Bounce Forex Strategy, A Complete Guide to Bounce Forex Trading Strategy

In this example, I bumped down to a one-hour chart to make an entry. This could give you a more accurate place to make an entry point. As I said, the 4-hour and 1-minute time frames are the preferred time frames for this strategy. Yes, there is less of an opportunity for a trade, but the signals are very strong when you are in a higher time frame.

However, a common starting point is a 20-period SMA and 0.5 or 0.75 standard deviations. The best settings for the Bollinger Bands indicator for a 5-minute chart may vary depending on the asset being traded and the trader’s preferences. However, a common starting point is a 20-period SMA and 1 or 1.5 standard deviations. For example, the chart above shows a normal bounce play set up in a base formation pattern. You may be thinking about what the price action is trying to tell you.

• I write this not to discredit trading with bands, just to inform you of how bands are perceived in the trading community.
• As soon as your entry order has been filled, ensure that your trading software has placed your target and stop-loss orders, or place them manually if necessary.
• In such a situation, it wouldn’t make sense to wait for an oversold reading at -10% deviation to look for buy setups or look for sell setups at +10% overbought readings.
• It follows the „bounces“ to find opportunities to make a winning trade as a stock moves back and forth in a trending direction.

When they are convinced of the performance of their strategies and their mastery of them, they may look to open real accounts. The key point to remember is that Bollinger Bands gets you into the habit of thinking about volatility. This ability to identify the setups will help you avoid the false signals from the real ones. One of the first indicators I put to the test was Bollinger Bands.

Both of these work well, but in two very different types of markets. Like any other trade signal, you will need to exit your position without reservation. Bollinger Bands can add that extra bit of firepower to your analysis by assessing the potential strength of these formations. Therefore, you could tweak your system to a degree, but not in the way we can continually tweak and refine our trading approach today. But if you are patient and are willing to skip the sharp reversals, this retest strategy is for you. To use it as an effective trigger, you must know which one you want to use.

As you may already know, the price, just like most time series, tends to revert to its mean when it moves significantly away from it in any direction. This is a mean reversion strategy, and that type of strategy works best for stocks. Thus, we backtest the S&P 500 (SPY) from its inception in 1993 until today. Let’s backtest a trading strategy that uses the Kairi Relative Index – complete with trading rules and settings.

Strategies for Short Selling

If there is enough intraday volatility for the asset to deviate significantly from its mean, then, it can provide potential mean-reversion trading opportunities. To interpret the Kairi Relative Index signals, you have to use other indicators or another form of analysis to find the direction of the market trend. If there is an uptrend, you focus on buy signals, which can be the oversold signal, a bullish divergence, or an upward zero-line crossover after a pullback.

What are the Best Time Frames for Trading with Bollinger Bands?

Notice how NIO gapped up over the upper band on the open, had a small retracement back inside of the bands, then later exceeded the high of the first candlestick. These sorts of setups can prove powerful if they end up riding the bands. Many of you have heard of the classic technical analysis patterns such as double tops, double bottoms, ascending triangles, symmetrical triangles, head and shoulders top or bottom, etc. It’s better to stick with 20, as this is the value most traders are using to make their decisions, versus trying to look for a secret setting. In essence, the Bollinger Band indicator was created to contain price the vast majority of the time.

Q: What causes a Dead Cat Bounce?

This signal happens when the indicator (usually the RSI) is making HIGHER lows while the price action of the stock is establishing LOWER lows. This signifies weakening selling pressure that might transition to an uptrend rally. Whenever price movement is at any significant support or resistance level.

A bounce is a second chance for those scared investors to unload shares, which will push the stock price lower and create an opportunity for short-selling day traders. The gap-downs that start a dead cat bounce are usually due to fundamental news that came out overnight, such as an earnings release. The dead-cat-bounce trader watches the price fall, and when it starts to bounce, they get ready to go short. At that point, the dead cat bounce has completed its pattern, and traders will watch for the best exit points. In the simplest terms, a dead cat bounce is a sharp decline, followed by a failed rally and further decline. Like with all charting patterns, the exact parameters of a dead cat bounce are somewhat up for interpretation.

Yes, unexpected news or events can contribute to short-term price movements, including Dead Cat Bounces. Short selling involves borrowing shares of a stock from a broker and selling them in the market with the expectation that the price will decline. Traders can profit by buying back the shares at a lower price, returning them to the broker, and pocketing the difference. Something else you can consider is when the price touches the middle band.

The purpose of a back test is to evaluate the effectiveness of a tra… We are bullish on India, we are bullish on India’s prospects to be one of the largest economies in the world. We believe that the stock market provides a unique opportunity for all of https://traderoom.info/trading-the-bounce-from-sr-levels/ India’s traders and investors to participate in the growth story of the country. For a dead cat bounce to occur, a stock must gap lower (i.e., dip at the open) by a significant percentage. As a general rule of thumb, 5% might be a good number to look for, but it depends on how the stock performs on a typical day. If a stock is always volatile, then a 5% gap down might not be all that unusual.

Moving Average Bounce Trading Strategy

He is a licensed broker, an active trader, and proprietary day trader. He was the managing director for the Chartered Market Technician (CMT)® program offered by the CMT Association. Due to weak market demand, some fundamentally robust stocks may also retrace back to support due to lack of institutional buying. Like all chart patterns and plays, there are technical signals that point towards a high probability of a pattern emerging.

What you do now is you switch to the 1-hour time frame to find a precise entry. You may even find more suitable peaks or troughs in this intraday time frame. The reason why this EMA trading strategy works so well with the 200 EMA is because market participants are floating in a sphere of tremendous lack of certainty. Even if you came up with a perfect valuation, you wouldn’t know if other market participants agree with you. You want the price to touch the moving average, which happens when the price trades at the current moving average price.