Bollinger Bands MACD and Williams %R Strategy

Bollinger Bands MACD and Williams %R Strategy the idea.

Written by Russ Horn

Basically, the idea behind this system is to wait until price breaches the outer Bollinger Band. When it does, you are looking for an opportunity to trade back into the band. The first target is the middle band and the second target would be the other outer band. When price breaches the outer band, look for the next MACD Histogram line to go the other way. At the same time, the Williams %R should also be ticking the other way. Once you have confirmation with these two indicators, you may place a trade headed back into the band. If the histogram is still going in the same direction as the breakout or the %R indicator is ticking the same way, don’t trade.

Rules Long (Buy) Trade Rules 1.

Wait for price to breach the bottom outer Bollinger Band and, once that occurs, look for an opportunity to trade back into the band. 2. Once price has breached the Bollinger Band look for the MACD histogram line to move in the opposite direction. 3. Simultaneously look for the Williams %R to be ticking in the opposite direction also. 4. Once you have confirmation as per rules 1, 2 and 3, place a Long Trade (headed back into the Band). 5. Set your Target at the Middle Band. 6. You could open a second Target to be the furthest opposite outer band (In this case you can trade 2 lots if you wish and exit one of them at the middle band whilst letting the other one ride to the second target). 7. Your initial stop loss should be 10 pips below the low of the candle that breached the BB provided it was the one which made the most extreme protrusion from the band. 8. If the histogram is still going in the same direction as the breakout or the %R indicator is ticking the same way, don’t trade. Note: When you place a trade, make sure that your first target (middle band) is far enough to make a decent profit after covering your spread. Take a look at the chart below for a visual representation of the rules.

Short (Sell) Trade Rules 1.

Wait for price to breach the Upper outer Bollinger Band and, once that occurs, look for an opportunity to trade back into the band. 2. Once price has breached the Bollinger Band look for the MACD histogram line to move in the opposite direction. 3. Simultaneously look for the Williams %R to be ticking in the opposite direction also. 4. Once you have confirmation as per rules 1,2 and 3, place a Short Trade (headed back into the Band. 5. Set your Target at the Middle Band. 6. You could open a second Target to be the furthest opposite outer band (in this case You can trade 2 lots if you wish and exit one of them at the middle band whilst letting the other one ride to the second target). 7. Your initial stop loss should be 10 pips above the High of the candle that breached the BB provided it was the one which made the most extreme protrusion from the band. 8. If the histogram is still going in the same direction as the breakout or the %R indicator is ticking the same way, don’t trade. Note: When you place a trade, make sure that your first target (middle band) is far enough to make a decent profit after covering your spread. Take a look at the chart below for a visual representation of the rules.

Example Trades Long Trade example

1 Let me walk you through this Long Trade example. First, I waited for the price to breach through the lower outer Bollinger Band (1). Once that happened, I started monitoring MACD and waited for its histogram to start moving upwards (2). For additional confirmation, I had to make sure that Williams %R was also moving upwards (3). After all conditions were met, I entered the trade at the close of the candle (4). I set my 1st Take Profit Level at the middle Bollinger Band (5) and my 2nd Take Profit Level at the outer, upper Bollinger Band (6). My Stop Loss was set 10 pips below the low of the candle that breached the Bollinger Bands (7).

  Short Trade example

1 Let’s now take a look at the Sell Trade example. First, I waited for the price to breach through the upper outer Bollinger Band (1). Once that happened, I started monitoring MACD and waited for its histogram to start moving downwards (2). For additional confirmation, I had to make sure that Williams %R was also moving downwards (3). After all conditions were met, I entered the trade at the close of the candle (4). I set my 1 st Take Profit Level at the middle Bollinger Band (5) and my 2nd Take Profit Level at the outer, lower Bollinger Band (6). My Stop Loss was set 10 pips above the high of the candle that breached the Bollinger Bands (7).

  

Money Management

You have one of two choices here. You can either trade to buy a house or trade to lose your house. If you have no money management plan, you’re trading to lose your house… and possibly a whole lot more. If money management comes first, you’re going to be looking at houses before you know it. Building wealth takes time. Sit down and think about where you want to be in 5 years and start building your account to get there. The following are important money management principles to take note of: • Risk only 2-5% risk per trade. • Always use a stop loss (as indicated in our rules). • Determine your stop BEFORE you place your trade. The reason we say a “maximum” stop is because if we can get a smaller one, then we use it. The less risk, the better. • The lot size we use should always be appropriate to the account size we have and the amount we are willing to risk. For example: If we have a $10,000 account and we only want to risk 2% per trade. The amount we are risking is $200. ($10,000 - 2% = $200) Divide the amount to risk by the stop loss and you get a lot size of $8 or 0.8 lots. ($200/25 pips max stop loss = $8 or 0.8 lots maximum in the MT4 terminal) If we have a $600 account, and we want to risk 2% per trade, we would use the same process to find our risk. $600 - 2% = $12 $12/ 25 pips (max stop loss) = $0.48 or a 0.04 lot size (40 cents) But, at 5% risk per trade, we would have this instead: $600 - 5% = $30 $30/25 pips (max stop loss) = $1.20 or a 0.12 lot size .