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The Bollinger Bands Exponential Moving Average deviation indicator, which is better known as BB EMA deviation, is a developed trading algorithm based on the functioning of two indicators included in the standard Forex set. The indicator is used in trading to determine the current market trend, and thus, it is used to find the optimal moment for opening a certain position during the period of the prevailing movement in the market. The indicator itself is presented directly on the price chart in the form of a channel consisting of three lines. The upper and lower lines of the indicator during the trend determination period are painted in one of two colors and serve to determine the trend, while the middle line helps to pinpoint the signal candle.
The BB EMA deviation indicator can be used to trade with any currency pairs, on any convenient timeframe.
Input parameters
The settings of the BB EMA deviation indicator include several sections. The Input parameters section consists of four items, each of which affects the overall functioning of the indicator. The Colors section in its settings is responsible for its visualization, namely the color and thickness of the lines.
- Bollinger bands period - the period of the Bollinger Bands indicator, taken as the basis for calculations. The default value is 20.
- Bollinger bands deviation - deviation of the standard price from the current one. The default value is 2.0.
- Bands median average method - smoothing method used by the moving average indicator. The default is Exponential moving average.
- Price - type of the price to which the indicator calculations are applied. By default, it has the Close price value.
Indicator signals
The algorithm for using the BB EMA deviation indicator is extremely simple. It is very similar to using the standard Bollinger Bands indicator, but this version is more convenient and easy to understand. Before starting trading, the current trend is determined using the indicator channel. If the indicator lines move up and have a color with a value of growth, then the trend is up, and if vice versa, the lines move down and have a color with a value of fall, the trend is down. After that, taking into account the location of the candle relative to the middle line of the indicator, in the direction of the current trend, a certain trade is opened.
Signal for Buy trades:
- The upper and lower lines of the indicator move up and are colored with the growth value.
- Signal candle should be located above the middle line of the indicator.
Upon receipt of such conditions, a long position can be opened on the signal candle due to the presence of an uptrend in the market. It should be closed upon receipt of the opposite conditions from the indicator, namely, when the direction and color of the indicator channel borders change. At this moment, a change in the current trend is possible, and at this point, it should be prepared to open new trades.
Signal for Sell trades:
- The border lines of the indicator channel, colored in color with the value of the fall, move down.
- The signal candle should close below the middle line of the indicator.
After receiving such conditions, a sell trade can be opened immediately on the signal candle. Such a trade should be closed immediately after the change in color and direction of the upper and lower lines of the indicator. At this moment, it should be prepared for a change in the current downward trend and prepare to open new trades.
Conclusion
The BB EMA deviation indicator is a more accurate modification version of the Bollinger Bands indicator, the effectiveness of which has been proven by time. Adding a moving average to its calculations made it possible to smooth and filter its signals, which made them more accurate. To be able to correctly use the algorithm in practice, it is enough to be able to use the Bollinger indicator Bands, while practice on a demo account is still recommended.
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