Price moves in waves (swings) up or down. In trend, wave in its direction tends to be longer. Struggle between bulls and bears for price dominance is represented by pull back formation. When one group of traders moves the price substantially in one direction (inital wave), the other group will consider this to be a good price for them to try and push the price back. This will create typical pullback formations in wave structure of the price.
By comparing initial swing (wave) to the pullback formation, we can often times estimate strength of the trend and commitment of trading group opposing it. Small pullback formation (when compared to initial wave) often times mark great entry to follow the trend.
Signal is confirmed once the initial wave reaches new high/low after the pullback formation (correction).
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This forex strategy uses zigzag forex indicator together with bollinger bands for maximum accuracy and to be able to enter only the signal waves with massive momentum that is necessary to break outside of bollinger bands boundaries.
Used forex indicators.
ZigZag forex indicator (8,5,3). ZigZag will mark the initial (signal wave 1.). It will be followed by correction wave. Correction wave will serve as a signal confirmation and guide for stop a profit targets placement
Bollinger bands (20). Boolinger bands can adapt to market volatility. Therefore, breakout of one of boundaries signalizes sufficient momentum of swing that should be followed by price continuation. This will be confirmed by correction wave.
Forex strategy rules
BUY:
Bullish Zigzag line (1.) closing above upper bollinger band (A).
Correction wave (2.) not closing lower than 50 percent of signal line (1.). Correction wave closing further below, may signalize possible trend reversal and should be avoided.
Pending buy order is placed once the wave (3.) opens. Buy order is placed at the high (A) reached by signal wave (1.)
Stop loss is placed at the low reached in correction wave (B).
Take profit: Equals the distance between (A) and (B).
SELL:
Bearish Zigzag line (1.) closing below bottom bollinger band (A).
Correction wave (2.) not closing higher than 50 percent of signal line (1.). Correction wave closing further above, may signalize possible trend reversal and should be avoided.
Pending sell order is placed once the wave (3.) opens. Buy order is placed at the low (A) reached by signal wave (1.)
Stop loss is placed at the high reached in correction wave (B).
Take profit: Equals the distance between (A) and (B).
