Bollinger Band is the widely used trend indicator for technical analysis, developed by John Bollinger back in 1980. It mainly indicates market volatility with trend detection. Primarily constructed with 3 lines based on moving average & standard deviation. By looking at the chart with Bollinger band, you can easily spot market strength. In this tutorial, we are about to demonstrate how to use different Bollinger band breakout signal for trading binary options.
What is Bollinger Band Indicator?
It looks like a channel with a middle band; works as an excellent volatility indicator. There are 3 ways to trade with Bollinger bands.
When the market price as a candlestick or a bar form closes above the upper Bollinger band, then it is considered as a bullish breakout. In the case of binary options trading, you can place call order or rise order when such signal occurs. Trade duration depends on the time frame which you will use.
For example, on EURUSD 5 minutes chart, candlestick close above the Bollinger band upper band with a long bullish candle (which covered all previous bearish candles), indicating short-term bullish signal. So placing a binary call option here with a duration of 5 minutes to max 10 minutes is quite reasonable.
As long as candlesticks are closing above the Bollinger band upper line, the market indicates a bullish trend. When the bar closes below the upper Bollinger band, the bullish trend is weak now. As shown in the picture, on the mark of the second arrow, the bullish trend was weakening.
When the market price as a candlestick or a bar form closes below the lower Bollinger band, then this indicates a bearish breakout. In case of binary options trading, you can place put order or fall order when such signal occurs. Trade duration is the same as before based on the selected time frame of the chart.
As long as candlesticks are closing below the Bollinger band lower line, it stays bearish. When the bar closes above the lower Bollinger band, the bearish trend becomes weak.
When the market price as a candlestick or a bar form stays inside the upper & lower Bollinger bands, that indicates the price is in range mode, especially you can see Bollinger band channel is squeezing. In such a case, you can trade range options, like you will get paid only if the market stays within the range top & bottom under a certain time.
Trade duration is the same as before, matched it with the chart time frame. If you use 5 minutes chart for analyzing the chart, then binary options trade duration should be between 5-10 minutes.
In the picture above, we have marked two arrows where we find the highest top in the range and the lowest low. So A & B is the top & bottom of the range, as long as the price stays inside a range. Also, notice price is not breaking the lower Bollinger band or the upper Bollinger band.
Generally, after a range market, a bullish or bearish trend appears.
Bollinger Band with MACD:
MACD stands for moving average convergence & divergence. It is an oscillator widely used in technical analysis for trend confirmation.
- Indicator Used: Bollinger Band & MACD
- Time Frame: 5 Minutes
- Chart Pattern: traditional candlestick pattern
- Indicator Parameter: Metatrader Default
See the picture above, we have plotted Bollinger band & MACD for 5 Minutes EURUSD chart. We have marked all 3 trade best signals on the chart. If you place a trade, that EURUSD will rise or fall for the next 30 minutes. Then with these 3 trades, you could have won positively.
The above statement might sound like hindsight trading. But in reality, it is not. Cause if you have noticed the wave pattern, then these 3 trades can be easily explained.
Here you can see that after a range movement, the market has expanded toward downtrend. At point 1, EURUSD broke the range bottom & also MACD is bearish & MACD value is below the MACD signal. So there is an option to place “Fall / Put” trade for the next 30 minutes.
At this point (marked as 2) EURUSD broke the last range top & with expanded Bollinger band. Bar closes above the Bollinger band. MACD signal & MACD value both showing positive. Therefore another “Rise / Call” binary options trade opportunity it is showing.
A good buy trade signal was visible when EURUSD broke the last top & created a new higher high. Bar closes above Bollinger band upper level. MACD is also agreeing with it.
you might find lots of Bollinger band breakout but none of them are creating any new high or new low. Rather staying inside a range. As a result, we are no longer trading. Our 3 best trade is done.
Placing binary options trade:
Most of the binary options brokers support web platform to execute a trade & also to analyze the chart. You can place a trade put/call or range options trade after logging to your binary options real trading account.
You need to select trade duration, payout amount & entry price, exit conditions.
Setting up the chart
Chart set up is very easy with the web chart system. So you can set up your chart with the preloaded Bollinger band indicator.
Using Metatrader Chart
Metatrader is a free charting software and spot trading platform. You can use this software to load IntraQuotes premium Indicator. The main benefit of using this indicator is it automatically scans for Bollinger band signals among multiple currency pairs or instruments.
In order to use MetaTrader, you need to have a demo forex trading account. You can open find different forex brokers with demo account facility with link below.
Like all types of trading, the basic rule is, do not risk too much. Risk only a small fixed amount or 2% of the capital, which you can effort to lose, thus you will be under less mental pressure.