Bollinger Bands Trading – Binary Options Trade

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60-second Binary Options Trading Strategy using Bollinger Bands

This strategy may suit the preferences of impatient binary option traders, as it may be applied on any trading instrument (currency pair, commodity, stock index, etc) during any trading session. In addition, it utilizes one of the most preferred technical indicators, the Bollinger Bands. For a detailed overview of this indicator, you can read the article in our Forex Academy.

The time frame is set to 1-minute, while the Bollinger Bands should be set to default (the middle band is a 20-day Exponential Moving Average, while the upper and lower bands represent two standard deviations from that average). The expiry time is 5 minutes.

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Buying a Call Option

In order to buy a call option, a trader needs to spot oversold conditions. In case the price of the trading instrument has broken below the lower band, a trader may anticipate a touch and a return within the two bands. Once this occurs and the trader has a confirmation of the move to the upside, he/she may place a buy order. The trader may use candlestick reversal patterns as confirmation.

Buying a Put Option

In order to buy a put option, a trader needs to spot overbought conditions. In case the price of the trading instrument has broken above the upper band, a trader may anticipate a touch and a return within the two bands. Once this occurs and the trader has a confirmation of the move to the downside, he/she may place a buy order. Again, candlestick reversal formations could be appropriate confirmation tools.

Some traders may prefer to use the Average Directional Index (ADX) in order to delimit the area of trading. Therefore, they will look for the ADX to be at or to fall below its 20.0 level.

On the 60-second chart of NZD/USD above the small triangles indicate spots where call and put options (3 puts, 1 call) can be bought respectively, while taking into account the conditions mentioned.

Implement the Bandit Strategy with Bollinger Bands

The bandit strategy is one my favorite bollinger band trading strategies. It is a strategy I’ve used for many successful trades in my career as a trader. In this article I will share with you how to anticipate financial market volatility and move ahead of the market using the bandit strategy.

This strategy is custom made for traders who like to take advantage of highly volatile movements in the market. But, before you read any further get yourself mentally ready to steal some amazing trades from the market. The key is to just be patient and wait for the right set-up; it might take some time for the right moment to come along but when it does it’s definitely worth the wait.

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This article address some technical terms which will be defined as they are brought up as I outline the bandit strategy. At this moment you might be asking yourself, ‘what is bollinger bands trading?’ So, before we get into the specific details of the bandit strategy, I want to discuss what exactly are bollinger bands and how do you use them for trading.

What is bollinger bands trading?

Bollinger bands are a technical analysis tool developed for trading in the financial markets in the 1980’s. Since then, using a bollinger bands trading strategy has become extremely popular among traders in stocks, bonds, forex, and binary options. The graph measures a relative high or low price of the assets in comparison to previous trades of a unique asset. The prices are represented in bands which are generally a moving average of the previous trades. The default moving average is 20 days. A bollinger bands trading relies on this analytical view to determine if the underlying asset is overbought or oversold.

When is the right moment to trade?

To determine if it is the right moment to make your move, all you need to do is analyze the bollinger bands according to the following:

  1. Deviation 2.0; period 20
  2. Deviation 3.0; period 20

In basic terms, wait for a highly volatile market movement in which there is a significant increase or decreases in the slope of bullish or bearish trend respectively. The trend should cross 3 standard deviations of the bollinger band as shown in the chart below.

In the above chart that are two examples of when the trend line crosses the bollinger band along the 3rd standard deviation. 1) Buy Example for an intraday trade – a trade that takes place during the day. 2) Sell Example where the daily candle is closed. (The daily candle closes everyday at 5pm EST in the United States. Therefore, if you are trading in London, for example, the daily candle will close out at 10pm. Everybody around the world sees the same data, however, the time is relative to your location around the globe.)

How to set up the trade:

When the candle crosses the bollinger bands at the 3rd standard deviation, or even better if candle closed above 3rd the standard deviation place 2 positions:

  1. Major trade:
    1. Investment level: significant amount
    2. Trade type: touch
  2. Minor trade:
    1. Investment level: smaller amount
    2. Trade type: touch

To reiterate the ideal position, your best odds for a successful trade exist when the close price of the candle is above or below at the 3rd standard deviation of the bollinger bands.

Limitations:
Make sure the distance from the 3rd standard deviation of the Bollinger bands to the 20 day moving average is at least 80 pips. (A ‘pip’ is the smallest price change a given exchange can make. Most currency pairs are priced to four decimal places. So the smallest price change is on that last decimal place.)

Time frames:
You can take advantage of the bandit strategy across all time frames except for 1 minute. In general, the longer your time frame the greater your chances of expiring in the money. Recommended time frames: Monthly, Weekly, Daily, 4 hours, 1 hour, 15 min.

Currencies
Recommended currencies for this strategy are: GBP/USD, EUR/USD, AUD/USD, USD/JPY.

Use the above rules to succeed at the bandit strategy, and take advantage of volatile market moves. Once you feel comfortable implementing this strategy you can optimize your timing by searching for the right moment to place your trade. At same time analyze the chart from the highest time frame to the smallest.

