Bollinger Bands Trading Strategy
This particular strategy is considered to be very popular and profitable binary options trading strategy. With its help, traders can easily determine backgrounds and factors for buying “Call” or “Put” options.
“BB” is a technical indicator which demonstrates range and speed of price changes. Specification of a potential price movement and buying or selling respectively, is based on the principle that prices have a tendency to stay within the limits of higher and lower bands.
Bollinger Bands trading strategy calculates an average statistics in relation to the market condition plus takes into account 95% of all trades for the last 20 days. Exactly this period is stated at the indicator automatically. Due to this criterion, Bollinger Bands either extend or narrow down in line with sales results. Meaning that if there is high volatility on the market, the bands extend whereas when volume of sales is low or remains the same, these bands narrow down.
– if the bands have narrowed down and keep the price in a particular corridor, it is time to expect fast price changes;
– with the time, prices can go beyond the bands, and when this happens it is time to expect continuation of the price movement at the same direction;
– if the price goes beyond the bands, in a form of peaks with further returning below the band, it means that tendency reverse is possible;
– the main idea is that when the price starts moving from the one band, it should reach the other one; so to say, if the price started getting low from the high band – it is time to sell and expect it near with the low band.
Apart from that, volatility of each and every financial instrument should also be taken into account and depending on that set the length of moving average, automatic period of which is 20. The longer the length of a moving average is and the bigger the divergence level is, the less suppositions a trader will get. From the other hand, the shorter a moving average is and smaller divergence levels are, the more fake and wrong signals a trader gets.
That’s why all traders within a certain period of time for each financial instrument should find suitable and universal settings or leave everything as it was (automatically). Of course at the very beginning, traders will spend some time, yet later, they will successfully trade binary options on a daily basis.