When trading with the Target Bands Indicator, you need to look at a shorter time frame than you do with longer-term swing indicators. It estimates the overbought and oversold zones by keeping a careful eye on the price action during the chosen data period. This article will give you an introduction to the Target Bands Indicator by giving you an idea of how it works and what its main ideas are. Learn more about this tool and how it can help your trading activities.
What is the Target Bands Indicator?
The Target Bands Indicator is a tool for short-term swing trading. It estimates the overbought and oversold zones by keeping a careful eye on the price behavior during the chosen data period.
After finding a good area, it will draw star circles to use as trading signals based on how the market is moving at the time. Target bands can be used with any FX pair and chart timeframe that you want to use.
Because it employs such a straightforward method to illustrate the various trade indications, the target bands indicator is both extremely simple to comprehend and straightforward to put into practice. However, like any forex indicator, it is not perfect.
Target Bands Indicator Strategy
For the indicator’s upper and lower bands, the Target Bands Indicator employs a 55-day moving average computed using the weighted closing technique and a deviation. At the top band, sellers can get in on short trades and buyers can get out of long ones because the market is considered overbought.
Buyers who want to get into long positions and sellers who want to get out of short positions should aim for the lower band, which is where the market is “oversold.” As a means of facilitating a clearer understanding, the indicator places star-shaped rings all around the price candles that serve as trade signals. You are free to use whatever currency pair you choose while working with the Target Bands indicator. There are 1-minute, 5-minute, 15-minute, 30-minute, 1-hour, 4-hour, daily, weekly, and monthly intervals provided.
Buy Signal
- Price reaches the bottom Target bands
- A star circle is simultaneously plotted underneath the price candle.
- Right above the lower Target bands is a buy signal.
- Place a stop-loss just below the oversold area.
- When the price reaches the overbought level and a star circle is placed above the price candle’s high, exit long and take profits.
Sell Signal
- The price reaches the higher Target bands
- A star circle is simultaneously plotted above the price candle.
- Just below the upper Target bands is a sell signal.
- Place stop-loss just above the overbought region.
- Exit short/take profit when the price reaches the oversold level and a star circle is drawn below the bottom of the price candle.
Target Bands Indicator Pros & Cons
Pros
- Its ability to recognize valuable entry points into a trend.
- Utilizing its two signal lines, the indicator in question can supply traders with signals.
- Can be used on any currency pair and timeframe.
Cons
- Oftentimes, Weighted Averages are either set too long or too short for the time frame being evaluated. This is especially important during the transition from a bear market or intermediate-term correction to a market bottom and the restart of a bull market.
- Takes time to learn how to use and needs good timing.
- Will be lots of false signals if used on its own without confirmation.
Conclusion
The Target Bands indicator is useful for traders, but it’s important to keep your expectations realistic. The tool has the same shortcomings as other methods of technical analysis and does not always provide accurate indications. Due to this, it sometimes sends out false signals. Its effectiveness will be very market-dependent. If you like, you can use this as the framework for your own trading system.
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