Metatrader: Bollinger Band and Macd

 Bollinger Bands are a technical analysis tool comprised of twobands surrounding a moving average line, one above and the otherbelow. The upper and lower bands are plotted at 2 standarddeviations above and below, respectively, the simple movingaverage. Because a standard deviation is a simple mathematicalformula measuring volatility, a contraction in the upper and lowerbands means there is less movement in the price, while an expansionin the bands means there is increased uncertainty and a large pricemovement is more likely. 

 

If you plot the Bollinger Bands with your currency pair and thecurrent price of the  pair drops to the lowerband, it could be taken as a sign of a coming positive reversal inthe price. Conversely, if the current price rises to the upperband, it may be taken as a sign the pair is overbought and a fallin price is pending. [As the standard day setting for the movingaverage is 20 days, setting your Bollinger Bands to 25 days couldaid you in counter trading.]

When multiple indicators are used at the same time and theyreinforce each other, they can be used to identify high-probabilityopportunities.

Here we use the MACD (with the setting 12-day EMA and 26-day EMA).The MACD is a trend-following momentum indicator that searches forchanges or breaks in a trend, just like the BollingerBands.  The MACD can be used to ascertain whetherthe price is at a top or bottom. If the price of a currency pairfalls to the lower Bollinger Band, you can take a look at the MACDto provide more proof of whether a price reversal is on the way ornot. If the MACD is relatively low and starts to rise, a pricereversal is more likely and you have reached a possible buyingpoint.

You could also look at your moving averages for more proof. An EMAcrossover, when the shorter (or faster) moving average crossesabove the the longer (slower) moving average, provides additionalcomfort that a bull movement is coming.

In the contrary case, if the price of your currency pair rises tothe upper Bollinger Band and the MACD is considerably high andstarts to drop, a downward movement in the pair is more likely.

You should look to your Bollinger Bands before checking the MACDfor confirmation of a break in trend. Vice versa the signal is notas effective because the MACD is a lagging indicator, meaning asignificant move may have already occurred and you may enter yourposition too late. Look for breaks in trends using the BollingerBand first, and then confirm it from the MACD.

 

Note

When the market moves sideways, or non-directionally, the MACD doesnot give a good performance.

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