Bollinger Band Trading Strategy
Trading in binary options allows many people access to the markets and the potential to make good rate of return on their investments; without needing to expend huge amounts of capital. The secret to becoming a successful trader is to understand the basics of trading and the variety of strategies which can be utilized to improve your success rate. The binary option Bollinger band strategy has been shown to be one of the most effective techniques at monitoring price movements, particularly in volatile markets.
The Theory
To create a binary option Bollinger band strategy you will need a simple chart. It should display the period you are reviewing and the price. One line on the chart should show the moving average for the chosen asset. You can then create a line above and below this which should be based upon a fixed calculation. The moving average is often multiplied by two or divided in order to get the outer lines. You should be able to compare these with past performance and each time the price approaches or crosses the outer lines it changes direction. With a little practice you can adjust these lines to fit past trends perfectly. This then becomes a prediction for the future. By monitoring the actual price of an asset you will know when it crosses one of the outer lines; this will signal that the asset is ready to change direction and signal it is time to trade in the other direction.
Utilizing this Strategy
The first thing that will be obvious when creating this chart and applying the actual price is that you will be able to see if the asset is currently trading on the higher end of the price bracket or the lower. This will give you an indication of which direction you are likely to trade in soon. It will also help you to establish if there is a current trend and how strong that trend is. Without a binary option Bollinger band strategy you may struggle to know which price bands are usual for your chosen asset.
The second and most important signal can be seen as the actual price approaches, hits, or even crosses the higher or lower lines. This is an indication that the price is likely to change direction and you can trade accordingly. The reason this type of trade is more desirable is that you will be placing a trade against the current direction of the price; this will ensure you are given a better rate of return and increase your potential profit.
Another option that can be utilized when trading with the binary option Bollinger band strategy is to place a trade which specifies the asset will not reach a specific price. This price should be above your boundary line for rising prices, or below for dropping prices. As you know the price is about to change direction your investment should return a good profit.
An additional strategy which will help you to get the most out of this method of trading is to draw up your chart for a short period, such as an hour. You can then draw a second chart for the entire day. The chart will show you which direction the asset has been moving in and will most likely to continue to move in. If your daily chart shows that it is generally nearer the top of its price bracket, then your shorter term (hour) chart should only be used to place trades in a downward direction. The same technique can also be applied when comparing candlestick charts to the binary option Bollinger band strategy.
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