Trading with Bollinger Bands and Stochastic Indicators

Having the knowledge of one tool of analysis in Forex is good. Knowing how to use more than one chart indicator is even better.

If you could predict the markets accurately, one tool indicator would be enough. However, in Forex you can never be sure. For this reason, traders require more than one indicator to increase their probabilities of success.

If you use three chart indicators to trade Forex, you will have to take a position when the three charts provide the same signal.

You can use Bollinger Bands to identify signals in Forex trading. Stochastic indicator helps in determining overbought and oversold conditions. Using one of these indicators on its own might not give you an accurate projection of the market situation.

Nevertheless, you can combine both Bollinger bands with stochastic indicators to give you a more accurate reading of the market trend.

Take for example a 1-hour EUR/USD chart in a ranging market.

In the figure above, the price of EUR/USD reached the lower band and bounced back, which indicates a buy signal. To confirm this, you should check the stochastic indicator. Surely, the stochastic indicator confirms the buy signal because it is oversold as shown in the chart.

The prices then rose almost 200 pips. If you had bought at the signal, you could have made good money. After that, the prices touched and bounced off the upper band, showing a sell signal. This was then confirmed by an overbought stochastic.

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