Let's say that you have got into the market at the right time and your trade is going well. You can close your trade and take a profit now or do you wait for the market to go a little bit further. Without looking at the chart, it is hard to tell, but this is a dilemma for most traders with a successful trading strategy. At some point you have had a trade going the way you have wanted and then the market suddenly turned around and you have lost most of your profits. Or you have closed the trade and see the market continue on and you miss all those profits. Today, we are going to look at a strategy that could help you reduce the uncertainty, using the Bollinger Bands.
Bollinger Bands are one of those indicators that traders have in their charts, but don't pay much attention to. But that does not mean they cannot help us know when to exit a trade. Here we have the AUD/USD daily chart with MACD indicator at the bottom, be used to trigger the trades and the gray area on the chart is the Bollinger Band. Now, if we use MACD as an entry indicator, we wait for the histogram to cross the signal. Let's enter a short position here and the market goes down. Now we made 300 pips. When should we get out of the market. Now the market goes through a bit of a correction and continues downwards. The MACD histogram crosses through signal line which is a bullish sign. Now the price touches the upper band and with the MACD and Bollinger Bands telling, you it's time to get out of the market, then you should.
Using Bollinger Bands helps you get a few more pips out of the move and you should not get too greedy. Essentially, with this strategy, you are looking for two signals to confirm each other and make sure you don't miss out those extra pips you can make from the market