Hunting Breakouts with Bollinger Bands and OBVThanks to zAngus for the idea, here is a simple trading strategy that uses two tools: Bollinger Bands and OBV to find moments when an asset's prices can increase or decrease.
First and foremost, please note that this explanation is simplified and only covers the basics. Each individual can develop their own settings and adjustments according to their own preferences.
Imagine that you are looking at a price chart of an asset. This chart shows how prices have changed over time. Sometimes prices go up and sometimes they go down.
The trading strategy we are going to show you can help you find moments when prices are about to change direction.
- Bollinger Bands are lines that show a zone where prices of an asset are likely to stay.
These lines have two parts: a middle line that shows an average of prices and two other lines that show the zone where prices should be.
The lines widen and narrow based on the volatility of prices.
- OBV (On-Balance Volume) is another tool that measures whether more people are buying or selling an asset.
If more people are buying an asset, OBV increases, and if more people are selling an asset, OBV decreases.
Now, here is how we use these two tools to find moments when an asset's prices can increase or decrease:
1. First, we wait for prices to stabilize for a certain amount of time. This means that prices don't go up or down much during a given period.
2. Next, we look at the Bollinger Bands to see if prices have reached the upper or lower limit. If prices exceed the upper limit, it may mean that prices will increase.
If prices fall below the lower limit, it may mean that prices will decrease.
3. To confirm what we have seen in the Bollinger Bands, we look at the OBV.
If OBV increases or decreases at the same time as prices exceed the upper or lower limit of the Bollinger Bands, it means that more people are buying or selling the asset, and this reinforces our idea that prices will increase or decrease.
4. We enter the market by buying or selling the asset based on whether we think prices will increase or decrease.
5. We exit the market when prices reach the opposite upper or lower limit of the Bollinger Bands or an important resistance zone.
This is a simple strategy, but it can help find moments when an asset's prices can increase or decrease.
Remember that you must always use good risk management to avoid losing too much money if the market doesn't follow your forecast.
Please note that this Bollinger Bands and OBV breakout trading strategy involves risk and is intended for educational purposes only. Any investments made using this strategy are done at your own risk, and you should always do your own research and seek professional advice before making any investment decisions.
