There are a lot of indicators that can be used to build good trading strategies. Traders should rely on their own preferences, because in the end it is less about the indicator itself and more about how consistently you implement your strategy.
We have also already presented the Bollinger Bands. Basically, these are moving averages and the statistical assumption that values fluctuate only around the mean in a certain range. Therefore, the likelihood that the price will return to the middle moving average when the outer margin is reached is increased.
You take advantage of this. The rule therefore often applies: If the outer band is pierced, this indicates an at least short-term reversal.
Like the Money Flow Index (MFI), the A / D line is an extension of the on balance volume and is, as the name suggests, based on volume. The following interpretations must be observed:
- If the A / D line rises in an upward trend, money flows in the direction of the rising prices. The upward trend is confirmed.
- If the A / D line falls in a downward trend, money is withdrawn. The downward trend is confirmed.
- If the A / D line falls in an upward trend, then the buying pressure is weak and there is a negative divergence.
- If the A / D line rises in a downward trend, then the selling pressure is weak and there is a positive divergence.
The A / D line is often used in long-term trading because divergences based on several days are more reliable. Nevertheless, in conjunction with other indicators, the A / D line can also prove its services well in short-term trading. Let's take a look at the example.
Example USD / JPY with Bollinger bands and A / D line
As you can clearly see, the 5 minute chart of the currency pair USD / JPY often has very strong ones and dynamic trends. But what we can also see is that after the extreme short-term crash on July 14, the A / D line rose again very quickly (1). Around the middle of the Bollinger Band there was, as usual, a small reset.
However, purchases were made very quickly. At this point, a short-running call option would have been conceivable (green circle). Both the Bollinger Band and the buying pressure in volume confirmed the upward movement.
In the following it becomes clear that it can be useful to apply trend lines not only to prices, but also to indicators. It is often the case that one cannot assess whether the movement in the indicator is only a short-term movement or whether a new trend is being established here.
The trend in the A / D line that deals with dynamic upward movement was stopped by the upper Bollinger band and even broken in the A / D line (2). An exit would therefore have made sense. But with binary options everything is not a problem, since the run times ensure an automatic exit.
The question that still remains in the room is: Was that the upward movement? The answer to this is also the trend of the A / D line. The line will move slightly downwards in the following period (3, 4), but as long as the lower trend line has not been fallen below, it can be assumed that it is only a temporary weakness.
And that is exactly what happens next. The upward trend gets a new boost after the lower Bollinger band has been tested again. This was followed by another phase of weakness, but the A / D line trends initially remain slightly negative until later even positive (5).
So the upward trend is still intact. And that's what it's about. Two indicators that confirm a trend on a short-term basis or indicate the weakness or strength of a trend can be used both on a medium to long-term basis and on a short-term basis.
Bollinger tapes have become an integral part of technical analysis. But the bands alone are too imprecise, especially in short-term trading, because they are lagging. With the A / D line you have another volume indicator at your side that can confirm trends on a short-term basis.
In combination with the two indicators and short-running binary options, for example with the broker OptionFair, you could get one Build a common strategy that is not too complex. The application of this strategy would have to be done with the help of established rules that promote optimization and thus avoid bad trades.
The broker BD Swiss is one of the brokers that has been active on the market for several years. Traders can trade trends well with it.