Strategy overview & 2015.05.24 performance

FX:EURUSD   Euro / U.S. Dollar
Not many trades today (from around 16:00 to 21:00 PST). I got 3 winning trades and 1 losing trade.

Before discovering this strategy, I was trying to do 5-minute binary options using price action with Fibo. The performance of price action with Fibo varies depending on confimation of entry and how I interpret the market. Price tends to struggle a lot around support/resistance levels. It is difficult to make sure there is a reversal within 5 minutes. Setting of confirmation level is the key of success for this method and it is not easy to determine within short time of period. After trying with that method, I am not giving it up but I think that this method will do much better if I use it on other kinds of investment which allows me to set up a stop loss, like stocks or forex.

Finally come to the main topic of today. I just found out how to use price action with Bollinger Bands this weekend. I tested it with last week history of EURUSD and USDCAD from 19/5 to 22/5 PST. The results turned out unexpectedly good. Winning rate is between 69% and 88.6% with an average of 76.4%.

Price action is always the most powerful way to trade. For indicators, if I am asked to use an indicator, I will definitely choose Bollinger Bands . If you know about Bollinger Bands , you may probably hear people say that enter a reversal trade when a candles touches the bands. However, this only works during ranging market and sometimes this may not get you in the money for a 5-minute trade. If one just blindly follows what others tell him/her about Bollinger Bands without knowing what price is doing, one will be hurt so bad by the market. When I knew nothing about price action, I was one of those people who got hurt using Bollinger Bands .

Instead of blindly follow some rules that are not working all the time, this time I use Bollinger Bands for just alerting me there may be a trade soon. If you observe how candles react when they touch the bands, you will notice there are only two outcomes when candles touch bands. Either the trend reverses or candles walk along the band (the trend continues) for some time of period before the trend really reverses . So no matter which outcome, what we know is trend will reverse soon. To determine we enter right away or wait for some time of period, we need to understand what price is doing after candle touches the bands.

Again, indecision candles are important. For my price action with Fibo method, I have to wait for some kind of confimation after I see an indecision candle. But here, indecision candles are the confirmation as long as they are the right one. For a 5-minute put trade, I am looking for long upper wick bearish indecision candle (not including doji here), vice versa. There are also other ways to find out if the transition of power between bulls and bears is successful. Applying the knowledge of candle patterns is always helpful.

Another important thing is that I am not just looking at only the indecision candle, it is neccessary to take a look at the candles before it and confirm there is a transition of power. The size of indecision candle is also important. For example, if the candle which breaks the bands is 40-pip large, a 10-pip indecision candle will not work for confirmation.

To determine whether it is ranging or trending, take a look at band width and slope of the middle 20-period moving average.
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