Kairi Relative Index Rules, Settings, Strategy, Returns

The RSI indicator is used in this strategy to see how the currency is weakening or strengthening. When you see the band widen that simply means that there is volatility at that time. When the price moves very little, the band will narrow which means that there is little volatility. We highly recommend What Is Trading, our comprehensive guide to better understand financial markets.

Let’s say your analysis says that XYZ stock will bounce at the $40 area. You believe this is the case because historically the stock has traded in a range of $40-$50. As the stock approaches $40, you put in a limit buy order to own shares at $40. Your goal is to profit from a quick bounce in the stock from a support area.

Definition and Example of the Moving Average Bounce Trading System

These levels, often determined by historical price points and psychological thresholds, play a pivotal role in shaping the trajectory of currency pairs such as USD/JPY. Buy a bounce is a trading strategy https://traderoom.info/trading-the-bounce-from-sr-levels/ that focuses on buying a given security once the price of the asset falls toward an important level of support. Traders who “buy a bounce” attempt to profit from a short-term correction or “bounce” off of the identified support.

Professional traders tend to lose 2% or less of their account on each losing trade. The combination of position size and the stop loss keeps any losses to a small portion of the account. In an uptrend, it shows a future support area, and a potential resistance in a downtrend. You don’t look at the price and the moving average separately, but in conjunction. Immediately, I dug through historical charts to verify if prices reacted to the moving average consistently. In the trade shown in this chart, the bar that failed to make a new low is shown in white, and the entry is shown by the arrow.

What Are the Key Components of the Kairi Relative Index?

The Kairi Relative Index (KRI) is a technical oscillator of Japanese origin that has lost its popularity due to newer and more popular momentum oscillators, such as the RSI and stochastic. It measures the deviation of a security’s price from its simple moving average (SMA) over a chosen period. The indicator works better on the daily timeframe when the period is far enough, usually more than 20 days. If a stock, or any trading instrument, has been trading within a range, watch to see if it breaks out. A range is when a stock moves between a lower (support) and upper (resistance) price point, but cannot move beyond those price points to any significant degree. The breakout occurs when the price finally breaks through the support or resistance level.

As you can see in the above example, notice how the stock had a sharp run-up, only to pull back to the mid-line. You would want to enter the position after the failed attempt to break to the downside. In this setup, you are not obsessed with getting in a position for it to swing wildly in your favor. Nor are you looking to be a prophet of sorts and try to predict how far a stock should or should not run.

  • When they are convinced of the performance of their strategies and their mastery of them, they may look to open real accounts.
  • Let’s take some time to use this as an example of the Bounce Trading Strategy in Forex and the role of support and resistance.
  • This would be a good time to think about scaling out of a position or getting out entirely.
  • The breakout occurs when the price finally breaks through the support or resistance level.

Best Indicator to use With Bollinger Bands Bounce Trading Strategy

The purpose of these bands is to give you a relative definition of high and low. So in theory, the prices are high at the upper band and low at the lower band. Bollinger Bands include three different lines, the upper, middle, and lower bands. The middle band basically serves as a baseline for both the upper and lower.

It is important to remember that no trading strategy is foolproof, and market conditions can change rapidly. Therefore, ongoing education, adaptability, and a disciplined approach are key to achieving long-term success in financial markets. The Bollinger Bands Bounce trading strategy can help traders identify potential buying and selling opportunities based on the price movements of an asset. This can be particularly useful in volatile markets where assets tend to move quickly and unpredictably. When the market is trending downward, you focus on the sell signals, which can be the overbought signal, a bearish divergence, or a downward zero-line crossover after a pullback.

Breakout after Bounce

Essentially, you have an actual reading of the volatility of a security. You can then look back over months or years to see if there are any repeatable patterns of how price reacts when it hits extremes. The one thing the bands manages to do as promised is contain the price action, even on something as wild as bitcoin. You could argue that you don’t need the bands to execute this strategy. However, by having the bands, you can validate that a security is in a flat or low volatility phase, by reviewing the look and feel of the bands. You, of course, can make a ton of money placing big bets, but these types of traders usually do not make it over a long trading career (20+ years).

The spacing between the lower, upper, and middle bands is determined by volatility. The upper and lower are two standard deviations below and above the moving average in the middle. The KRI offers a way to measure this deviation in percentage value. It estimates what may constitute a significant deviation on either side and marks it as the overbought or oversold level. This helps mean-reversion traders to know where to look for trade setups. Swing traders can also use it to find trade setups in the trend direction during a pullback or in a sideways market.

You could even increase your position in the stock when the price pulls back to the middle line. Just as a reminder, the middle band is set as a 20-period simple moving average in many charting applications. Notice how the volume exploded on the breakout and the price began to trend outside of the bands; these can be hugely profitable setups if you give them room to fly. Another simple, yet effective trading method is to fade stocks when they begin printing outside of the bands. We’ll take this one step further and apply a little candlestick analysis to this strategy.