Until you have gained a competent level of fluency in the bandit strategy, I suggest you try it out on a demo account, an incentive offered on most platforms. A demo account will allow you to optimize your bollinger band trading skills with real time data without risking your hard earned cash.

Prepare to win some successful trades with this phenomenal strategy.

Best Indicator For Five Minute Binary Option Strategy

I don’t typically recommend trading the 60 second binary options because they are so risky. The chance of an asset moving in your direction, or even moving enough in your direction, within the next 60 seconds is so slim as to be near impossible to judge. This is not to say that it can not be done because it can. This is evidenced by the large number of algorithmic traders and options scalpers that exist today. If it were impossible to make money on such a short time frame these traders would not exist. I personally prefer to use at least a five minute chart but this strategy can be used on any time frame from 60 seconds to one week with relative success. What am I talking about….Bollinger Bands ™ .

Bollinger Bands are all about volatility. Volatility is the movement of the market. Trading is about catching market movements in order to profit. It only makes sense that an indicator that measures volatility would be a good tool for traders. There are lots of such tools, and many ways in which to utilize them but Bollinger Bands are by far the best methods for day traders.

Think about it. Short term binaries are all about catching short term movements. The thing is, when you enter a binary options contract you are not necessarily getting in at precisely the spot price at time of purchase. This is because all the brokers include a small amount of slippage into each strike in order to help them maintain acceptable losses. This is not a scam, just the cost of trading and something explained in every brokers terms and conditions I have ever read. They call it “the price at which we are willing to sell options”. It usually isn’t very much but it does mean that the asset you are trading will have to move at least a pip or more to even be at the money. This is why trading 60 second options and other super short expiries is so hard. Not only do you have to be right, you have to be right at exactly the proper time AND the trade has to move up enough to match and exceed the strike price at which the broker has set the option.

Bollinger Bands For Binary Options

Bollinger Bands are excellent for trading short term binary options because they pinpoint times of low market volatility(movement) and then signals when the market start to moves. Once the market is moving the bands also provide numerous follow up signals that savvy day traders can take advantage of. This is how it works. The bands are based on a standard deviation of prices and will get narrower and wider as volatility decreases and increases. When the market is very calm and quiet the bands get narrow, when the market is volatile and moving a lot the bands get wide. The patterns of widening and narrowing are one kind of signal while price action in relation to the bands themselves provide another. There are three lines in the equation. The first is a moving average usually set to 20 periods. This provides a fairly quick indicator but don’t worry, you can adjust the MA if you think you need to. The next two lines are a standard deviation of the moving average value, +2.0 standard deviations and -2.0 standard deviations.

Bollinger Bands Are Best for short term binary options trading

Look at the chart above. It is a chart of the USD/CHF set to 5 minute candles and a standard Bollinger Band ™. Notice how the bands become narrow and then widen over time. When the bands narrow it is because prices tend to trend sideways. When the market trends sideways it is very hard to profit from binary options. When the market moves up or down from one of these sideways patterns the bands get wider, indicating that movement. That is the very first signal you look for, a narrowing followed by a widening. When the bands begin to widen you know it almost time to make a trade. The next step is to wait and see which band price touches when the widening starts. This is usually an indication of direction and what kind of trading you will be doing. If prices touch the upper band the market will usually rally. When price action touches the lower band the market will typically sell off.

Here are links to more articles on trading binary options with Bollinger Bands ™

How to Use Bollinger Bands to Trade Stock & Binary Options

The bollinger bands are adaptive trading bands that indicates changes in volatility and provide a better view of the true extent of the price action.

Developed by John Bollinger in the 1980s, the Bollinger Bands indicator works on the mathematical theory that statistically, 95% of the time, prices will stay within the standard deviation from the mean.

Constructing the Bollinger Bands

There are 3 components to the bollinger bands indicator. There is the upper band, the lower band and the middle band.

First, a 20 period simple moving average of the asset price is computed. This value is represented by the middle band.

The upper and lower bands are then calculated by using two standard deviations from the middle band.

Overbought & Oversold Levels

When the underlying asset price touches or breaches the upper bollinger band, the asset is said to be overbought. When this happens, the trader can potentially look into going long or buying a call option.

When the asset price touches or breaches the lower bollinger band, the asset is said to be oversold. When this occurs, the trader can take it as a signal to short sell the underlying or buy a put option.

Support & Resistance Levels

The upper and lower bands can also act as resistance and support levels respectively.

Traders generally avoid going long or buying calls when the asset price hits the upper bollinger band.

Similarly, traders often avoid going short or buying puts whenever the asset price hits the lower bollinger band.

Volatility Indicator

The Bollinger Bands are also a great tool to use for determining whether the market volatility is currently high or low.

When market volatility is high, the bands expand. When market volatility is low, the bands contract.

Continue Reading.

