Month: October 2011

ADX and Bollinger Band

ADX and Bollinger Band spread betting strategy

Time frame: 5 Min

Indicators used / Settings:

(14)

(20, 2)

 

Charts used: FTSE 100

Possible other spread betting charts:GBP

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Entry Rules:

When the ADX is above 25, this indicator tells you that a trend is underway. The whole point of this scalping  the FTSE strategy, is to find moments when there is no trend and the FTSE 100 is trading sideways or is consolidating after a move.  The whole purpose of this is to be patient. Once the FTSE 100 is consolidating you apply a mean reverting spread betting strategy. 

 

Spread-betting long:

When the ADX is below 25, as the UK100 has stalled after a strong trend, or there is no news and the FTSE is trading sideways. Wait for the prices to drop and touch the lower band. As you see the prices reversing going back up towards the middle 20 moving average line, spread bet  long.

You don’t want the price to break the band and close below the band. If the current candle closes below the lower band wait for the first candle to close back above the lower band. Then trade long.

 

Spread-betting short:

Again the ADX is below 25 and the FTSE is trading sideways. Wait for the prices to move up towards the upper band. As you see the prices reversing going back down towards the middle 20 moving average line, spread bet  short.

Ideally you want the prices to touch the bands and move lower / higher. If the prices close above the bands wait for the next bar to close inside the bands.

Strategy does require patience.

 

Exit Rules:

This is a scalping strategy. Use 5 – 10 point profit and 10 – 15 point stop loss.

stop loss: 15

target: 5-10

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Here is a spread betting example of this ADX and Bollinger Band strategy applied to the FTSE100

 

FTSE 100 - Scalping 5 Min ADX BB

 

In the spread betting example below of the uk100. Prices did bounce off the lower Bollinger band, but failed to move higher. Be careful when prices do not follow through past the middle SMA heading towards the top band. , could indicate a change in trend.

FTSE 100 - Scalping 5 Min ADX BB_2

This spread betting strategy can also be applied on :

FTSE, DJI, GBP, Oil

Back to spread betting scalping strategies

Sideways Trend

What is a Sideways Trend ?
A sideways trend is when there is an equal balance between buyers and sellers, thus the price moves up and down between two levels. There is no real strength for a trend to continue in either direction.

During a sideways trend there will be strong resistance and support  levels. To break these levels you will need a substantial push either up or down.

 

 

: The yellow lines are in a consolidation phase.

: The blue lines are trend phase.

:  the Pink lines

 

Consolidation

Trend

What is a trend?

A trend is when prices have pushed in one direction either up or down.

An Up trend is when the lows are getting higher and the highs are also higher

A Down trend is when the lows are getting lower and the highs are also lower

 

Circles are getting lower

Diamonds are getting higher

 

Trend

 

Mean Reverting

Mean Reverting

Mean Reverting refers to theories that say price will normally return back to their mean or average. In Statistics, the mean or average is the average price over the last n days (Days you have chosen as average).

A is widely used when spread betting with the Bollinger Bands. Here is a .

5 Min GBPUSD

Time frame: 5 Min

Indicators used / Settings:

  • Parabolic SAR : (0.1, 0.11)
  • Moving Average : SMA 20
  • MACD:(5, 8, 9)

Charts used: GBP

Possible other spread betting charts:

FTSE 100, DAX, EURUSD

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Entry Rules:

Spread-betting long:

The Parabolic SAR will give you the direction. Therefore you wait for the Parabolic SAR to be below the price. When you see the candle stick bar close above the moving average and The MACD histogram is above the 0 line, this is an indication to spread bet long. You could be spread betting in the evening this trading strategy as the GBPUSD gives you enough movement also in the evening

Spread-betting short:

Going short is the opposite, wait for the Parabolic SAR to be above the price. When you see the candle stick bar close below the moving average and The MACD histogram is below the 0 line, this is an indication to spread bet long. You could be spread betting in the evening this trading strategy as the GBPUSD gives you enough movement also in the evening

 

Exit Rules:

stop loss: 12 point

target: 3 to 5 ticks target

This is a spread betting scalping strategy therefore the following money management rules apply. Use a 12 point stop loss and try scalp the market for 3 to 5 ticks target. how to determine if using 3 or 5 ticks? well if the moving average is sloping or not this will indicate if the pair is trending. in a trending market you could take more points out of the market in a quiet sideways market just look for 5 points.

