In the forex faq today, we have a question from one of our fellow traders asking me the below question
Hi Koon Hwee
Am struggling to develop a trade setup. I want to combine bollinger bands, volume and awesome oscillator. Please help. Regards
First of all, I must say that developing a forex strategy can be very time consuming but it will be worthwhile if you eventually managed to formulate one for your own use.
I can’t say for sure whether combining the bollinger bands, volume and awesome oscillator can really produce a good forex strategy as I have never done any back testing on the combination of these 3 indicators.
What I can do here is to give you some advice on what are the indicators you will need in order to be able to formulate a good forex strategy to use.
1) Support and Resistance Indicator – It is very important for you to make use of support and resistance in your trading so that you can have a good point to exit and enter a trade.
In fact, the bollinger bands that you wish to use is also one indicator that has a upper resistance and lower support band. Other than BB, I will recommend you to make use of Fibonacci and Pivots as these 2 indicators are widely used by big dog traders and therefore you will find that the price usually respect these levels.
Whenever they break through the levels produced by these 2 indicators, you will find that the price will move quite a lot after that.
2) Trend Indicator – If you have been following me, you will know that I emphasized a lot of trend riding. It is always easily to trade in the direction of the trend than against it. Therefore I will recommend you to make use of some trend indicators to help you identify the market trend before you trade.
If your strategy gives you a forex signal that is in the direction of the trend, this will increase your chance of winning. If your strategy gives you a signal that is against the trend of the market, then you will have to be more wary and may need to monitor the trade. For new traders, I will recommend you not to trade against the trend.
Besides these indicators, you must also find a way to help you reduce the number of false alarm trades which will help you to reduce the number of losing trades.
What I can suggest you to do is to do some trial and error by varying different indicators to see the results through back testing. A typical duration for formulating a strategy can go up to 4 to 6 months based on my own experience. There is no short cut as you will have to do fine tuning to your indicators and back testing to find the best stop loss and target profits to place for the strategy.
Although it can be time consuming, it is worth every second of your time if you eventually manage to formulate a money making strategy.
Actually you do not need to formulate a complete new strategy, you can pick up a general strategy from any website you see and then try to fine tune it by adding various forex indicators and adjusting their setting to see if you can get a good results.
For more info on how to formulate your own strategy, you can see the post I have written some times back.
For those of you who are new, you can take a look at my blog post below