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 right now. And when I’m looking at candle patterns I like to see whether it’s near the up of Bollinger Band, the middle band or the lower band and that can have a huge amount of benefit in identifying the type of trade that I’m looking for.

Am I looking for a reversal trade or am I looking at a continuation of a current trend?

And so Bollinger Bands have a great deal of accuracy in helping identify what type of trade we’re looking at. If I’m looking at a trade off the upper or lower Bollinger Band, the likelihood is I’m looking for a reversal of the current trend and a continuation pattern means that generally the price is bouncing at or around the middle Bollinger Band and it means that let’s say we’re in overall uptrend, we’ve had a slight retracement and then we get ourselves to great opportunity to bounce off the middle Bollinger Band and for the overall trend and direction to therefore move back up again.

Other Factors Involved In Forex Trading

So that’s what I’m calling a continuation pattern. Of course there still lots of other factors involved in everything that I use in my trading candle patterns and support and resistance, round numbers, etc. But the Bollinger Bands, that’s how I use them and that’s how I make money from having them on my charts. That’s why I used them on my charts because they can just identify the right part of the chart that the price is in right now. Take them off your chart and your charts suddenly become a little bit sort of a bare and it’s quite hard to identify what sort of area we’re in and likely to be moving into next. So that’s the reason I used them.

So I hope that helps as an answer to the two questions. If you have any questions that you’d like me to answer in these videos and podcasts that I make weekly, all you need to do is to drop me an email [email protected] and I’ll do my best to answer that question for you really shortly.

So that’s it for now. Have a great weekend. I look forward to talking to you this time next week. Bye for now.

This is Andrew Mitchem from, The Forex Trading Coach.