Trading Gold with Bollinger Band and Stochastic Indicators
Trading the gold with Bollinger band and the Stochastic oscillator is very profitable since lots of false signals are easily filtered out in this strategy.Professional day traders use the Bollinger band to find the dynamic support and resistance level of the gold. The upper band act as dynamic resistance while the lower band act as dynamic support.
The midband is often considered to be the neutral band or retracement level calculator.The default value of the stochastic indicator is used while trading the gold with Bollinger band indicator. Let’s see an example of trade setup using the Bollinger band and Stochastic indicator:
Figure: Trading the gold with Bollinger band and stochastic indicator
In the above figure, traders went short when the price tested the upper Bollinger band and formed a bearish candlestick pattern along with the overbought value of the stochastic indicator. Traders use tight stop loss which just above the confirmation candlestick pattern and set their take profit level in the dynamic support of the Bollinger band.
Once the price hit the dynamic support professional day traders wait patiently for buying opportunity along with candlestick confirmation and oversold value of RSI. Once the bullish pin bar is printed right in dynamic support of the Bollinger band traders went long. It’s very important that traders use price action confirmation signal while trading with the Bollinger band and stochastic indicators.
In the above figure, the red circle represents that price is hitting the dynamic resistance when the value of stochastic is overbought. All the conditions were fulfilled except the candlestick confirmation signal. Since there was no valid sell signal in from the raw price data no trade was taken even though the first two conditions were perfectly fulfilled.
This trading strategy works best if the asset is traded along the direction of the trend. That means for an uptrend we will look for buying opportunity in the dynamic support and ignores the selling opportunity regardless of all the conditions.