Bollinger Bands and CCI Divergence Trading System For MT4
Please note: This strategy was publicly published in the trading community and is free to use. We do NOT make an attempt to decide if this strategy is profitable or not, because we know that the major factors regarding trading results are the skills/experience of the trader who executes the strategy. Therefore, we are mainly explaining the components and rules of the strategy. If applicable, we are highlighting advantages, disadvantages and possible improvements of the strategy.
The Bollinger Bands and CCI Divergence Trading System For MT4 is mainly developed to be an advanced trend reversal strategy. This signals of the system are trying to identify a major change of the trend direction of the market.
Besides the Bollinger Bands and the CCI indicator, this system also uses multiple moving averages and volume bars to calculate its trade signals.
However, the Bollinger Bands and CCI Divergence Trading System for MT4 can also signal possible continuations of the market momentum besides the trend reversal signals. So, it can be useful for both trend-following and swing reversal traders.
According to the inventor, it works fine when applied on the time frames between 30 to 240-minute. Therefore, this system can be used especially by shorter term traders.
This guide will give you a short overview about all the indicators used in the Bollinger Bands and CCI Divergence Trading System for MT4. In addition, we’ll discuss its buy and sell setups including chart examples.
Overview
The Bollinger Bands and CCI Divergence Trading System for MT4 uses the following indicators:
- Bollinger Bands: Bollinger Bands is one of the most famous overbought/oversold indicators in the market. It plots a price envelope using its standard deviation and applies a simple moving average as its main middle line.
The upper and lower bands represent the overbought and oversold condition of the market. If you’re a swing trader, this indicator will help you to identify the potential reversal areas of the market.
In this trading system, we’ve applied the Bollinger Bands in the main chart window and also in the sub window which contains the CCI indicator. In the sub window the values of the CCI indicator are the input value for the Bollinger Bands calculation. In both cases, we’ve applied the same 20 periods of Bollinger Bands.
- 5 SMMA High & Low: This system uses a dual-band of 5-day simple smoothed moving averages which is calculated based on the highs and lows of the price bars. It tells you about the basic trend situation of the market.
If the price holds its position above the 5 SMMA high then this indicates that the trend is bullish. On the other hand, if the price drops and remains below the 5 SMMA low then this represents a bearish trend of the market.
You’ll also notice another 5 SMMA at the second indicator window along with CCI. It plots a single trend line based on the average of 5 SMMA high and low.
- Fibonacci Pivots: This indicator plots possible pullback areas of the price and the pivot levels of the market. These levels are also considered as the horizontal support and resistance of the market.
When applied in the live charts, you’ll notice that the price often stalls around the areas and intends to bounce back. As a result, sometimes these levels turn into important swing areas of the market. If you see that the price makes a successful break above or below a respected Fibonacci Pivots level then you can look for a breakout trading setup.
Fibonacci Pivots also work great when combined with candlestick chart patterns. For example, if a bullish pin bar gets plotted right above the pivot level then this indicates a strong buy signal.
The inventor of the system recommends that you to always wait for a price candle to close before you decide whether the current Fibonacci Pivots is working as a key market level or not. It’ll help you to avoid some of the buy and sell traps caused by the false breaks.
- CCI: Commodity Channel Index (CCI) is widely used to identify the cyclical trends of the market. It can also signal overbought/oversold conditions of the market when combined with the Bollinger Bands.
If the CCI hits the higher Bollinger band level then this is used define the overbought status of the market. Oppositely, if the CCI value drops down to the lower Bollinger band then this represents an oversold market condition.
For identifying the market trends, then you should look at the interactions between CCI and 5 SMMA. If a CCI value turns greater than 5 SMMA then this is interpreted as a bullish market trend. If the CCI drops below the current 5 SMMA level then the trend is interpreted as bearish.
The CCI indicator can also help you to spot hidden divergences which you can use as trend continuation entry opportunities which will discuss later in this article.
- Volume Bars: The volume bars are used as an additional confirmation of the trade signals generated by other indicators of the system. It visualizes if the volume of a bar/candle should be interpreted as positive or negative. According to the inventor, it plays a key role in filtering quality trade setups.
A consecutive rise of green volume bars indicates a potential bullish move of the market. Alternatively, the red volume bars plotted in a rising pattern hints for an upcoming bearish trend.
Buy Conditions of Bollinger Bands and CCI Divergence Trading System for MT4
In this chart example, the price hits the lower Bollinger band which is signaling the oversold status of the market. After that, the price bounces back from a pivot level then moved above the 5 SMMA high. This situation is the primary confirmation of a long entry.
If you check the sub window then you will see, that the CCI also bounced back from the lower Bollinger band and turned above the 5 SMMA level at the same time. Finally, the volume bars turn green and keep rising.
Now the values of all indicators confirmed a buy entry. The inventor of the system recommends to hold your trade until it hits the 1:2 reward ratio. You can also exit your buy entry when the price reaches the upper Bollinger band, fails to move above a pivot level, the CCI moves below the 5 SMMA and/or the volume bars turn red after the trade went beyond the 1:2 reward ratio.
Sell Conditions of Bollinger Bands and CCI Divergence Trading System for MT4
In this sell setup, we’ve spotted a hidden divergence signal plotted by the CCI. As you can see in the chart (labeled with "sell level"), the price makes the lower high while the CCI makes the higher high. This is classical case of a hidden bearish divergence. Hidden bearish divergences are used as a continuation pattern during a bearish trend.
After the hidden bearish divergence developed, the CCI value drops below the 5 SMMA and the volume bars also turns red. We can use this situation as a confirmation to activate a sell entry at the break of the 5 SMMA low.
In this example, we’ve decided to exit the sell entry when the price was rejected multiple times to go further down below the lower Bollinger band and both the CCI and the volume bars turn bearish at the same moment.
Download the complete system description and the files here:
Partially Automated Trading Besides Your Day Job
Alerts In Real-Time When Divergences Occur
