How to Trade Trend Pullbacks?
What is pullback? The price never follows straight lines…
Strategy For Flat Trading: Rubber Band
2021-07-09 • Updated
Information is not investment advice
Although the market is flat 70% of the time, most of the trading strategies are for trend trading. Thus, most traders use only 30% of the trading potential! If you want to be more productive, pay attention to this strategy.
Prices can move in trends (up/down) or move sideways without any clear direction. This strategy applies to the second option – when the market is flat. Most of the success depends on how good a trader finds the entry and exit points. Sometimes, it’s really hard to define, that’s why traders use technical indicators and price patterns.
You will need the following indicators for this strategy:
- Moving Averages (MA),
- Bollinger Bands (BB),
- Relative Strength Indicator (RSI).
How to recognize flat market?
There are two ways of doing that. It’s better to use a 4-hour timeframe (H4).
For beginners
Follow the signals of moving averages. If two moving averages are intersected or move in parallel, it’s a signal that the market is flat. It’s recommended to use 20- and 50-period moving averages for this purpose.
For intermediate traders
Define at least two price maximums on the same level and draw a horizontal line. Do the same with minimums. After that, you will get a horizontal corridor.
*Tip! Use both approaches and the signal will be stronger.
Setting indicators
- Open the H4.
- Insert two moving averages with periods of 20 and 50. Choose different colors for MAs.
- Open the H1.
- Insert Bollinger Bands with the default settings. The middle line of BB is the 20-period MA.
- Insert the Relative Strength Indicator (leave the period by default, change the levels to 35 and 65).
*Tip! Save the charts with the set indicators as a template. Further on you shouldn’t set these indicators and their settings again. To do that, click on any place of the chart with the right mouse button, then click ‘Templates’, then ‘Save Template’. Done!
When to open an order?
To open a BUY order, all the conditions below should be met.
- The market is flat in the 4-hour chart.
- Open the 1-hour timeframe (H1), wait for the price to break the lower line of Bollinger Bands and the RSI indicator to move below or approach the 35.00 level.
- (Optional) Open the 15-minute chart and find the signal for reversal. It could be a candlestick or price pattern. For example, a hammer or a double bottom. Besides, you can notice that the price bounces off the round number (0.8500, 0.8000).
- Open the BUY order!
- Place Stop Loss 20-30 points lower (= 2-3 pips) of the signal candle.
- Place Take Profit at the middle line of Bollinger Bands.
To open a SELL order, all the conditions below should be met.
- The market is flat in the 4-hour chart.
- Open the 1-hour timeframe (H1), wait for the price to break the upper line of Bollinger Bands and the RSI indicator to move above or approach the 65.00 level.
- (Optional) Open the 15-minute chart and find the signal for reversal. It could be a candlestick or price pattern. For example, a shooting star or a double top. Besides, you can notice that the price bounces off the round number (0.8500, 0.8000).
- Open the SELL order!
- Place Stop Loss 20-30 points higher (= 2-3 pips) of the signal candle.
- Place Take Profit at the middle line of Bollinger Bands.
This strategy suits both beginners and more advanced traders as on the one hand, it is based on simple indicators and on the other hand, requires several levels of filtration and confirmation of trade signals.
Kseniya Medik
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