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Trend Band Breakout Forex Trading Strategy

Different traders have different approaches and styles when it comes to trading the forex market. Although some traders insist that their approach is the best or the only way to trade, the reality is that forex trading can be done using a variety of methods. As they say, there is more than one way to skin a cat.

One of the main differences between traders is between traders who use technical indicators and those who avoid technical indicators. Both camps firmly believe that opposing approaches are the worst way to trade the market. Nevertheless, there are many traders who have benefited from it in one way or another.

Traders who use technical indicators usually believe that technical indicators are the best tool for trading. This allows them to see things they wouldn't see without an indicator. It also allows them to make systematic trading decisions.

On the other hand, traders who shun technical indicators typically use price action, candlestick or supply patterns, market flows, or supply and demand on bare charts. They often believe that trading indicators will only make them late in making decisions.

While most traders fall on either end of the spectrum, there are plenty of traders who also mix and match the two approaches.

The trend band breakout forex trading strategy uses an approach that includes technical indicators as well as price action and candlestick patterns to trade the market effectively.

trend ribbon display

A trend band indicator is a channel or band type indicator that allows traders to spot distortions in trend direction, momentum and oversold or overbought market conditions.

The trend line draws three lines. It draws the center line, which is the modified moving average line. These lines are mainly used to identify the direction of the trend based on the slope of the line and the general location of the price movement in relation to the center line.

It also draws outlines placed above and below the center line. These lines originate from the center line and take volatility into account. These lines are usually used to identify overbought and oversold market conditions.

When combined, the three lines form a ribbon consisting of two parts. When the price action is generally at the top of the band, the market is in an uptrend. When price action is generally in the lower range, the market is in a bear trend.

If the price hits the outside line and shows signs of price resistance, the market could return to its mean. On the other hand, if the price breaks through the outer boundary sharply, the market can gain a lot of momentum.

Elliott Wave Oscillator

The Elliott Wave Oscillator (EWO) is a simple trend-following technical indicator that is displayed as an oscillator.

It is based on the cross of a pair of simple moving averages (SMA) and is presented as histogram bars in a separate window.

It is calculated by finding the difference between the 5-bar simple moving average (SMA) and the 35-period simple moving average (SMA). It uses the close of each candle as a basis and plots the result as a bar oscillating around zero. Positive bars generally indicate the direction of the bullish trend, while negative bars generally indicate the direction of the bearish trend.

This version of the Elliott Wave Oscillator is modified. This draws the regular histogram bars, but also the dotted lines coming from the original EWO bars. Traders can use the cross of the dotted line and the bar as a possible trend reversal signal.

The bars also change color depending on whether the trend is strengthening or weakening. Lime bars indicate a strong uptrend, green bars indicate a weak uptrend, red bars indicate a strong downtrend, and maroon bars indicate a weaker downtrend.