Bollinger Band Strategy
Bollinger Bands is an indicator that helps reveal trends, reversals and price volatility (or lack thereof). As such, this indicator can be extremely beneficial for those who trade binary options, forex and other financial instruments. On technical charts, these bands consist of three parts – a moving average and upper/lower line.
The combination of the lines works to correctly identify the current price action as well as to provide an excellent forecast as to where the price might go next.
How to Use Bollinger Bands?
Bollinger Bands determine relative values of high (upper band) and low (lower band) prices. This band will remain positioned on both sides of the asset's price. They help show the difference between the upper and lower levels in relation to the moving average. The bands are a statistical curve, which is sometimes referred to as a bell curve, and can reveal support and resistance levels.
The 20,2 setting is most commonly used, and is traditionally comprised of a central band, represented by the 20-period moving average, and two parallel bands (upper and lower).
The lines that form the envelope around the moving average are calculated from the standard deviation of the central band. The price of the asset to be analyzed must remain between the two more than 95% of the time. The only exception will come when market sentiment is extremely strong.
This indicator can be used with any underlying asset and work well with multiple time frames. This band will clearly show when the asset price is close to levels of support or resistance. When the asset's price is close to any band, the opportunities are great that the price action will pause and then reverse. Clearly, this indicator is one of the best tools to use in detecting upcoming reversals.
The strategy with Bollinger Bands itself is quite simple. The first step is to determine whether the tracks are spaced or far apart. When a gap is small, Bollinger Bands are saying that Traders are feeling indifferent and that the next move will be harder to predict.
A wider gap between the two will indicate less indecision among investors and will be a more favorable setup for taking trades, as the price movement will be much clearer.
The next step will be to establish how the bands are moving. Are they moving sideways, up or down? Horizontal or flat movement is simply seen as a resting point, after which the asset's price will start to rise or fall.
Upward movement of the band will signify an upward trend in the price, presenting an opportunity for a buy trade. The opposite applies with a downward movement, revealing a downward trend and an opportunity for a sell trade.
Himself asset price must be located on the far right of each lane. Whether displaying the graph in candlestick or bar format, when these are located on any band, be prepared to wait for incoming signals. However, waiting for a change in market sentiment can be significant, so patience will sometimes be required when using this binary options trading strategy.
The Bollinger Bands strategy described above will not be 100% effective, but it can certainly help with decision making.
Bollinger Bands have been used for many years by all investors to help with price prediction. This one indicator can be used with other technical indicators, so do not hesitate to select another tool to be used in conjunction with Bollinger Bands in order to receive additional validation on the signal.
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