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Here is a spread betting example of this  scalping strategy:

 

Scalping Strategy- MACD-PARSAR-MA_2

 

 

 

 

 

 

Further spread betting examples / I spread bet this trading strategy at times on :

FTSE 100

 

Scalping Strategy- FTSE100 - MACD-PARSAR-MA

 

 

 

 

Fibonacci Arcs

In the spread betting example below you can see how the Fibonacci levels are used in a form of Fibonacci Arcs. As you can see the Arcs are the projection of the Fibonacci levels: 38.2% 50% and 61.8%

In the spread betting strategy below the 38.2% retracement and the 61.8% retracement proved to be strong support and resistance areas in King fisher.

The Fibonacci Arcs are applied in the same way the Fibonacci retracements are applied. Draw the line from the highest to the lowest point then the projections will show the retracement points. These arcs can be applied also to spread betting stocks, Indices, commodities and bonds.

 

KingFisher -Fibonacci retracement arcs_

Spread betting example of the Fibonacci Arcs applied to King fisher stock

 

Next Fibonacci Fans

Fibonacci

Fibonacci Retracements are ratios used to identify potential reversal levels. Trader’s use these to predict where support or resistance levels are. The most popular Fibonacci Retracements are 61.8% and 38.2%.

Fibonacci numbers were identified by Leonardo Fibonacci, represent ratios that naturally occurred in Nature. Fibonacci numbers are simply a series of numbers that when you add the previous two numbers you come up with the next number in the sequence. Here is an example:  1, 2, 3, 5, 8, 13, 21, 34, 55 

 1 + 2 = 3;    2 + 3 = 5;

The main ratio also known as the Golden Ratio or PHI is 1.618 or the inverse 0.618. (calculated: number divided by the previous number approximates 1.618  55/34 = 1.618 or the other way round 34/55  = 0.618). Fibonacci numbers occur in nature and in the various markets as Forex, Stocks, Indices and commodities. There are many tools that incorporate the Fibonacci levels:

  • Fibonacci Retracements
  • Fibonacci Arcs
  • Fibonacci Fans
  • Fibonacci Time Extensions

Fibonacci Retracements

FTSE 100 -Fibonacci retracement(1)

The Fibonacci retracement tool is the most popular tool used applying the Fibonacci levels. To use the tool, just place the high and low on the highest point and the lowest point of the move, with the 0 at the extreme point of the move. The Fibonacci retracement tool will then project the retracement levels, as you can see in the spread betting example above.

In the graph above of the Spread betting index FTSE 100, you can see various levels projected which have become resistance while the FTSE was retracing it’s downward movement. Here is a spread betting strategy where the resistance areas where the FTSE Index stalled and retraced and presented itself as good trading opportunities are: 23.6% to 38.2% to a strong 50% then to 61.8%.

Once one resistance broke, this level then becomes support. Note in the spread betting example  how 23.6% was initially resistance then became support, the same with the  50% level which became support and 61.8% resistance.

 

Next:

Bollinger Bands breakout strategy (the squeeze)

Now we will show you completely the opposite of what we showed you earlier. This is a Bollinger band breakout strategy. This spread betting strategy works especially when prices have been trading in a range and there has been no decision on direction. Then suddenly they move either lower or higher and break out of the range.

The Squeeze: This strategy is also known as the squeeze, as prices will start trading in a range before the breakout, the Bollinger upper band and lower band will squeeze

Look at the spread betting example of Xstrata (XTA.L) below:

Xstrata (xta) -Bollingerbands breakout strategy

 

Bollinger Band Break out – LONG

Traders trade the prices long when prices have gone into a rage or consolidation, the bands squeeze and prices break to the upside closing above the bands.

Bollinger Band Break out – SHORT

on the other hand a short occurs when prices break out of the squeeze to the downside closing below the bands.  In this case, as we can see the spread betting example above, Xstrata  broke it’s range to the downside, the prices closed below the band and the prices continued lower.

How to control your risk. This depends on your risk tolerance. Some traders, with a higher risk tolerance put their stop above the range, others with a lower risk tolerance would put their stop loss just above the middle of the band

 

Measuring the strength of a trend

This same method can be used to measure the strength of a trend. Once the break out occurs and prices remain in the top half or bottom half of the Bollinger Band. Not crossing the middle line, this indicates that the strength of the trend is strong and it likely to continue.

Xstrata (xta) -Bollingerbands - trend stregnth

 

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