Bollinger Bands Tool
Any market trader, whether stock markets, currency exchange or binary options knows the importance of understanding the markets. Only through comprehensive study will you be able to develop a strategy for placing the best trades and becoming a successful trader. Part of this approach means dealing with the volatility of the binary options markets. In fact, understanding when the market is likely to be volatile can actually be used to help you place successful trades.
The answer to this actually dates back to the nineteen eighties; a market trader called John Bollinger me up with the idea of using simple moving averages and combining them with two bans that he created.
The bands, frequently referred to as Bollinger bands, work by moving closer of further apart. The closer they get the more stable the market; in effect the closer all trades will need to be to the simple moving average. As soon as the bands start to pull apart you know there is a rapid change occurring in the market; the bands can even help you to see which direction prices are heading in. Perhaps of even greater benefit is that sometimes the bands will squeeze much tighter together than normal. This will provide you with the perfect indicator that the market is about to explode in the opposite direction from which it is currently moving.
It is important to understand that these bands can provide an indication that the price is about to change direction, but, that they never actually predict the direction of price movements. They will tell you when the market is going to be volatile; this means the prices can be going up and down whilst you will need to work out which is the right trade to place to make the most of the volatility.
It is quite possible to use this indicator simply to tell you to stop trading for a short period; you may even wish to close your trade early if you are able to. The Bollinger bands will not help you to understand the likely profit you can make on a trade; it must simply be used as a guide to when the market is going to become volatile.
Using This Indicator
The basic premise of increasing volatility going hand in hand with expanding bands and a more stable market being reflected by the bands being closer together, is simple to understand. In fact, this technique can be used to show sudden movements which are about to happen in the market and it is very accurate.
The best approach would be to combine these bands with a second indicator which will give you an idea as to the direction the price of your chosen asset will travel in. Using the two tools together should provide you with a very good indication of the market conditions and which trades are likely to be successful.
This tool is free to use, meaning that there is no excuse for not trying it!
To install this free software you simply need to open your MT4 platform and select a price chart. You can then click on indicator, which should be found under the navigator option. Assuming you have downloaded the software, the Bollinger Bands will be listed and you can click it twice to get the picture of what the market is doing. As standard, the software will use the last twenty periods to calculate the current volatility; this can be changed to suit your own preferences.
The chart will show the outer bands, every time they squeeze close you can be confident the market is steady, but a big gap, especially one that occurs suddenly, should persuade you to avoiding any short trades or tunnel strategies. A longer trade is best as the price is almost certain to change direction soon. As a visual aid there is little better indicator of impending volatility.