For any trader who is trading in the forex market, it is still important to know what the trend is, or at least to know if a trend exists or not at any given time. Specifically.

This strategy is designed to provide all trend information so that any trader can make better, more informed and profitable trading decisions.

This system uses three popular technical indicators:

  • Bollinger Bands
  • Stochastic
  • MACD

However, we will tweak them a bit, giving them their inherent power, and at the same time make the confirmation signals better, creating more favorable probabilities for us.

Of course, in addition to these indicators, we should use more support and resistance as well as Price Action to improve the efficiency of the system even more.

Specifically, we will set the following parameters:

  • Cycle setting for Stochastic: 5, 5, 3
  • Settings for MACD: 12, 26, 9
  • Dual Bollinger Bands - both use 20 periods but the standard deviation of one Bollinger Band (BB) is 2 while the other is 1. In our examples, the black BB has a standard deviation of 1. 2 while the blue BB has a standard deviation of 1.

If you don't have a dual Bollinger Band indicator in your trading platform, you can add 2 BBs where one has a standard deviation of 1 and a BB of a standard deviation of 2.

Order entry rules:

  • The price needs to break through both the upper 2 bands of the Bollinger Bands (in an uptrend) or below the 2 lower bands (in a downtrend).
  • Stochastic indicator must also have a cutter signal (BB Bands cut up, Stoch indicator must also cut up). Preferably a stochastic crossover occurs from oversold or overbought levels.
  • Final confirmation from MACD: If the Bolinger and Stochastic bands are both crossed, the MACD must also show a bullish crossover.

Note:

  • “Same time crossover” on all 3 indices will create a higher probability of success and trades should be taken in these cases.
  • It is wise that before triggering an order you should switch and watch the lower timeframes to try and determine a better entry price.

In the example above for USDCAD, the crossover simultaneously signaled the start of an uptrend, bringing in almost 200 pips of profit with this strategy.

Stop loss position:

  • The initial stop loss is placed above/below the Bollinger band with a standard deviation of 1. So we will place a stop loss below the upper band in an uptrend and above the lower band in a downtrend. The charts below will make this more clear.
  • We may not stop loss if price breaks through Bollinger band but doesn't close above/below it.
  • The trade is closed only when the closing price is confirmed.
  • Note that some trading platforms do not offer a “stop loss on close” order, so EAs can be useful. Otherwise you have to cut the hole manually.