Bollinger Bands and MACD Strategy – The Trend is Your Friend Strategy

Making the trend your friend is much easier when using the Bollinger Band and MACD Strategy.

The Moving Average Convergence Divergence is a versatile trading oscillator which is widely used. There have been many trading strategies that have been developed based off the MACD oscillator. The primary use of the MACD is to basically enter the trade in the direction of the trend, after asserting the trend.

When combining the Bollinger Band and MACD, it can create a simple yet powerful short term trading strategy. The trader employing this trade set up using MACD and Bollinger Bands simply uses the trend determined by the slope of the Bollinger Band while also combining the Band’s expansion and contraction. Thus, in most cases, using the MACD and Bollinger Band enables traders to enter ahead of a powerful breakout, which if judged correction can offer quick profits within a short span of time with the trade moving in your favor.

The ease of use that comes with these two trading indicators makes it easy for traders at all levels, although beginners to trading should apply this trading set up over a period of time in order get more familiar with the trade set ups.

Bollinger Band and MACD Strategy Explained

As the title suggests, the MACD oscillator is used with the default settings of 12,26,9 and the Bollinger Bands are set to 30 with 2 standard deviations.

The charts are clean when using this trading strategy as illustrated below.

Bollinger Bands and MACD Strategy – Buy/Sell Trading Rules

Buy Signals Trading Rules

1. Price must touch down to the lower Bollinger Band
2. When prices bounce off the lower Bollinger Band, the MACD histogram must crossover above the 0-line
3. Go long on the candle close with stops at the nearest low
4. The more upward sloping the Bollinger Band is, the more powerful the signal is
5. Exit partial profits at 1:2 Risk/reward ratio and once the partial exit is made, move to break even and trail stops below the lower Bollinger Band

Sell Signals Trading Rules

1. Price must touch the upper Bollinger Band
2. When prices bounce off the upper Bollinger Band, wait for the MACD histogram to crossover below the 0-line
3. Go short on the candles close with stops at the nearest high
4. The more downward sloping the bands are the better for the trade
5. Exit partially at 1:2 risk reward ratio and move the stops to break even, trailing the remainder of the position to the outer Bollinger Band

Bollinger Bands and MACD Strategy – Buy/Sell Setup

Bollinger Bands and MACD Strategy – Sell Setup

1. Prices rallies from the lower Bollinger Band to the upper Bollinger Band marked by points 1 and 2.
2. A few sessions later, the MACD crosses below the 0-line, triggering a sell signal
3. Short positions are entered at the candle close with stops to the nearest high at point 2
4. The first target is set to 1:2 risk/reward set up, marked by the thick horizontal line
5. The trade is then moved to break even for the remainder and trailed to the outer Bollinger Band, where the remaining trade gets stopped out for another small profit

Bollinger Band and MACD Strategy

As illustrated above, this is a very simple forex trading strategy that combines two of the most commonly used trading indicators. It is ideal to trade on H1 time frame and higher and can offer a great way to trade merely by the simply trade management rules that are built into this trading MACD and Bollinger Band trading strategy. As with all strategies, longer time frames like 4H or even 1D might work out much better as compared to 1 min timeframe.