Writer:Neko Trader
debuted in FX in 2012. Since then, performance drifted downward for a while... and in 2015, managed to turn lifelong profit positive! A short-term-focused technical trader aiming to be a full-time trader
Blog:Come to FX Trader’s Forest

Hello everyone,

My name is Neko Trader. (´・ω・｀) Nice to meet you

I have this time started writing columns on this site.

That said, I’m in my fifth year of FX experience, unable to become a full-time professional trader, but finally managing to make small profits here and there—a so-calledquite an ordinary tradersuch a person.

To be entrusted with a column by someone who has no idea whether I’m a cat’s bone or horse’s bone, well done to the site staff—this is exactly FX in action! (・∀・) Nice!!

And if I keep writing too foolishly,“This guy should cut losses quickly!”I can hear voices like that, so I’ll start getting into FX talk gradually.

Fundamental analysis vs. technical analysis, what’s important?

Now, before talking FX, I should tell you a bit about what kind of trader I am.

Currently I ampurely discretionaryand mainly trade in relatively short time frames, closing positions after about 1–2 hours.

I hardly do fundamental analysis; in fact, I don’t understand it well!(｀・∀・´)Eh-hen!!

I know the basics, like US rate hikes and UK exit from the EU, but in daily trading I mostly rely on technical analysis from entry to exit.

Of course there are traders who win by fundamental analysis, but I

“Everything is priced in by averages”learned under Dow Theory,

  “If you only do technical analysis, you’ll win!”and that’s how I’ve interpreted and come to today.

This does not mean that technicals are more important or that both are needed; you should adopt the analysis method that fits your approach, and if one is halfway between, I think you should emphasize one of them.

The classic technical: the evolving form of Moving Averages, the “Bollinger Bands”

As a technical trader, I have used many indicators, especially moving averages which are the simplest and most important technicals. My first indicator was a simple moving average, and I have used SMA, EMA, and WMA over time.

I’ve tried many indicators, stopped, started again, but besides moving averages there is one more indicator I have continued to use since the early days.

That isBollinger Bands.

For those who know it, Bollinger Bands consist of a center line and two outer lines; the center line is the moving average itself (the yellow line in the diagram below).

The outer lines are at ±σ (standard deviation, sigma), and the outermost lines are ±3σ.

Dollar/Yen 1-hour Bollinger Bands  

And, σ has the following characteristics:

• Probability of staying within ±σ is 68.2%
• Probability of staying within ±2σ is 95.4%
• Probability of staying within ±3σ is 99.7%

The distribution looks like the diagram below, with the mean μ being the most frequent; as you move away from μ, the counts gradually decrease, and near ±3σ there are almost none.

Translated to a chart, it means prices are most often near the center line, and deviate less and less the further you move away.

Normal distribution chart

Okay, it’s getting a bit technical.(；・∀・)Tara

In the past I scored a legendary two points on a math test, so if I say it, it must be true.Of course not a total of two points; out of 100 points. (　´∀｀)b

From a statistical view,Bollinger Bands add a volatility component to the moving average.

Indeed, isn’t it fair to call Bollinger Bands the evolution of moving averages?

Next time, I’ll consider a trading strategy that uses this property.

Well then everyone, here’s to another day of massive profits! (σ・∀・)σ Get!!