price action patterns give better entry points.

Trading example

The USDCAD pair has a simultaneous crossover of all three indicators showing the start of a beautiful uptrend and a quality trading signal.

Stop loss:
  • The stop loss is initially placed outside the band for a standard deviation of 1. This means that the stop loss will be above the lower band during a downtrend and below the upper band during an uptrend. Please see the chart above for more information.
  • The only exit when the price closes outside the band.
We see an example of USDJPY, Stochastic, and MACD that begin to turn around before the price closes outside of the range. This is often the case to confirm the trend is nearing exhaustion.

As in the chart above, we see when the 3 indicators have a cross, we open a short position, take loss above the lower band of the BB with a standard deviation of 1. Exit when the price goes out of the band. .

In this strategy, we do not have profit targets but only manage the stop loss.

The maximum profit is determined by placing the stop loss behind the band. When the price breaks out of the band, the trading will be closed. Of course, using higher timeframe-based profitability targets is also a good idea.

You can also exit if the Stochastic and the MACD intersect even if the price doesn't close outside the bands. This is a way to prevent and protect profits. If this is the case, you can also partially close the position and leave the rest to follow the market if you believe the trend will continue.

Also, if there is a case where the price trades outside of the two bands then you can also trade short term. But note that, at that time, the market must be either overbought or oversold. Depending on the context in which it appears, trade accordingly.

For example, if it appears at support or resistance then it should be carefully considered as the possibility of a reversal will be higher. On the other hand, if there is no support, resistance, or other resistance zones, no trade should be done. The trend in progress is likely to continue.As the chart below: