Share with friends: Bollinger Band and Divergence Trading

[joeytrader]

Update/Warning: after looking at some further results, I have realized that this system as it stands unmodified can be dangerous, although the author's results for July looks wonderful, if we go back even just 1 more month, in June, this system was a disaster. See post #16 for actual June result numbers.

 

Although I have not had much success with this author's other products, I was intrigued enough when he sent us a statement claiming 140% profit from trading on H4 timeframe for just 1 month, here is the statement:

 

http://forexrobottrader.com/webinars/143percentProfitin30days.htm

 

So I signed up to this webinar.

 

In his webinar, he showed his method by going through trade-by-trade according to the above statement. Here is the link to a recording of that webinar:

 

http://forexrobottrader.com/webinars/BollingerPlusDivergenceTrading.wmv

 

For this system, in addition to the standard Bollinger Band from your MT4, you'll also need this Divergence indicator, here:

http://www.4shared.com/file/RvNs0oYN/attachments_2010_08_06.html

This zip file also comes with some short pdf's explaining a little about different divergences. The pdf's are not very useful or important if you are already familiar with divergence. But the indicator is needed for this.

 

Some personal notes:

 

(1) the webinar is well over 1-1/2 hour long, but you do not need to go through the entire video, after you see him going through the first 2 to 3 trades, you already know the method already, and you can check the rest of the trades on your own (by following the statement)

 

(2) there is no ebook manual to his system or method, he did all the explanation only in the video.

 

(3) I did go through his entire statement by referencing to my own charts, I noticed a few of the trades seems to have entry far more favorable than what I thought was possible going simply of the existing rules. I am not accusing the author of faking the statement, but at least I do not think by following his method 100% mechanically, would produce his results identically.

 

(4) But despite saying (4), for July this method would have been very profitable.

 

(5) But note that he uses NO SL, so be prepared to withstand some big drawdowns. On some trades, he let them dragged out for over a week, and withstood drawdowns up to 100/200 pips.

 

Personally, I would probably paper trade this for the next month, and see if the strategy holds up to a second month of profit.

 

For those who are rushing in time, or just simply too lazy to view the video, here is the method in a nutshell:

 

(1) Use H4 timeframe, check you charts (as many currency pairs as you like) every 4 hours,

(2) Use standard Bollinger Band settings, and the attached Divergence indicator,

(3) Whenever a divergence occurs (as indicated by the indicator), enter a trade in direction suggested by the divergence, with no SL, and TP at the opposite outer band of Bollinger Band.

(4) Keep moving TP every 4 hours to the targeted outer band of Bollinger Band, until price hits (at either profit or loss).

(5) Suggested filter: (a) take only trade when there is large enough distance (potential profit) between entry price and opposite outer band of Bollinger Band; (b) take only trade when price still needs to travel across the middle Bollinger Band line before it can reach the other end (similar to giving you more distance and potential profit).

 

(6) forgot to add, another exit point is if a new divergence signal occurs, pointing the wrong way.

 

So what do you think of this? Did the author simply had a lucky month and decided to cash in with some webinar income? Or is this the next great trading strategy?

 

I for one, is still cautious about throwing real money behind this yet. But just in case this is better than I expected, I thought I should share it here, and let you decide for yourself.

Edited August 7, 2010 by joeytrader
update with a warning

[Freddie]

Good to know Joey, don't want to kidnap your thread but while we are going the BB route 'Triple Strike' which is available here would probably be complementary to this.

Freddie

[joeytrader]

Good to know Joey, don't want to kidnap your thread but while we are going the BB route 'Triple Strike' which is available here would probably be complementary to this.

Freddie

 

Thanks Freddie, I was not familiar with the 'Triple Strike'. Thanks for pointing that one out, I'll take a look at that over the weekend.

[kraven]

i've had these indi's loaded for a while, just to take a look and joey if you decide to trade this way i would advise a SL at the top of the divergence candle or the entry candle which ever is bigger (often around 50pips) for this guy not to have a stop is ridiculous especialy on a 4hr tf, it's fine if you have 20k or trading tiny lots. e.g. go on the AUD/JPY 4hr 23/6 12:00 it shows a BUY at 78.66 it drops close to 600pips and takes till 14/7 before it gets back and then it just gets there. So my advice is demo it with a sl and maybe double it for your tp.

[joeytrader]

...

for this guy not to have a stop is ridiculous especialy on a 4hr tf,

...

So my advice is demo it with a sl and maybe double it for your tp.

 

Yeah, I agree, no SL on H4 timeframe can be too much of a roller-coaster for my blood pressure. I assume if I ever go live on something like this, in addition to finding a reasonable SL, I'll need to either (1) confirm trade with some further filter(s), and/or (2) take profit in stages (for example, on some of the author's losing trades, I notice if I were to take partial profit when price first touched the middle BB line, I could come out either a small winner, or at least smaller loser).

 

Since I cannot be doing much live trading at he moment due to personal reasons anyway, I'll probably eye-ball the set-up at the end of each week, and get a sense of how profitable (or not) is this going to be going forward.

[joeytrader]

...

e.g. go on the AUD/JPY 4hr 23/6 12:00 it shows a BUY at 78.66 it drops close to 600pips and takes till 14/7 before it gets back and then it just gets there.

...

 

I forgot to note in my summary of rules, there is one more exit rule that the author mentioned in his video, and that is, if we encounter a new divergence in the opposite direction, we get out of the pre-existing trade.

 

On this particular trade, there is a new divergence in the wrong direction on 2 July, so this should have been a almost -500 pips loser!!

 

Only add more fuel to the argument that, we should use SL.

[kraven]

yes another trade, again in the wrong direction. so surely we stay in. we are already buying, this other trade suggests buy again and it still goes down a further -100. if it was a trade to sell then we'd get out...anyway that's how i seen it and i also watch all 1hr 45min of his vid.. yawn!

 

joey do you know why he uses 4hr tf? was it simply to allow people who work the oppertunity to try it..i.e check charts every 4hrs. does he mention it working on other tf's like can it be used 1hr?

Edited August 7, 2010 by kraven

[joeytrader]

Actually, I was referring to the new sell signal from a hidden bearish divergence on 2 July (the red dotted lines, and red arrow down), a few days after the 22 or 23 June buy entry. Since we were in a buy trade, we were supposed to get out now, at about -500 pips loss, ouch!

 

On using the H4 tf, I think the author did mention something about wanting to let those with a day job to be able to trade this. (i.e. needing only to check the chart every 4 hours or longer.) I don't think the author tested this on other time frames. If he did, and was successful for at least one month, I am sure he will try to sell another webinar and make some more money from the attendees. lol.

 

Although, if the logic is sound, I see no reason why divergence trading cannot be valid on other timeframes.

[Freddie]

I don't think the author tested this on other time frames. If he did, and was successful for at least one month, I am sure he will try to sell another webinar and make some more money from the attendees. lol.

Although, if the logic is sound, I see no reason why divergence trading cannot be valid on other timeframes.

 

I had an interest in divergance some time ago. I have not been able to download the vid so I may be talking out of turn here but Div, as such is shown on all TFs and tradeable. Only trouble is it is not guarenteed!!!

There is a FF thread by Jankone who trades only pin bars with Div. - one PB to the next if the div is there.

I have seen a vid more recently that has clues as to weather the div will work or not. I will try to remember what it was.

 

This guy seems scary!!

[Freddie]

This arrived from the 'triple strike' man.

Not so much about the BBs themselves but a look at the psychology with the 'masses' as the price moves. Six small vids two to three mins sometimes but worth a watch.

 

hxxp://[email protected]/advanced_tactics.html

 

Freddie

[kraven]

went on fxrobottrader site last night and couldn't actual see this product for sale. Plenty of others for sale, none looked anything like this one, if this is so good why have all the others? i know to make more money but none looked remotely like this. maybe because it ain't so good??? don't know never tried it

[jamestan1978]

Quite impressive, his statement showed $3000 account using 0.3 lot. quite a big risk guess he allowed 20% risk each trade.

[kraven]

i think he allowed 100% each trade . if you watch the vid he says, he's not here to concerve his credit he's here to make money..all or nothing approach.

[jamestan1978]

Woh that's crazy. I notice all his products shows results of very short period only.

[joeytrader]

This arrived from the 'triple strike' man.

Not so much about the BBs themselves but a look at the psychology with the 'masses' as the price moves. Six small vids two to three mins sometimes but worth a watch.

 

hxxp://[email protected]/advanced_tactics.html

 

Freddie

 

Thanks Freddie, I still have yet to finish going through the original stuff on Triple Strike, per your earlier recommendation. But from what I have managed to read so far, I think you are correct that it may be a good compliment to this system, for filtering out less probable trades. I especially like to idea of using relative pivot points to gauge potential next moves.

 

 

went on fxrobottrader site last night and couldn't actual see this product for sale. Plenty of others for sale, none looked anything like this one, if this is so good why have all the others? i know to make more money but none looked remotely like this. maybe because it ain't so good??? don't know never tried it

 

Actually, what I forgot to mention in my original post is that, this webinar is one in a long series of webinars that this guy does for another product of his (his Fractal Breakout Indicator), which I had purchased long before I discovered this wonderful forum. Although the original product has not been very successful for me as it stands, his pitch for this particular webinar was interesting enough for me to give this a try. It costed about $45. And it may or may not be worth it, but if even a small part of this webinar can help me come up with a better idea for trading, or to contribute to other trading systems I am using/testing, then it may be a worthwhile long term investment.

 

More importantly, since I was thinking of sharing this with my friends here on the forum from the start, and if anyone on this forum find this useful or profitable, then is a also worth it.

 

Quite impressive, his statement showed $3000 account using 0.3 lot. quite a big risk guess he allowed 20% risk each trade.

 

I have actually been wondering about his statements. Can anyone tell whether it is a demo account, or a live account? (I cannot tell by looking at the statement alone). The reason I have my doubts is that, for his statements on his other products, he always use a fresh account at the beginning of each month, even for the same product. For example, he showed how he doubled his account each month for the Fractal Breakout system. If so, why not show a continuous account for one year? Even a tiny $500 at start of year can be turned into over one million dollar through compounding. But if I were to be sneaky, I can be running several demo accounts over the month, and only show the account that produced the best results, and no one ever knows about my other failed accounts.

 

Perhaps this is just the cynical side of my talking.

Edited August 7, 2010 by joeytrader

[joeytrader]

Please Do Not Go Live on this unless you are sure!!!

 

I hate to crash my own party, especially when I am the one who started this thread. But I just did a quick "back-checking" for June 2010, using the 12 currency pairs the author has on his screen shot in the video. I assume taking all qualified trades, also assuming the price has not gone past the middle BB line yet. The numbers are very rough, because I simply use the cross-hair to read out the numbers.

 

In short, results for June is BAD:

 

For June 2010 only, date shown on left is start date for that trade, and results are in pips:

 

EURUSD: Net -356:

20100609: -401

20100618: +106

20100625: -61

 

EURCHF: Net: -50

20100611: -22

20100623: -28

 

EURJPY: Net: -32

20100616: -32

 

USDJPY: Net: -164

20100623: -164

 

USDCHF: Net: -256

20100607: +120

20100609: 0

20100614: -376

 

USDCAD: Net: -56

20100609: -164

20100614: -51

20100616: +51

20100628: +108

 

GBPJPY: Net: +318

20100607: +118

20100614: +90

20100628: +110

 

AUDUSD: Net: -314

20100601: -16

20100609: -345

20100623: +47

 

NZDUSD: Net +14

20100601: +71

20100610: -137

20100625: +80

 

GBPCHF: Net -191

20100615: +106

20100625: -297

 

CHFJPY: +229

20100603: +175

20100607: +100

20100616: -118

20100621: +46

20100623: +26

 

GBPUSD: +276

20100615: +103

20100618: +100

20100628: +73

 

 

Out of 12 currency pairs, only GBPUSD (+276 pips), GBPJPY (+318 pips) and CHFJPY (+229 pips) were decisively profitable, and NZDUSD (+14 pips) was just above break-even. The rest of the 8 pairs all showed losses, and many were MAJOR LOSSES.

