The previous strategies that I described were based on stochastics, relative strength index (RSI) and moving averages. Today I will show the use of another popular indicator, also popular in Forex – Bollinger bands. Bollinger bands for binary options are convenient because they allow you to trade not only with classic options, but also to try their hand at such kinds of contracts, as Range and One Touch. In addition, this indicator gives a fairly accurate signals for entry, which hardly needs proving supporting additional indicators.
Bollinger bands for binary options
Bollinger bands for binary options — technical analysis tool, which allows to estimate the location of the price relatively to normal shopping corridor. Represents the upper and lower limits around the moving average. Signal is output of the prices beyond the retail corridor (the break of the upper or lower range limits). The indicator also signals about market volatility, showing how much the price is too high or too low in comparison with moving average (shows the deviation from the schedule).
The Bollinger bands show the range in which ranges the price chart. The price reaches the upper boundary, repels from it, goes to the bottom. The essence of the strategy is relatively simple: if the price is approaching the range limits, you can expect a reversal. In the figure, the pivot points marked with ovals.
The advantages of such trade are obvious — the indicator is suitable for any timeframes, but there are limitations: since the strength of the trend is not clear, the strategy applies only for short-term scalping strategies. In other words, the period of expiration is not more than the 1st candle.
The conditions for opening a buy trade:
- current candle opened within the range of Bollinger bands;
- andle crossed the lower boundary of the top-down;
- candle has closed below the lower boundary of the Bollinger band.
Conditions for opening sell trade:
- current candle opened in the range limit, but its growth certainly suggests that the candle will cross the border of the upper range;
- current candle closes above the upper band of the Bollinger band.
Important: the figures show the range from the basic parameters of the indicator (default). However, for different assets, the percentage of false signals can profit more or less. That’s why experienced traders set the skew parameter of “2” or “3”. Bollinger bands for binary options get wider, the price rarely reaches the edge of the range. On the one hand, this increases the likelihood of a successful transaction, on the other hand – good signals appear less frequently. The need for setting the deviation for each underlying asset is determined empirically.
There is also a strategy in which a trader opens a position in advance, when the candle not yet reached the end of the range. When approaching the upper boundary, – option for a fall is purchased. Strategy only works on short timeframes or on the flat.
As it can be seen from the figure, only 2 signals have made a loss, while 10 made a profit. The following is a practical example on IQ Option broker trading terminal. Bollinger bands for binary options can be used in conjunction with other indicators that show the strength of the trend. This will increase the number of entry signals weeding out false ones.