Here is a 5M chart that includes std BB (dotted brown) and non-std
BB (solid blue) which can be used to spot price breakouts (=momentum). The std BB is period 20, deviation 2 (though I sometimes tweek
to 1.9). The non-std BB is period 10, deviation 1.5.
The best trades are when BOTH BBs pinch at the same time, not just
one or the other. A good entry price is around the level of the pinch line of
the inner BB, upper or lower depending on direction of breakout. A note of
caution is that Head Fakes cannot be identified as such at this quick entry
level, and sometimes the first run out of a pinch is in the OPPOSITE direction
of the final, and maybe substantial run. A note of
encouragement is that if a good run is afoot, many times there will be a pop
out of the pinch, but later the price returns to the pinch span area....this is
what many traders wait for, thus reducing exposure to Head Fakes and still
getting a second chance to board....
The attached charts show this action...the first pop to the 162% level, then
the pullback, then the resumption of the move.
The MT4 Fibonacci Extension tool can be used to get exit targets. Apply the
extension across the gap of the pinch of the inner BB. The resultant levels become
targets. There is no guarantee how far a run will progress, but the Fibonacci
Extension levels are prime areas outwards from the pinch where the PA (price
action) may halt. Some traders take a bit off the trade at each level the PA
attains, and up their SL (stop loss) on the remainder. Dual pinching of these
BB can foster runs that go for many hours and that include consolidations and
pullbacks, sometimes substantial ones, before the PA recovers and goes on to
attain another level. An initial setup on a small TF (timeframe) chart may
foster a good run that results in new setups on larger TF charts as the run
progresses. And sometimes the better pinch span to be applying the extension to
is that of the outer BB. So, it is good to experiment with this.
A good pinch on the inner band will
invariably achieve the 162% level, while one on the outer band nearly always
acheives the 100% level. Nothing is guaranteed, however. Traders that do not
want to be in a trade long, tend to look for the first
pop to the 162% area and exit, regardless of what happens next...but that is
Head Fake territory, too. Here is the start of a sequence of posts that
followed a real good example on the EurJpy yesterday: http://www.forexfactory.com/showpost...postcount=1864
And the attached sequence of charts shows what can happen, too....happening
while I was preparing this post!
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Bollinger Band Pinch & Fibonacci Extension...
Quote:
Originally Posted by traderathome
Here is a 5M chart that includes std BB (dotted brown) and non-std
BB (solid blue) which can be used to spot price breakouts (=momentum). The std BB is period 20, deviation 2 (though I sometimes tweek
to 1.9). The non-std BB is period 10, deviation 1.5. The best trades are when
BOTH BBs pinch at the same time, not just one or the other. A good entry price
is around the level of the pinch line of the inner BB, upper or lower depending
on direction of breakout. A note of caution is that Head Fakes cannot be
identified as such at this quick entry level,...
The first 5M chart is the one on which the originally drawn
Fibonacci Extension appears. The second 5M chart shows the Fibonacci Extension
redrawn at the second dual pinch created as the PA progressed. As you can see,
the accuracy of predicting the places where the PA may halt is incredibly good.
The PA hit the 638% Fib. Ext. level and failed there (for the time being).
Fibonacci Extensions across BB pinches are VERY accurate, so much so that other
indicators such as Pivots are not essential, though having both in agreement is
comforting......you just have to find the RIGHT pinch to make your Fibonacci
Extension measurement across! The better defined the pinches and the larger the
TF, the better the results
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