Bollinger Squeeze Rainbow Indicators is a pullback trading system based on Moving Averages and Bollinger bands squeeze which can also be used to identify changes in trends or gauge the strength of the current trend.
This system consists of three indicators namely Bollinger bands squeeze with Demarker & Multiple moving averages. Let’s try to understand the working of this trading system through few examples.
Bollinger Squeeze Rainbow Indicators Outline
In Bollinger Squeeze Rainbow, Multiple Short terms and long-term moving averages are applied as an overlay on the price chart. The degree of separation between the short-term and long-term moving averages can be used as an indicator of trend strength.
If there’s a wide separation, then the prevailing trend is strong. Narrow separation indicates a weakening trend or a range-bound market.
If the price moves above the moving average then the trend is up and if the price moves below the moving average then the trend is down.
Also, the Crossover of the moving averages helps to determine the trend of the market. When the short-term group of averages moves above the longer-term group, it indicates a price uptrend in the market could be emerging.
Also Read: How to become successful at Forex Trading?
Bollinger Squeeze Rainbow Indicators In-depth
Bollinger Bands are plotted by calculating the standard deviation of moving average of the price data. Bollinger bands give idea about the volatility of the market. Bollinger Band Squeeze occurs when volatility falls to low levels and the Bollinger Bands narrow.
In this trading system, Bollinger Squeeze Basic is plotted in form of a histogram. If the price is above the midline of the Bollinger band then this indicator plot positive histogram which is a bullish indication.
If the price is below the midline of the Bollinger band then this indicator plot negative histogram which is a bearish indication. Squeeze indicator is also used along with Denmark indicator which works as a filter in this trading system.
Bollinger Squeeze: Buy Signals
- Price should move above the moving average.
- Short term moving average should move above the long term moving average.
- There must be a separation between the short- and long-term moving averages.
- Bollinger band squeeze indicator should plot a positive histogram.
- Bollinger band Basic indicator should plot a positive histogram.
Bollinger Squeeze: Sell Signals
- Price should move below the moving average.
- Short term moving average should move below the long term moving average.
- There must be a separation between the short- and long-term moving averages.
- Bollinger band squeeze indicator should plot a negative histogram.
- Bollinger band Basic indicator should plot negative histogram.
