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 .
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