Once a candle closes outside and the lines start to diverge, we get a signal for opening trades. But note, we must have confirmation from and indicators for this breakout. Only after that we place a pending order above the high of the signal candle for long trades and below the low for short trades. The signal candle is the candle where we meet the following conditions: the candle closes outside the range formed by , the lines of indicator diverges, rises and confirms the direction of the trade.
We have an upcoming stop loss and profit target, which could be 2 or 3 times more then the size of stop loss. That allows us to pass easily a series of losing trades. Also note that the closer the bands - the higher price can go after the break. The growth of the is necessary to enter the market. It indicates that the impulse grows and filters out false breakouts.
1. We are looking for a market that is trading in range. Moving Averages intertwined, ADX is below 20 or falls to this level
2. The bands must get closer and the narrower the range the greater potential for price movement after the break
3. Wait till the candle breaks one of the bands and closed outside Bollinger line in that conditions the bands are to diverges
4. The indicators must confirm the break: ADX rises and MACD confirms the direction of the trade
5. We place the pending order higher or lower the signal candle
6. Place stop order below Moving Average with period 20 if buy and above if sell
7. Profit target should be twice more than the size of stop loss. This is the easiest way to define the profit targets.
This type of signal can be applied to 15 minutes, hourly and daily charts. Trades with profit are going to be more, if take into consideration the trading conditions of the higher time frame as well as support and resistance levels.
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