Why are Bollinger Bands so popular?
One of the most popular and successful strategies for trading Binary Options is using a system called Bollinger Bands. It is strategy often used for executing High/Low or Call/Put Options. The strategy is also helpful with Touch Options. The reason Bollinger Bands have become so popular is their effectiveness, especially for purchasing and selling Binary Options and for understanding their trading signals.
Bollinger Bands, is in a sense a range and, define whether or not a Binary Options asset has exceeded its limit; and if so, does it have a higher risk of stabilizing the asset again?
Bollinger Bands are composed of defining a ‘mean reversion’, and accomplishes this by the most efficient methods possible. Of the myriad of indicators in existence and are able to describe ‘mean reversion,’ Bollinger Bands are hands down the most effective. This compares to the theory of moving averages, which Bollinger Bands permit day traders to follow a simple mathematical calculation. View our Day Trader Guide of recommended brokers who offer educational classes on how to trade using Bollinger Bands.
How are Bollinger Bands Calculated?
There are three curves which define Bollinger Bands. The first curve computes the moving average of the asset’s price over a certain period of time (X). The other two curves are on either side of the moving average. The second and third curves are set at a distance that is twice the standard deviation over period (X), which is based off the moving average. At first, period X is set over a length of 20 days; however with binary options, Bollinger Bands can be measured over a short or long period of time, depending on what is needed.
It’s crucial to personalize the standard deviation and moving averages as much as possible, in accordance with the underlying asset that is being analysed. It also needs to be mentioned that the longer a moving average and the greater the standard deviations are, the more accurate the forecast will be.
Successful day traders are able to adapt their moving averages according to the type of Binary Option contract that was purchased. Binary Option trades generally last for a brief time, as they expire rather quickly; so it might be best to work with one hour charts.
Whenever rates come into contact with the bottom band, it indicates there might be a force on the bottom band that will move it towards the higher band and vice versa. When a Binary Option rate hits the upper band, it is highly probable there may be a movement downwards towards the lower band.
In laymen’s terms, after you set your Bollinger Bands and you see that your asset price has reached the lower band, you will theoretically trade upwards by selecting a Call Option. The opposite is also true; this means that if your Binary Option asset price hits the higher band, you may trade down by selecting a Put Trade.
Over time, the Bollinger Bands theory has been proven accurate. For every time a rate reaches one of the two outer bands, it recovers its moving average depending on whether it needs to go up or down. With practice and precision, it is highly possible to make a profit trading Binary Options with a Bollinger Bands strategy. It is possible to achieve a success rate of 95% when Bollinger Bands are used properly.
To learn more and review this concept, go to any Binary Option platform for assistance and support figures from their daily analyses to create your own Bollinger Bands.
With practice, you can become very successful!