PipStory

Good trading decisions are based on the right use of several tools under different situations. Bollinger Bands, MACD, Parabolic SAR Stochastic, RSI, ADX, Ichimoku Kinko Hyo are some of those very important tools.

Bollinger Bands

Bollinger Bands is a market trending tool which gauges market volatility. Bollinger Bounce is a strategy which assumes that prices always attain the centre level of the Bollinger Bands. Hence, Bollinger Bounce works best in markets when prices are ranging rather than following a single trend.

Bollinger Squeeze is a strategy through which you can identify breakouts beforehand. It simplifies to understanding that breakout always follow subdues market activity.  After the breakout, however, one can trade on the side in which prices have made their breakout.

MACD

MACD helps in figuring out market trends early. It makes use of 2 moving averages and a histogram to calculate the distance between two moving averages.  The only problem with MACD is that it is too time consuming to use so many moving averages.

Parabolic SAR

Parabolic SAR stands for Parabolic Stop and Reversals. As the name suggests, it is a useful and easy indicator to indentify spot trend reversals. Understanding this indicator is easy because it clearly represents sell signals and buy signals through the movement of dots above or below the candles.

Stochastic

Stochastic is a useful technique through which one can make out overbought and oversold conditions. The movement of moving average lines above and below two values of 20 and 80 signal overbought and oversold conditions. When moving average lines are below 20, the market is oversold and should look towards buying. If the lines are above 80, the market is overbought and should focus on selling.

RSI

RSI stands for Relative Strength Index. RSI works in the same way as Stochastic to spot overbought and oversold market conditions.

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In business there is a traditional school of thought that makes most if the traders trade the breakouts. Sometimes this thought fails. In instances where the support or resistance level broken is appreciable, fading breakouts might prove to be smarter than trading breakouts.

Fading Breakouts

Fading breakout means trading in opposite direction of the breakouts. It can also be referred to as trading false breakout .One can fade a breakout if they take the break in a resistance or a support level to be false and is not going to move in that direction for long.

Fading breakout is a great short-term strategy. It yields pretty high at times but that by no means mean that it can prove to be a beneficial one in the long run too. By learning this new strategy one can help suffering loss at times.

Appeal in Trading Breakouts

Support and resistance levels are considered to be the floor and ceiling. If these levels are broken one would expect the price to continue in the same direction as the breakage. If the support- the lower price limit, is broken then it means that the general price movement is downwards and people are more likely to sell then buy.

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There are various mistakes that are made by almost every trade while using stops. It is a way to practice money management, but when it is applied incorrectly it ends up in big losses, and certainly nobody wants to lose. Let’s have a look on these common stop usage mistakes.

Placing Ultra Tight Stops

The first most common stop usage mistake is that often traders place stops too tight and they don’t leave even a small room. When you place too tight stops you actually don’t leave sufficient “breathing space” for price fluctuation prior to finally moving your way. Make sure you always leave enough space for the volatility of currency pairs.

Usage of Position Size to Determine Stops

You should not use position sizing to determine stops, instead you should technical analysis method to do so. It is not a good and wise idea to use position size because calculation of how far your stop should move has no relation with the market behavior. Setting stops depending on the market moves would make more sense because you are trading the market. Bear in mind that, you have chosen your entry point and targets of trading depending on the technical analysis method, so you should carry out the same thing for your stops. All this doesn’t mean that you should avoid giving importance to position size; instead you should decide about the right placement of your stops prior to calculating your position size.

Setting Stops Too Far

This is another common mistake that usually traders make. What they do is placing the stops at a great distance and they hope that sooner or later price action will move to them. Read the full story