372# The Rubber Band Trading System
Submit by JamesUK 25/10/2012
Many times when the green histogram pokes out of the black line, the price
reverses even if only for a short time. Sometimes it doesn't. That's why we
use stops. After all, we are trying to trade against the trend. So if a strong
trend is under way, the price may not turn around. That's fine. Take a small
loss and move on.
As you can see, using the Rubber Band is easy. If the green histogram pokes
through to the down side, look for prices to move higher. If the green line
pokes out to the high side, look for prices to move lower.
Now, don't rush out now and start trading. I know it's exciting! Plot the
Rubber band on your own charts and see for yourself. It's so cool seeing
where the price turned exactly on the Rubber Bands signal. However, there's
more to it. One or two refinements that take this indicator and make it into a
Rubber Band Trading
I need to make a note. These are not trading signals. There are more steps
we'll cover in just a moment. I just want you to note how the signals and
price act. You will see that the price doesn't turn on a dime for the first
circled signal. The signal for upward price action is seen. However, the price
holds flat for a few more bars before exploding up. Based on the rules I'm
going to tell you shortly, the second signal wouldn't be taken. It doesn't
matter that it would've resulted in a good trade.
Let me make an important point. This is not the Holy Grail. This Rubber
Band indicator doesn't tap into the market. It's not revealing some hidden
architecture of the market. It's not tuning into the secrets of the big players.
There is nothing magical or mystical or even surprising about what it's
In the pictures the Rubber Band forex system in action.
All its doing is making a calculation based on past price action. It's coming
up with numbers that have no meaning by themselves and graphing them.
We're taking that visual information and using to give us an idea of when the
market has "stretched too far from the median." That's all. It just so happens
that it works well as being a guide post of short term market turning points.
(By the way, the example above was a four hour chart of EUR/USD.)
This is a 30 minute chart of USD/CAD. Notice that the second signal did
show an up move, but is was slight--hardly explosive. But, that's okay.
Positive pips are positive pips. (Of course unless the price turned around
before your limit order was hit, and you didn’t move your stop to breakeven.
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