Head And Shoulders Chart Pattern
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Indicators: Bollinger Bands ®
newdigital, 2013.08.06 13:54
Bollinger Bands and Volatility
When volatility is high; prices close far away from
the moving average, the Bands width increases to accommodate more
possible price action movement that can fall within 95% of the mean.
Bollinger bands will widen as volatility widens. This
will show as bulges around the price. When bollinger bands widen like
this it is a continuation pattern and price will continue moving in this
direction. This is normally a continuation signal.
The example below illustrates the Bollinger bulge.
High Volatility and Low Volatility
When volatility is low; prices close closer towards
the moving average, the width decreases to reduce the possible price
action movement that can fall within 95% of the mean.
When volatility is low price will start to
consolidate waiting for price to breakout. When the bollinger bands is
moving sideways it is best to stay on the sidelines and not to place any
The example is shown below when the bands narrowed.
newdigital, 2013.08.06 14:04
Bollinger Bands Trend Reversals- Double Tops and Double Bottoms
A Forex trader should wait for the price to turn in
the opposite direction after touching one of the bands before
considering that a reversal is happening.
Even better one should see the price cross over the moving average.
Double Bottoms Trend Reversals
A double bottom is a buy setup/signal. It occurs
when price action penetrates the lower bollinger band then rebounds
forming the first low. then after a while another low is formed, and
this time it is above the lower band.
The second low must not be lower than the first one
and it important is that the second low does not touch or penetrate the
lower band. This bullish Forex trading setup is confirmed when the
price action moves and closes above the middle band (simple moving
Double Tops Trend Reversals
A double top is a sell setup/signal. It occurs when
price action penetrates the upper bollinger band then rebounds down
forming the first high. then after a while another high is formed, and
this time it is below the upper band.
The second high must not be higher than the first
one and it important is that the second high does not touch or penetrate
the upper band. This bearish Forex trading setup is confirmed when the
price action moves and closes below the middle band (simple moving
newdigital, 2014.02.27 06:34
"The 1% Rule
While no one wants to experience a loss on their account,
it is an inevitable part of scalping. Because of this, it is always
important to have a plan of action to manage risk before entering into a
trade. While placing a stop is important, traders should also consider
the 1% rule. This means that traders should never risk more than 1% of
their account balance on any one trading idea. That means using the math
above, if you are trading a $10,000 account you should never risk more
than $100 on any one positions.
The 1% rule can also be coupled with a favorable risk reward ratio.
Using a 1:2 setting, this means if we risk 1% in the event of a loss, at
minimum we should look to close our trades out for a 2% profit. This
would translate into a $200 profit on a $10,000 account balance. Now
that you are familiar with the 1% rule, let’s look at our next risk
Walker England, Trading Instructor, The Definitive Guide to Scalping, Part8: Risk Management
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