Friday 18 December 2015

Bollinger Bands Strategy 2




Bollinger Bands Strategy


Binary option traders will come across the term Bollinger Bands, as a technical analysis indicator to overlay on a binary options chart.


The problem with Bollinger Bands is that they are not a trade indicator. They do not tell you that now is the time to buy or sell. They are there to show traders a smoother line and the range in which prices have settled on a chart.


There are two strategies traders use with Bollinger Bands.


Buy when the price reaches the upper band.


Sell when the price reaches the upper band.


Depending on the width of the band will tell a trader if the movement is a normal sized movement, or if the movement in price is exaggerated and the price needs to come back to the mean (middle).


As with most indicators, the historical price is what makes the indicator. It is up to the trader to decide what the indication means.


Have a look at this chart with Bollinger Bands on it. Does it tell you anything?


On the left side of the chart, you can see that the bands are quite narrow. As the price starts dropping, the bands get wider and wider.


A novice trader will look at the lower right side of the chart and think it is simple to take the strategy of “Sell at the upper band, and buy at the lower band”. But a trader must remember, that the Bollinger Band indicator is historical.


Meaning, it is not a prediction of where the price will go.


Monitoring a specific currency pair or asset with a Bollinger Bands overlay on the chart for a few days, may give a trader who is well versed in that asset a clearer picture of trade opportunities.


Have a look at the trend following strategy we wrote about. When combining this strategy with trend following, it helps some traders read the chart better.