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Introducing the BSM Trading System

Are you familiar with the BSM trading system? This type of trading system is an abbreviation for Bollinger Bands, Stochastics, and Moving Average. How can it be applied in trading? Before diving into forex trading, several aspects need to be prepared, ranging from selecting forex pairs, determining the amount of capital to be used, choosing strategies and indicators, to planning entry points. All these points are typically encompassed in one "rule" known as a trading system. Each trader usually has a different trading system, depending on individual needs. One's trading system may not be the same as another's, making it impossible to mimic their trading style. However, it doesn't mean there are no trading systems that can serve as inspiration. One such example is the BSM trading system to aid in organizing trades in the forex market. What is the BSM trading system and how can it be used?

Understanding the BSM Trading System

BSM stands for three types of technical indicators: Bollinger Bands, Stochastics, and Moving Average. The combination of these three indicators allows us to read price movements more accurately. The use of leading and lagging indicators in the BSM trading system is also highly useful. Bollinger Bands are selected as the primary indicator in this trading system because they function as volatility indicators and trend determinants. This indicator consists of three bands: the Upper Band, Middle Band, and Lower Band. Reading price conditions with this indicator is relatively straightforward. If the price breaks above the Middle Band, it can be considered a bullish signal. Conversely, if the price breaks below the Middle Band, the price tends to be bearish. The second indicator used is the Stochastics Oscillator. As a leading indicator, Stochastics is chosen as a complement in the BSM trading system because it can provide a more accurate picture of trends. Additionally, Stochastics indicates moments when prices reach overbought (overbought) or oversold conditions. Lastly, the Moving Average, which is a commonly used indicator by beginner to professional traders, is added to the BSM trading system for its ability to indicate trends, middle price values, and entry benchmarks.

How are these three indicators used on one chart? Here are the rules that can be followed:

  • Use for daily trading (Day Trading), with H1 and H4 time frames.
  • Install two sets of Bollinger Bands with standard deviations of 2 and 3. Bollinger Bands serve as the backbone of the system and the starting point for trade analysis.
  • Set up the Stochastics Oscillator with a 9,3,3 setup.
  • Install Moving Averages with varying periods to track short to long-term trends.

If all these indicators are installed on the chart, it will look like this:

How Does the BSM Trading System Work?

Although the chart may appear cluttered, the BSM trading system provides essential indications if we know how to read them:

  • Ensure the price breaks the outer Bollinger Band (BB with a standard deviation of 3), known as BB3 level.
  • Make sure the price also breaks the Bollinger Band with a standard deviation of 2 (BB2).
  • Observe the indications provided by the Stochastic Oscillator, whether the price in the BB3 area is in the Oversold (<20) or Overbought (>80) area.
  • Before entering the market, observe the crossing that occurs on the Stochastic indicator. If there is a crossing from top to bottom, the correct entry is Sell. Conversely, Buy can be done when there is a Stochastic crossing from bottom to top.
  • If necessary, change the time frame to a larger scale (H4) to determine the overall trend conditions and confirm trading signals.

For example, on the EUR/CAD chart above, it can be seen that the price will move downtrend based on the position of the small-period EMA against the large-period EMA. From the chart, it can be seen that the EMA-55 is below the EMA-200, indicating a high likelihood of a bearish price movement. The last step before entering the market is to determine the Stop Loss and Take Profit levels. You can determine these two levels based on Risk Reward Ratio calculations or chart patterns. Make sure to choose levels that are tolerable according to the risk you are prepared to take. Thus, the BSM trading system can serve as a practical guide for forex traders to organize their trades in the forex market.


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