› Bollinger Bands %B and Chaikin Money Flow - How it Works

Bollinger Bands %B and Chaikin Money Flow - How it Works

Trending strategies are always the best trading tools for financial traders, evidenced over the last hundred years. Today, in order to continue the series of technical trend-following systems, we would like to introduce to you another effective one, composed of two innovative indicators Chaikin Money Flow and Bollinger Bands %B.

Overview of Bollinger Bands %B and CMF Indicator Strategy


First, let’s break down the strategy. As you already know, a qualified trending system must include at least one lagging indicator to detect market trending conditions and trading occasions, and one oscillator to confirm the reliability of the determined signals. Chaikin Money Flow (CMF indicator) invented by Marc Chaikin is a leading indicator which is widely used to measures demand and supply pressure over a specific period, therefore, its function in this system is to affirm whether a trading opportunity is valid or invalid. Meanwhile, Bollinger Bands %B is a tool derived from the standard Bollinger Bands with the main responsibility to quantify where price is in relation to the bands. Traders usually apply the Bollinger Bands %B in order to ascertain trading signals, hence, it works as a lagging beacon in this system.

Chaikin Money Flow (also referred to as CMF) measures Money Flow Volume over a period, typically 20 or 21 days. The indicator oscillates above and below the zero line which indicates a bullish or bearish trend. The indicator is also used to calculate Chaikin’s Accumulation/Distribution (AD).


Since both the Chaiken Money Flow and Bollinger Bands %B are put in the extended schedule of the trading platform, they are not really popular with financial traders. Nevertheless, these indicators are highly user-friendly and appreciated by the traders knowing them.

After being tested for 12 months, this technical strategy has so far exposed a win ratio of 82.43%. Plenty of prominent advantages have been recognized during the testing period such as simplicity, flexibility, and accuracy. The strategy works best on the one-hour chart and could be used on any financial assets.
Let’s review some practical trading examples to understand more about this powerful strategy.

How to Use Bollinger Bands %B and Chaikin Money Flow System to Trade Binary Options


All the required indicators are established with default settings. Right after installation, you can start seeking signals.
  • The Chaikin Money Flow (CMF indicator) line crosses above 0.
  • The Bollinger Bands %B line stays below 0.

Bollinger Bands %B and Chaikin Money Flow - How it Works


On the contrary, a put opportunity is identified when the following conditions are satisfied:
  • The Chaikin Money Flow (CMF indicator) line remains below 0.
  • The Bollinger Bands %B line turns above 1.


Bollinger Bands %B and Chaikin Money Flow - How it Works


There are some significant rules when trading with this technical strategy:
  • Only one position should be entered at a time.
  • The candle of confirmation must be fully close before a trading opportunity is affirmed valid.
  • The order’s expiration should be set three to five times larger than the chart’s time frame. For example, you can set the ending time in three, four, or five hours since the order is entered.


If you like this strategy, you might also be interested in this Chaikin Oscillator Binary Options Strategy

Pros and Cons of the Bollinger Bands %B and Chaikin Money Flow Strategy


Pros
  • Easy-to-use, flexible, universal.
  • Generates highly reliable signals.
  • Allow traders to grab a string of profits from grand movements.


Cons
  • Requires a high level of patience.
  • Necessitates traders to monitor the trading platform in order to seek trading signals.


Conclusion



Despite the fact Bollinger Bands %B and Chaikin Money haven’t really been famous indicators, their capability in detecting trading signals are considerable, especially when they are combined. That’s evidenced by a good testing result and plenty of outstanding advantages mentioned above. If you are a trend lover, we believe the strategy will be a great companion in your trading career. Nonetheless, don’t forget to use it alongside risk and psychology managing methods as there’s no “perfect” system in the trading world.


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