 

I wish I had done this before I started this thread. If I had seen the above numbers, I would not have started this thread. Lesson learned, next time I should not be so eager to share a gift, and I should do a bit more homework before sharing anything here.

 

Please accept my deepest apology.

 

But since the cat is out of the bag, the best I can do now is to warn anyone wanting to pursue this, be careful!

 

And if anyone still wants to salvage this system, I would suggest looking at GBPUSD and the two profitable JPY pairs, and go even further back in time to see if they are profitable in the longer term. Also, there were some losses that could have either been avoided, or at least minimized, if other filters or discretion could be applied.

Edited August 7, 2010 by joeytrader
I forgot to do GBPUSD

[kraven]

joey just out of curiousity i tried a weeks back testing of this. on the 4hr it looked good, nearly all profitable. problem is i'd be in bed for a lot of the trades and the trades i could have gotten in i'd be in bed when i should be exiting (could always set SL and guess TP). 1hr also looked good, as i'd use the top/bottom of the divergence candle as my SL i got a lot more loosing trades then on the 4hr but still more higher pip wins, when i went to 30mins after just 2 pairs tested i quit as i was seeing 3 loses to every win. this is obviously subjective as some trades were over centre line.

 

****just read above, joey everyone who does FX should be big enough to be responsible for themselves..

Edited August 7, 2010 by kraven

[kraven]

if you used my SL theory of using the divergence candle as a SL things may be different as av. drawdown would be aprox. 50-60pips

[joeytrader]

kraven, agree with what you says. For my numbers in the above post's analysis, I assumed no discretion in entry and exit. But we all know, in actual trading, we all would not trade just like a robot. For example, there were some cases that we would be trading against an obvious major trend. In such a case I would probably either wait and see, or past up on that trade altogether. And of course, in actual trading, I would not accept potential drawdowns of 400 or 500 pips, that is just crazy. So your suggestion of SL 50-60 pips on TF of 4 hours is more like I would be doing if I were to trade this live.

[Freddie]

Don't beat your self up Joey, we are all grown-ups here!!

 

On to the next Holy Grail!!!

 

Who says there isn't one??? Oh! Ye of little faith!!!

[harchi]

someone can post the fractal indicator,thanks

[joeytrader]

someone can post the fractal indicator,thanks

 

It has been already shared on this forum, in fact with multiple threads. The two threads with the most recent posts are these:

 

http://indo-investasi.com/showthread.php/2178-Steinitz-Fractal-Breakout/page2?highlight=steinitz+fractal

http://indo-investasi.com/showthread.php/1549-Steinitz-Fractal-Breakout-Custom-Indicator/page12?highlight=steinitz+fractal

 

However, do not keep your hope too high: my own experience, as well as from reading others using this indicator, have not been as profitable as the author seems to indicate on his website.

[Freddie]

However, do not keep your hope too high: my own experience, as well as from reading others using this indicator, have not been as profitable as the author seems to indicate on his website.

 

We are all aware that a fractal will not print until two bars later, aren't we?

 

Using '3rd Candle' you would be in the trade when the fractal prints like a repaint, two bars earlier!

By this time, simply using your eyes, you see the lowest or highest bar sticking out.

 

Just trying to help.

 

Freddie

[joeytrader]

...

By this time, simply using your eyes, you see the lowest or highest bar sticking out.

...

 

Sometimes, I still think human eyes + human brain + experience can be the best pattern-recognition indicator there is for trading. Our eyes can frequently see "indications" well before mechanical indicators can. But we are still not perfect, of course.

[harchi]

this fractal divergence indicator is new from this author,please share it thanks