When the bands are contracting, the price action is being returned back to the centre, that is, the mid Bollinger band.
At this point then, a shorting pattern is used on the upper and long pattern on the lower BB respectively.
This ensures that you are trading with the trend.
Examples of shorting patterns are dark cloud cover, short engulfing, evening star.
Examples of long patterns are piercing pattern, long engulfing and morning doji star.
In summary :
For expanding Bollinger bands, use patterns that direct the price away form the centre.
For contracting Bollinger bands, use patterns that direct the price towards the centre.
Also��
For level Bollinger bands, check which way the bands are likely to go but generally use patterns that direct the price towards the centre.
Do not trade patterns when there is little width to the Bollinger bands and there is no sign of them expanding.
I wanted to thank you for the excellent threads on this method! I’ve read through both of them twice (WOW!) and am finally grasping this concept very well.
I will continue to follow and hopefully try and contribute but wanted to let you know my appreciation. The single most important thing about this method (for me) is the emotional side of things. Trading on lagging indicators is very stressful once you’ve entered the trade waiting for it to move the way it is suppose to according to the indicators, signals, etc, and figuring out where to get out, especially if you’ve watched a huge loss for a while. With this method I now understand the emotions behind the candles and I feel much more comfortable watching the market swing around without getting an ulcer :eek:
I also picked up “Japanese Candlestick Charting Techniques” by Steve Nison and am reading that now.
I’ve made 59 pips this week with spreads already being accounted for, and I feel like I’ve been trading very conservatively. Cheers!
Be wary of bad signals, this one looks like a morning star but doesn’t pan out…I almost traded this one. Notice the Bollinger bands are starting to trumpet and then start pointing downwards right where you would enter (where the Doji eventually forms). Also, the first candle doesn’t quite make it to the halfway point of the third candle and that third candle is a doozie! We want a strong retracement here to justify this. I hope I’m not leading anyone astray!
I don’t think the problem lies with the Bollinger Band, but with the placement of the pattern. There should be a clear preceding down trend before a morning star, whereas in your case there is none.
In this view we note that the Bollinger bands are still expanding after the 3rd candle is formed.
This would indicate extreme caution but with the s/r line, (in pink), we can take this trade with a little more confidence.
The first candle after the pattern formation is shown with the black vertical line. (entry candle).
We are going to trade [U]short [/U]because we are trading an evening star pattern.
Now the starc bands are dropping very steeply and it takes quite a while before we see price action reaching the upper 0.7 band where we [U]enter short[/U]. (E1)
The exit (X1) is taken 25 minutes later.
A total of 17 pips is scored.
This pair costs 2 pips spread so we are left with [B]15 pips in 25 minutes.[/B]
if you consider 2 amounts, that is [B]30 pips[/B].
[B]What is the surprise?[/B]
If we had used the Basic level, we would have entered immediately and with 2 amounts.
The 1st amount = 10 pips.
2nd amount = 34 pips-2 = 32 pips.
Total = 10+32 = [B]42 pips[/B].
[B]The Basic level in this trade makes more than the Advanced level[/B].
About the expanding Bollinger Band, since we have the evening star AND the resistance line bounce to back up our trade, can we “ignore” the BB just this once and enter immediately?
Upload your images to any pic hosting sites (eg. imageshack, tinypic, photobucket etc.). There should be a URL for each pic. When you’re typing a post, click on the insert image icon, then paste the URL of the image you want to show.
My question is, do i enter once the 0.7/1.0 STARC is hit or do I wait to see if the 5M creates a sell pattern after the STARC is hit?
I’ll answer this how I currently am using the system, Tymen, feel free to correct me
In the advanced method I enter as soon as the candle touches the .7 band (.3 if going long), I don’t wait for it to close. I also do not look for any candle patterns in the 5 minute chart, they are useless in this method and are just noise. The key for the 5 minute chart is the STARC bands to help get the best entry and exit points for rolling pips. I switch back and forth to the 30 minute chart occasionally during the 1/2 hour to make sure our pattern is staying true and is not reversing.
I’ve been trading this very conservatively this week (missing a lot of pips but playing it very safe) and have not made a single loss, one break even, the rest up anywhere from 2-3 pips to 20 pips.
The big killer for me right now is the spread, I’ve had good luck with the USDCAD but my spread is anywhere from 5-7 pips :eek:
Mike
[B]Edit:[/B] Also, if the STARC bands are in a serious trend up or down and are going the way I am trading the trend, then I enter when the candle hits the .5 band because the price action is moving strongly in the current direction and rarely in a strong trend does it reverse enough to get to the .3 or .7 bands (long or short) opposite of the direction of the trend.
I am so sorry xtensive…I was out all of yesterday and am just getting the chance to check the responses to my post. I am posting the images below just to ensure I understand how to do it. Thanks very much for your answer, that certainly clarifies my questions.
[B]April 7th 2009, 30M Sell Setup[/B]
[B]5M Entry and Exit points[/B]
Please review to see if I have the entry and exit correct.
I have been trading this strategy for almost 2 weeks now and am getting good results. I have however done some experimenting and am not trying to change anything, but so far what I find is that candle patterns are well respected on all time frames. Of course, the bigger the time frame the more reliable, as you previously said. My point is, for me, I have found that using the STARC rules on the 5M ONLY, works pretty well. The thing is that the risk is already so small here, when 1 and 2 patterns fail it hardly matters. What I primarily do is trade with the trend. I use all the STARC levels and the BB on the 5M. I also use FIBS to help determine likely targets and so on. This seems to give me more profitable trades. Example:
[B]For example, yesterday, at 9:20am EST, the 5M BB had expanded, a SELL pattern appeared, then a second and sell pattern with the BB now contracting, followed by a pullback to the upper 0.7 STARC. The risk was 13 pips including pip spread, reward 138 pips excluding spread. My exit point is validated by a completed “W” pattern, breached 1.0 & 2.0 STARC, BB hit as well as an achieved FIB destination. The FIB destination helped me hold a bit longer.[/B]
