Entering the Trade –
- First the price must establish a level.
- There will then be a retest of this established level where a signal candle or candles will form.
- The signal candle or candles will touch or come within a few pips of the outer Bollinger band. Additionally, the signal candle or candles will reach into the outer zone. The deeper the rejection reaches into the outer zone the stronger the signal. The signal candle or candles will not reach beyond the respective high or low of the established level.
- The Outer zone of an established level is defined as follows: When the established level is a resistance level and we are selling the market, the outer zone will be defined by the extreme high of the established level and the close of the first bearish candle from where the reversal originally took place. When the established level is a support level and we are buying the market, the outer zone will be defined by the extreme low of the established level and the close of the first bullish candle from where the original reversal took place.
- Please note that the fundamental difference between this pattern and the Stop Hit is that the stop hit reaches beyond the established level and the Outer Zone Bounce does not.
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