The bounce trader waits for prices to enter into sideways ranges. The price could be
coming from an uptrend or a downtrend, but there are likely to be pauses along the way.
The bounce trader will select a direction to trade and then wait for either the failure of
the price to penetrate resistance or support. The price could in fact close above resistance
or support but then proceed to fall back. Using a setup to confirm the reversal the
bounce trader is looking for a 15+ pip move. In the U.S. dollar–Japanese yen (USDJPY)
15-minute chart shown in Figure 14.1, we see a set up with standard Bollinger bands, slow
stochastics (5, 3, 3) and moving average convergence divergence (MACD) histogram or
Forest version. These indicators are all lined up and provide a high confidence that the
setup for the trade is reasonable. The setup aligned itself for several bounces off the top
and bottom trades. Important to note in the setup is the convergence of the upper channel
line with the upper Bollinger band. The range is about 40 pips. This means the trade
has to conserve slippage and trade off the top or bottom.
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