Trading is easy, however, consistently profitable trading is where the difficulty lies. Traders since the beginning of time have tried to come up with a strategy that they could use in order to increase their win rates while minimizing their risk. In this article, we go over one of the ways in which you could do so. We discuss the different indicators, the settings used, and also go over the results. Read on to find out more.
There are 2 main indicators used in this trading setup, and each of these indicators has been explained below in detail.
Bollinger Bands are an indicator that combines the use of a Moving Average with Standard Deviations. There are 2 Bollinger Bands, which are a certain number of standard deviations above and below the moving average. Generally, when the price is below the lower Bollinger Band, a long trade is initiated. A short is initiated when the price is above the upper Bollinger Band.
The Aroon indicator is used to understand the direction of a trend as well as its strength. It is based on a simple concept: when the price is in an uptrend, there will constantly be higher highs and higher lows, and when the price is in a downtrend, there will be lower highs and lower lows. The Aroon indicator measures how often this is happening, and indicates the same through two lines: the Aroon up line and the Aroon down line.
For this particular trading setup, default settings were used on the indicators.
A long was initiated whenever the price is at the lower Bollinger band and the level of the green line on the Aroon indicator is above 90%.
A short was initiated whenever the price is at the upper Bollinger band and the level of the red line on the Aroon indicator is above 90%.
The risk-reward ratio was fixed at 1:2.
Results and Adjustments
The overall results of the backtest over 6 months of historical data were:
Profitability: 42.97% net profit
Number of Trades: 241
% of trades profitable: 58.51%
Profit factor: 1.124
Some additional indicators and settings that could be added in order to increase the win rate and reduce the risk employed are:
- The length of the Bollinger Bands could be increased for increased profitability.
- The Standard Deviation associated with the Bollinger Bands could be adjusted for a higher win rate.
There are several highly profitable trading strategies that you can use in order to trade the markets and profit, but there are few that are as highly effective as the one discussed above. By implementing it even in its current form, you can make significant profits. You can also tweak the settings and alter the parameters on your own, resulting in a higher win rate and/or profitability.
- Bollinger Bands Trading Strategy THAT ACTUALLY WORKS! Make More Profit – YouTube
- TradingView Strategy
- Settings Used in Video
- Bollinger Bands – Fidelity
- Aroon Indicator – Investopedia