Development continuation methods and momentum methods are sometimes the kind of methods that would permit for a mixture of an honest win price and risk-reward ratio. It is because trending markets and markets with sturdy momentum have a market circulate with a transparent basic route. Merely buying and selling in that route might give merchants an honest win price. Add to it the truth that trending and momentum markets can proceed additional for fairly a while. Merchants who can time trending and momentum markets properly can commerce with a superb mixture of an honest win price and risk-reward ratio.
This buying and selling technique is an easy development continuation technique. It trades on indications of attainable resumptions of momentum within the route of the development. Momentum might typically spark longer developments. As such, it additionally has the potential to supply trades with respectable risk-reward ratios. This technique makes use of the Bollinger Bands indicator, the Heiken Ashi Smoothed indicator, and a 100-bar SMA line.
100 SMA Line
There are a number of methods to establish trending markets. Nonetheless, the usage of transferring common strains might arguably be one of many easiest and most goal strategies of figuring out trending markets and development route.
Transferring common strains will be very efficient instruments for figuring out developments and development route. Merchants merely observe the place worth motion is a couple of transferring common line after which verify the development primarily based on the way it characteristically strikes. Uptrend markets usually have worth motion which has pivot highs and pivot lows that proceed rising. As such, it typically plots worth motion above a transferring common line.
Transferring common strains additionally are likely to comply with the route of the place worth motion usually is. As such, uptrend markets will be recognized with worth actions which can be usually above a transferring common line and a line that’s sloping up. Inversely, downtrends will be recognized with worth motion that’s often under a transferring common line and a line that’s sloping down.
Heiken Ashi Smoothed Indicator
“Heiken Ashi” actually means “common bars” when translated from Japanese. The Heiken Ashi Smoothed indicator is aptly named as such.
The Heiken Ashi Smoothed indicator is a trend-following indicator that makes use of bars to point the route of the development. It computes for the common of the open, excessive, and shut of every candle, after which plots bars which can be derived from such underlying computations.
This template of the Heiken Ashi Smoothed indicator plots inexperienced bars to point a bullish development route and blue bars to point a bearish development route.
The bars that this indicator plots have a characteristically comparable diploma of responsiveness to some transferring common strains that are each responsive but smoothened out.
When mixed with confluences with different technical indicators, these coloration modifications could be a very dependable development reversal sign.
Bollinger Bands
The Bollinger Bands is a flexible technical indicator which can be utilized to establish volatility, developments, imply reversals, and momentum breakouts.
The Bollinger Bands plots three strains. The center line is a Easy Transferring Common (SMA) line which is often preset as a 20 SMA line. The outer strains however are normal deviations of worth actions shifted above and under the center line often preset at 2 normal deviations. This creates a channel-like construction that wraps round worth motion.
For the reason that center line is a transferring common line, it may be used to establish development route. Worth motion is often on the higher half of the Bollinger Bands each time the market is in an uptrend and on the decrease half of the Bollinger Bands each time the market is in a downtrend.
For the reason that outer strains are primarily based on normal deviations, volatility will be recognized primarily based on the enlargement and contraction of the outer strains. The outer strains broaden each time volatility is excessive and contract each time volatility is low.
The outer strains are additionally often used to establish oversold and overbought markets. Costs above the higher line are thought of overbought whereas costs under the decrease line are thought of oversold. Reversal alerts to develop in these areas are thought of to imply reversal alerts.
The identical outer strains can be used to establish momentum breakouts coming from market contractions. Momentum candles closing outdoors the Bollinger Bands coming from a contracted channel are indicative of a momentum breakout.
Buying and selling Technique
This buying and selling technique is a momentum breakout technique that’s biased within the route of the mid-term development.
The 100-bar Easy Transferring Common (SMA) line is a broadly used transferring common line for figuring out mid- to long-term developments. As such, we are going to use the 100 SMA line as our essential development route filter.
The development route reversal is then confirmed utilizing the Heiken Ashi Smoothed bars primarily based on the altering of its colours.
The momentum breakout is then confirmed primarily based on candles closing outdoors of the Bollinger Bands from a contracted state.
Purchase Commerce Setup
Entry
- Worth motion needs to be above the 100 SMA line.
- The Bollinger Bands ought to contract.
- The Heiken Ashi Smoothed bars ought to change to inexperienced.
- Open a purchase order as quickly as a bullish momentum candle closes above the higher line of the Bollinger Bands.
Cease Loss
- Set the cease loss on a assist under the entry candle.
Exit
- Shut the commerce as quickly as the worth closes under the center line of the Bollinger Bands.
Promote Commerce Setup
Entry
- Worth motion needs to be under the 100 SMA line.
- The Bollinger Bands ought to contract.
- The Heiken Ashi Smoothed bars ought to change to blue.
- Open a promote order as quickly as a bearish momentum candle closes under the decrease line of the Bollinger Bands.
Cease Loss
- Set the cease loss on a resistance above the entry candle.
Exit
- Shut the commerce as quickly as worth closes above the center line of the Bollinger Bands.
Conclusion
This buying and selling technique is a trend-following technique which trades on the belief of momentum resuming the route of the development utilizing a confluence of momentum and development reversal alerts coming from the Bollinger Bands and the Heiken Ashi Smoothed indicator.
This technique just isn’t completely correct. There will probably be trades that would incur a loss. Nonetheless, when utilized in a trending market, this technique might produce trades that would end in respectable win charges and risk-reward ratios.
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