Technical traders can get some priceless advantages from Bollinger Bands®. Once it is matched with the Moving Average Convergence Divergence (MACD) indicator, it provides traders with both liquidity and motion in the forex market. Before we move forward, let’s go through the initial points of both the Bollinger Bands and the MACD indicator.
What is MACD and Bollinger Bands Strategy?
MACD and Bollinger Bands Strategy represents Bollinger Band and MACD combination to determine to enter a position during a trend breakout. Usually, the best approach is to enter into a trade when MACD shows divergence and Bollinger Band confirms trend breakout on H4, Daily, or weekly chart.
As the heading indicates, Bollinger Bands® in connection with MACD is used by the traders to support deal arrangements. Bollinger Bands® permits traders to look at the sequential nature of the stock or forex market, whereas the MACD is an efficient way to indicate the market’s movement.
The usage of both the indicators can guide traders when making greater chances trades as they can estimate the route and potential of the present trend, along with the stock market. As an outcome, traders can apply the MACD to judge if a trend is rising in movement or to lag down and be prepared for a probable breakout. On the other end, Bollinger Band® can be utilized as an entering force and consecutive confirmation of a deal.
There are several ways by which a Trader can deal with Bollinger Bands® and MACD, but the two most ordinary ways to trade with those two indicators include breakouts and trend trading.
BB MACD Tutorial – MACD and Bollinger Bands Strategy Steps
- Using MACD to analyze trends on the chart. Watch trendline.
- Determine the price divergence in the MACD histograms (MACD lines crossover)
- Wait to see the price break of the 20 moving average on Bollinger Band.
- Wait to see that price touch upper B. Band (for buy trade) or down Band (for sell trade).
- Enter into position.
Post to the bullish diversification, a disrupted average of the 20 moving periods (centerline within the Bollinger Bands®) indicates to enter the long trade. The dotted line on the top of the channel symbolizes trend-line rigidity and corresponds with the 20 MA of the Bollinger band® when price disrupts through it. Shattering of those two lines makes sure that it is significant, promoting support to the bullish bias.
Just as the MACD line goes across the signal line and keeps moving beyond the signal line, The MACD indicator promotes the bullish trade, displaying rigid ascending movement. The Bollinger Band then approves the upward movement, as the price starts to “walk the band” on a surged stock market (expansion of the band).
Stops could be marked beneath the lower Bollinger Band® or at the shallow of the downgoing channel. The goal can be marked at an earlier big or substantial sign level of resistance – also managing the risk to reward ratio alongside. Traders should review multiple levels of goals and manually move stops upward or use a trailing stop as there are chances of turning a breakout trade into a trend reversal.
MACD and Bollinger Bands Strategy Example
Below is presented MACD and Bollinger bands indicators on the EURJPY Daily chart and example of MACd and Bollinger Bands strategy. You will need to download two lines of MACD to easier see divergence on the chart.
As you can see, you need to determine the moment when MACD lines cross. After that, you wait to see the price above MA 20 (middle B. Band line). If you see a price that breaks the upper Band you can enter into trade. On the chart, you can see a gain from 126.5 to 133 (more than 400 pips).
Trend Trading by Applying Bollinger Bands® and MACD
The Bollinger Band®, MACD blend can also be applied in trending markets through the process mentioned as below:
- Use MACD to diagnose trends.
- Apply to leap off the 20 MA as possible entry points (within the line of trend)
- Keep an eye on MACD for affirmation of continuity of momentum
- Utilize the decreased (increased) band to restrain loss in an upward trend (downward trend).
The EUR/USD chart beneath illustrates the Bollinger and MACD trend dealing strategy. If both the lines are beyond the zero marks and the MACD line above the signal line, then MACD confirms the uptrend. Hence a filtrate is adjusted for the traders who are only looking to enter long trades.
As the commencing spike ends in the upward movement, the movement decelerates. Even after the MACD line passes under the signal line, the moves are on lower volume, which results in a short-term condensation instead of a move opposite to the present trend. The upward trend gets more solid as the price jumps off the 20 MA and prolongs, making bigger highs and bigger lows.
In Correspondence with the Bollinger Band® Squeeze (green arrows), traders can look forward to entering the long trade. Long traders are left with two options. The first one is to exit the trade as the price goes down to 20 MA or search for a breach of the lower Bollinger Band® as the signal to exit.
Dealers can use trailing stops. Also, it can be physically moved along the lower Bollinger Band® as price hikes. Objectives can be set at specific stages of support and resistance while maintaining appropriate risk management.
Benefits and constraints of The Bollinger Bands® and MACD System
What are the Benefits?
Both Bollinger Bands® and MACD apply to any resource at any time interval.
Bollinger Bands® clearly provide stop-loss levels, and it intersects with the lower band for long trades and the upper band for short trades.
Traders can govern the trend and liquidity of any market by taking a look.
What are the Constraints?
The blend of the Bollinger Band® and MACD is not good for inexperienced traders. The one who is new to FX trading will need many skills for both Bollinger Bands® and the MACD.
Bollinger Bands® is famous in ranging markets for its performance, while the MACD is a movement indicator by following trends. If the application is improper, then traders can receive confusing signals.
Bollinger Bands® gives traders a displayed representation of the stock market.
After going through all the provided data, it is clear that BB and MACD are beneficial for traders to understand the market’s liquidity, movement, and trend. So, learn about them, practice them in a demo account and then only employ your real money to work.