3# Bollinger Band and 123 Trading System
Submit by janustrader 31/03/2011
The 1-2-3 highs that originate at the upper Bollinger Band or the moving average line, and 1-2-3 lows that originate at the lower Bollinger Band or the moving average line, provide some very excellent change-of-direction signals to the alert trader.
It works well for any time interval and in any market that is sufficiently dynamic to swing from side to side while trending, or swing with sufficient volatility within a Trading Range to cause there to be profitable.
Notice on the chart above:
· 1-2-3 = Sell short formations.
· 1-2-3 = Go long formations.
· Arrows = Entry points
legitimate formation from which to trade.In an up trending market, prices must touch or exceed the lower Bollinger Band, or prices must touch or exceed the moving average line before a 1-2-3 formation becomes a legitimate formation from which to trade.
Another example of 123 and Bollinger Band
Where do we place our exits? Exit points are placed 4 pips below the number 3 point in an up move, and one 4 pips above the number 3 point in a down move. If you cannot afford to plan an exit according to that method, then you should avoid trading in your chosen time frame and perhaps drop down to a lesser time frame. There is always the option to not trade at all when you can’t afford the appropriate exit point.
We also trail a stop or mental exit alert at natural support in an up move or natural resistance in a down move. We do that only after we have taken some profits out of the trade and are in position to do no less than breakeven.