This forex strategy takes advantage of powerful chart formation – hammer. Bollinger bands are used to confirm price reversal and to help us consider the volatility of the market.
The candle hammer - Forex strategy tools
Candle formation : Hammer candle. Candle with wick at least twice the size of the body of candle. Body of candle should be flat, however when open and close price is equal (doji star) we do not consider it to be a valid signal.
Bollinger bands (20) With default settings.
EMA(Exponential moving average) 100
Fore strategy rules:
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Sell:Upwards hammer candle. Wick above the candle body is at least double of its body size. Candle touched upper Bollinger band. We enter short immediately after candle close on new candle open.
Buy: Downward hammer candle. Wick under the candles body is at least double of its body size. Candle touched bottom Bollinger band. We enter long immediately after candle close on new candle open.
How to exit the position
EMA 100 is used to identify trend. Strategy opens both long and short trades regardless of trend, but it uses different methodology to exit trending and counter trend positions.
BB below EMA 100 (downtrend)
Sell positions: Exit when price touches bottom BB
Buy positions: Exit when price touches central BB
BB above EMA 100 (uptrend)
Buy positions: Exit when price touches upper BB
Sell positions: Exit when price touches central BB
Needles to say, Bollinger bands will adjust to market volatility, take profit is therefore fluent.
Stop loss placement: We always place our stop loss at top/bottom of the wick of signal candle.
