The BBMA combines two of the most powerful indicators used by traders on the forex market; Bollinger Bands and moving averages. Both act as confirmation of each other’s signals which tends to provide a more valid opportunity compared to using the indicators individually. By knowing we have confirmation, we can confidently enter the trade but still need to keep an eye on price action and make sure we have sensible money management in place. In this guide, we’ll talk about the BBMA strategy and how it works to help you decide if it is something you would like to implement within your day trading routine.
What is the BBMA?
BB, aka Bollinger Bands, is a momentum indicator used in Forex trading. John Bollinger developed the indicator in the 1980s.
It plots three lines or bands, the upper band, the middle band, and the lower band. The price stays between those bands, and the upper and lower bands act as support and resistance. We can look for a trend reversal whenever the price reaches close to this level or breaks above/below.
The Moving Average indicator takes the concept from statistics and sums up the data points over a certain period.
Anyone learning to trade for the first time has to get familiar with the MA first, as it’s a strong indicator of the current trend.
It is called the Moving Average because it calculates according to the current period and adds up as time changes.
If the price is above the Moving Average, there is an uptrend, and we can enter long positions. On the other hand, if the price is below the MA, there is a downward momentum, and we can take short positions.
How to trade the BBMA strategy?
As mentioned earlier, the BBMA strategy combines Bollinger Bands and the MA. Basically, we are looking for a breakout above or below the Bollinger Bands.
Once the price goes above or below the MA, it continues in a trend for a while and then breaks above or below the Bollinger Bands. This is our signal that the trend is about to change.
For the strategy, you can set the indicators to default settings or adjust them according to your preference.
The chart above shows that the previous trend was upward, and the price continued upward for some time. But once it broke above the upper band, it signifies a trend reversal.
Normally, massive bearish or bullish candles illustrate a strong momentum, which confirms that trend is about to reverse.
Although the strategy will work on every timeframe, applying it on longer timeframes is best to reduce market noise from my experience.
Buy Signal
- The price must break below the lower Bollinger Band.
- Wait for the price to go above the Moving Average and then enter the trade.
- You could place take-profit at the previous high or exit the trade when the price breaks above the upper band.
- You could set the stop-loss at the recent swing low.
Sell Signal
- The price must break above the upper Bollinger Band.
- Wait for the price to go below the Moving Average and then enter the trade.
- You could place take-profit at the previous low or exit the trade when the price breaks below the lower band.
- You could set the stop-loss at the recent swing high.
Conclusion
BBMA is a simple yet effective trading strategy. It combines the best of the Bollinger Bands and Moving Average indicators, and once we get a breakout above or below the upper or lower bands, it’s a sign of a potential reversal, and we can possible catch some good market moves.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.
