In this article, we will briefly describe a way of improving the Bollinger Bands Indicator with Fractal Pattern to make a buy and sell decision in Forex and Stock market.
Bollinger Bands is a technical analysis tool developed by John Bollinger in the 1980s for trading stocks. Bollinger Bands indicator is used to measure volatility and determine the direction of price movement. The Bollinger bands indicator comprises a volatility indicator that measures the relative high or low of a security’s price in relation to previous trades. Volatility is measured using standard deviation, which changes with increases or decreases in volatility.
The bands in the indicator are plotted two standard deviations away from a simple moving average (SMA) of the security’s price. The upper band is plotted two standard deviations above the SMA, while the lower band is plotted two standard deviations below it. The bands will expand and contract as the price action of an issue becomes volatile (expansion) or becomes bound into a tight trading pattern (contraction). Bollinger Bands indicator is often used along with other technical indicators such as the relative strength indicator (RSI) as well as the Band Width indicator, which is the measure of the width of the bands relative to the middle band.
Technical indicator can provide the good guide for buy and sell decision making when they are used properly. However, 99.9% of time, technical indicator will not provide you how much uncertainty you are betting your money with. Especially, when you are running a serious amount of money, this is frustrating. You want to avoid any situation just blindly betting your money on the direction. We made it through possible to help you relive all your worries behind this trading game.
Let us take some example.
We know often, when price move outside Bollinger bands, it will provide us some useful timing for entry. You might add some extra tools around with your strategy. However, does not matter, how many additional tools you are adding, you will be still blind how much uncertainty you are having with your entry.
Just add Fractal pattern Scanner in your chart. Measure the specific probability for your entry. Since Bollinger Bands are price based strategy, we use time based probability. Hence, we will need to read out the time probability before your trading. In this example, we need to read the probability in X axis because it is the time probability. In our example, in our Bollinger Bands entry, we have the reading of 92% probability. This means that your entry could be turning point 9 out of 10 chances. You would be much better at allocating your capital for the particular entries from now on.
Measuring probability is one ultimate way of managing your risk. Trading with understanding your risk is one single most important practice to survive in the Financial market for a long time.
We hope you enjoyed this simple article. The trading logic with Fractal Pattern Scanner is simple. When you are using Price based strategy like Bollinger Bands, Harmonic Pattern, X3 Patterns, Elliott Wave Patterns, Oscillators, you measure the time probability to measure your risk. When you are using Time based strategy like Fibonacci Time, Gann’s Cycle and Planetary cycle, etc, you use Price probability to measure your risk. Then act accordingly to manage your risk. For your information, this is the different risk from your stop loss. Stop loss is not the risk of your strategy. We are talking about the risk of your strategy.
Probability is not bullet proof but it is important because it provide you the precise explaining on what you are doing with your strategy at the moment.
Below is the landing page for Fractal Pattern Scanner for MetaTrader 4 and MetaTrader 5.