Trading Bollinger Bands
Bollinger bands are an incredibly effective instrument of technical analysis to be used with binary options. Learn how trading Bollinger bands is done, right here.
Bollinger bands consist of a moving average, most commonly a simple 20-period moving average. In the picture below the moving average is the middle green line. From this moving average, an upper and a lower band are calculated by multiplying the standard deviation with a factor, most commonly 2.
The end result is a channel created by the Bollinger bands around the current price movements. This channel in relation to the current price creates a number of signals you can use for your trading.
Trading Bollinger bands with binary options
First of all, trading Bollinger bands with binary options allow you to get a feeling for whether prices are currently high or low.
Without Bollinger bands price movements are sometimes hard to judge. The market seems to move somewhat out in the open. Since there is no system to measure these movements against, especially new traders have difficulty determining whether prices are currently high or low.
Most fundamentally, Bollinger bands define a trading range prices are unlikely to move out of. By measuring current price movements against this trading range, you know whether prices are currently high or low.
- The closer prices are to upper end of the range defined by the Bollinger bands, the higher they are.
- The closer prices are to the lower end, the lower they are.
Also, the upper band can be treated as a resistance level and lower band as a support level. Once the market moves close to the upper band, you know it will likely turn around and not break the band. Once the market moves close to the lower band, it will likely do the same. Additionally, the moving average forms a resistance or a support level depending on which side of the price it is on.
You can use this information for your trading. When the market is approaching a line, you can invest in a No Touch option with a trigger price well on the other side of the line. The line will likely force the market to turn around and keep it from touching the trigger price.
You could also invest in a High / Low option in the opposite direction of the line. If the line is above the current price it will work as a resistance, and you can invest in a Low option, predicting that prices will turn. Vice versa you can do the same thing with a High option when line is beneath the market and works as a support.
As trader with a trend-based strategy, Bollinger bands can help you find limiting areas for your trend. For example, when you are trading a trend in an hourly chart, you can take a daily chart’s Bollinger band as an indication of which trend direction is more likely to occur. When the price in the daily chart is near the top of the trading range defined by the Bollinger bands, you know it will likely fall. Therefore, you should only invest in downtrends in the hourly chart, as there is too little room for an uptrend to develop.
With candlestick formations, you should take a similar approach, and only trade formations in the direction indicated by the Bollinger bands. When prices are near the lower trading range of the Bollinger bands, for example, you should only invest in Candlestick formations indicating rising prices. Vice versa, when prices are near the upper trading range, you should only invest in Candlestick formations indicating falling prices.