In volatile forex market, periods of low volatility are also present. They are usually followed by periods of high volatility coupled with sudden price movements. Bollinger bands in tandem with envelopes, are two forex indicators that are working great in finding those tight squeezes leading to massive price movements.
Used forex indicators
Bollinger bands: period 10
Envelopes (default settings, period 14)
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Forex strategy rules
We plot both of the indicators in 1 hour chart of any major currency pair.
Low volatility will be signalized by Bollinger bands indicator closing both its top and bottom line within the envelopes boundaries.
This situation is followed be envelopes breakout to either long or short position. Our signal will be following.
Sell (short)
Bearish candle closing below bottom (red) envelopes line. We enter immediately on candle close
Stop loss is placed at highest point reached by blue envelopes line during the squeeze (BB within the envelopes line).
Take profit is signalized by price candle closing above blue envelopes line.
Buy (long)
Bullish candle closing above upper (blue) envelopes line. We enter immediately on candle close
Stop loss is placed at lowest point reached by red envelopes line during the squeeze (BB within the envelopes line).