RSI (Relative Strength Index) Indicator Explained

The RSI or Relative Strength Index indicator is bounded momentum based technical indicator that attempts to predict a change in momentum. . [Read on. ]

MACD Indicator Explained

MACD (usually pronounced Mac-Dee) stands for Moving Average Convergence Divergence. The MACD indicator gives the short to medium term trend of the price action. [Read on. ]

Bollinger Bands Explained

The bollinger bands are adaptive trading bands that reflect changes in volatility and provide a better view of the true extent of the price action. [Read on. ]

Parabolic SAR Explained

The Parabolic SAR indicator (or PSAR) is designed to calculate the point in time when there emerges a better than average probability of a trend switching directions. [Read on. ]

ADX Indicator Explained

The ADX, or Average Directional Index measures the strength of a trend and can be useful to determine whether an asset is currently in a trending market or a ranging market. [Read on. ]

Bollinger Bands Explained – Formula And Indicator Tutorial

Bollinger Bands and binary options form a great combination that makes trading the financial markets simple, quick, and effective. Bollinger Bands provide a deep yet simple-to-understand look into the market’s soul; binary options are the ideal tool to trade the predictions that this look creates.

In this article, you will learn:

  • What Are Bollinger Bands?
  • Why Do Bollinger Bands Work?
  • Why Should Traders Use Bollinger Bands?

With this knowledge, you will immediately be able to trade binary options based on Bollinger Bands.

What Are Bollinger Bands?

Bollinger Bands are a technical indicator. They predict future market movements solely based on past market data, which they aggregate and calculate. The result is drawn directly into your price chart.

The indicator creates three lines, which are commonly referred to as “bands“:

  1. A middle line. This is the main line. It is a moving average, commonly based on 20 periods.
  2. An upper line. This line is the result of the moving average plus the standard deviation multiplied by a factor, commonly two.
  3. A lower line. This line is the result of the moving average minus the standard deviation multiplied by a factor, commonly two.

These three lines predict the range in which the market is likely to move.

  • The upper line is the upper end of the predicted range. It works as a strong resistance.
  • The lower line is the lower end of the predicted range. It works as a strong support.
  • The middle line is an additional barrier. It works as a resistance when the market is trading above it, and as a support when the market is trading below it.

In real-life trading, Bollinger lines predict three things:

  1. The market will remain inside the two outer lines.
  2. When the market approaches the middle line, it will slow down, but can eventually break through it. It can also turn around.
  3. When the market is moving between two lines, it will continue its movement until it reaches the next line.

All of these predictions are tradable, and binary options make trading them easier and more profitable than most other assets.

Why Do Bollinger Bands Work?

To understand the idea behind Bollinger bands, consider these examples:

  • If an apple was priced at £1 for a while and suddenly became more expensive, for example £1.20, fewer people would buy it. This drop in demand would bring the price back to £1.
  • If an apple was priced at £1 for a while and suddenly became cheap, many people would start buying apples instead of other fruit. This surge in demand would bring the price back to £1.

Now, these examples do not say that the price of an apple will never change. It can change – slowly and over time. Rapid price changes, however, are short-term fluctuations. Unless there is a catastrophic event, market psychology requires price changes to take some time.

Bollinger Bands reflect this assumption. The moving average that creates the middle line is the long term price change. The upper and the lower lines create the price channel in which the price can fluctuate.

  • When the market approaches the upper band, you know that traders will soon think, “This asset is getting too expensive.” Demand will drop, and prices will fall back closer to the middle line.
  • When the market approaches the lower band, you know that traders will soon think, “This asset is really I should buy it.” Demand will surge, and prices will climb back closer to the middle line.

In short, this technical indicator helps you to understand market psychology without having to talk to every trader out there. This understanding helps you to make better investments with a quick, simple look at your price chart.

Why Should Traders Use These Bands?

Bollinger Bands can be a great help for binary options traders. They can do three things for them:

  1. Find new trading opportunities. When the market approaches a Bollinger band, you know that the market is likely to turn around. This knowledge alone is enough to win a binary option.
  2. Make more money with your strategy. Bollinger bands provide a clear indication for how far the market can move. Binary options types with high payouts such as ladder options or one touch options require this prediction, which is Bollinger Bands can turn an ordinary strategy into a highly profitable one.
  3. Help you avoid bad trades. Bollinger bands form important resistance and support levels. Even if you decide to not directly trade Bollinger Bands, you should at least be aware of these levels. Otherwise, you might be surprised when the market does something unexpected, and you lose a trade you believed to be a sure winner.

In addition to these three reasons, there is another aspect that makes Bollinger Bands so attractive – they are simple. All you have to do to interpret Bollinger Bands is take a quick look at your price chart. There is almost no chance to get it wrong, and you can finish the entire analysis in a few seconds. Traders who analyze many charts simultaneously love Bollinger Bands because they provide such clear predictions in such a simple way.

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Conclusion

Bollinger Bands are a great tool for binary options traders. At a glance, they provide a deep look into the thought process of all traders and the psychological processes that drive the market. This knowledge can help you find new trading opportunities, make better trades, and avoid bad trades. Any trader can profit from adding Bollinger Bands to their chart, even if they are only using them indirectly to better understand the market.

Traders can also base their entire trading strategies on Bollinger Bands. Our strategy pages include 3 Bollinger Band strategies

If you like binary options, Bollinger Bands will help you to trade better. If you like Bollinger Bands, binary options provide you with a great tool to trade their predictions.

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