The Bollinger Bands indicator is a powerful indicator to identify trading ranges. However it cannot identify how far the trend will continue, or when the trend will reverse. The FollowLine indicator employs a combination of Bollinger Bands, Moving Average and Average True Range to identify start and reversal of trend with minimal lag.
The FollowLine indicator generates BUY and SELL arrows when the trade setups identified. Likewise, when the trend turns bullish the indicator is displayed in BLUE, and when bearish the indicator is displayed in RED.
In the first step, we calculate the upper and lower Bollinger Bands using the BB_PERIOD and BB_DEVIATION parameters. We filter for condition when the price closes above the upper Bollinger Band, or below the lower Bollinger Band. If USE_ATR_FILTER is set to true then the ATR value is added to the upper Bollinger Band, or subtracted from the lower Bollinger Band as applicable. This provides us with a trailing stop.
When the price crosses above the upper the Bollinger Band it signals the start of a bullish trend, and similarly when it crosses below the lower Bollinger Band it signals the start of a bearish trend. The indicator primarily employs a Stop And Reverse (SAR) mechanism, so when the LONG position is closed, it automatically signals a SHORT trade.
BUY / EXIT SHORT - Enter LONG (or exit SHORT) when the BUY arrow is displayed and the FollowLine indicator turns BLUE. Place the stop-loss below the nearest Swing Low. It is recommended to employ a trailing stop when the trade turns profitable.
SHORT / EXIT LONG - Enter SHORT (or exit LONG) when the SELL arrow is displayed and the FollowLine indicator turns RED. Please the stop-loss above the nearest Swing High. It is recommended to employ a trailing stop when the trade turns profitable.