Bollinger Bands Trading Strategy
The Bollinger Bands trading strategy is one of the simplest tools a new trader can use and one of the most effective ones to implement in binary options trading. Its main purpose is to signal the investor when the price of the binary options are likely to rise or decline in the close future.
Most traders aren’t aware of the power of Bollinger bands trading strategy. Squeeze and expansion is as far as they go. It is a great tool leading to educated investment decisions and higher profits.
This trading strategy consists of three lines.
- The first line is the central line.
- The second one is the high line.
- The third one is the low line.
Calculating the volatility in assets
The Bollinger Bands trading strategy is a deduction invented to test the volatility of the assets traded. It is quite easy to understand as it consists of simple moving averages. The lower and upper bands are two deviations away.
The standard deviations are primarily a statistical tool which can take in most of the deviation otherwise called movement for an average value. While using the Bollinger Bands trading strategy, a trader should use it mainly as a guide and it works wonders when used with other indicators such as the MACD strategy.
The Bollinger bands trading strategy is an ingenious trading tool and were designed by John Bollinger. They are basically a line in a chart showing the price movement of a stock. This strategy was created way back in the 1980’s and became very popular amongst professional traders very fast.
The mechanics of Bollinger bands
The Bollinger bands work on the 20 day moving average. Its standard deviations create Bollinger bands. The Bollinger terms can be categorized into
- Shorter term Bollinger terms
- And long term Bollinger bands.
The short term Bollinger bands takes less than twenty days, while the long term Bollinger terms takes more than 20 days. The shorter version is susceptible to price fluctuations and longer version is less susceptible.
The Bollinger bands are known to measure the fluctuation in prices. It also signals the trader when the price is likely to rise or decline in the future. The set up for Bollinger bands in terms of reversal and continual is quite same.
Key Signals in the Bollinger Band Trading Strategy
If the Bollinger band concludes outside the 2 standard deviation upper or lower bands, then a reversal is likely to happen. The price will spend all of its time in this bracket. Thus, value outside the band will result in reversal.
Sometimes, there is a head fake scenario. In this case, the set up where price does as predicted and then it suddenly shoots in another direction. This requires the trader to be aware of what is happening in the overall market.
The Bollinger band trading strategy is simple yet very effective, it works with great success. The Bollinger bands can measure instability on which the price depends. A sound knowledge of Bollinger band is resultant in profitable trading.
When the bands are expanding, the bands will expand fast and the price will close near the lower band. Watching the Bollinger bands is important here. These bands can sometime correlate to each other. They do so relative to each other. Thus, the prepared trader can pinpoint this anomaly.
Paying attention to the movement in the bands themselves is necessary. When the bands expand, the volatility expands too. In the case where the price has lowered down and closes near the lower band, both bands will be moving apart and move in different directions. This is also referred to as going north and south.
Deeper knowledge into the Bollinger Bands trading strategy can lead investors in the binary options trading market into making generous profits with a minimum risk.