Podcast:
Currency Strength and the use of Bollinger Bands
In this video:
00:31 Currency strength and weakness analysis
03:22 Trading with Bollinger Bands
05:07 Identifying the right part of the chart
In today’s video and podcast I’m going to explain how I trade with currency strength and weakness each day and also I’ve got a question that I like to answer regarding the use of Bollinger Bands. So let’s get into that and explain more right now.
Hi Forex traders, it’s Andrew Mitchem here, The Forex Trading Coach. And I’d like to answer a couple of questions that I’ve been asked over the last couple of weeks from people and the first one relates to the currency strength and weakness analysis that I post each day on my website. I post also in a number of other sites such as Forex Peace Army where I’m one of the giants on that site. The way that I like to use that is if I’m seeing strength in a particular currency pair let’s say the Euro/U.S. Dollar (EUR/USD) as an example. Let’s say I’m seeing strength, I’m looking for predominantly buy positions.
What that means is overall, I’m looking for a lot of strength in the Euro currency and at the same time I’m seeing weakness in the U.S. Dollar (USD). Put that together, the Euro and the U.S. as the currency pair because of course we have to trade in pairs as Forex traders. That means that ideally I’m looking for the Euro against the U.S. to rise in the value over the next 24 hours.
The Practical Way Of Trading
So as a practical way of trading that, what that means is if I’m looking at the Euro/U.S. Dollar (EUR/USD) and I’ve identified that and I see buy trade setups on any other shorter time frame charts that day, that to me has to have a lot of extra strength and probability about those trades working and working in other words getting to the profit targets and in my favor.
Now that means that I have the longer time frame charts showing a likelihood of the Euro/U.S. Dollar (EUR/USD) moving up, it means that when I take my trade maybe it’s the 4-hour chart or the 1-hour chart or even down to a 5-minute chart whatever it is, if I see a buy trade I’m trading with that likely overall direction. So think about the probabilities because trading and technical trading does come down largely to probabilities. The probability is I’m trading with the main trend. If the setup is good enough and I have my stop loss and my profit target in place at correct technical levels therefore the trade has a high probability of working than taking sell trades on that day.
Let’s say that over the course of the day the Euro/U.S. Dollar (EUR/UDSD) just falls and falls and falls and I’ve said I’m looking for buy trades. What that means is the likelihood of me taking a buy trade is very, very small because I’m not likely to see any good setups if the currency pair has just fallen all day. So although it means that it’s not ended the day in the direction that I was ideally looking for, it means on the shorter time frame charts I probably haven’t lost anything because I haven’t taken any new trade setups. So there has to be; when you think about that a lot of benefits of identifying strength and weakness and trading in those directions for that day.
So that’s the first question.
The Use Of Bollinger Bands
The second question I’ve had, it has to do with Bollinger Bands and the use of Bollinger Bands (because I’m not sure if you can see behind me here on my screen), I do use Bollinger Bands. It’s one of the few standard indicators that I use. I don’t take it as such as, like to identify a trade setup as such. I’m not using whether it’s bounce up a Bollinger Band or hit it or move down and whatever it might be, I’m not doing that.
What I’m doing is I’m using Bollinger Bands to help identify what part of the chart the price is in r...
