Bollinger Bands indicator: settings, application practice. Trading strategy with the Bollinger Bands indicator Bollinger bands with what to use

During the existence of binary options, many indicators have been created that allow you to effectively conclude transactions. Some of them "migrated" from the Forex financial market, as well as the Bollinger Bands indicator, well known to many traders.

Thanks to the famous trader John Bollinger, who invented this indicator, many traders became successful people and earned their first millions. That is why every self-respecting trader must study the legendary Bollinger indicator.

Usually this indicator is used to complement the candlestick chart and limit the price. The band allows you to use a minimum of additional indicators and signals and not overload the chart.

Who is Bollinger

John Bollinger is the star of the trading market, who gave traders the know-how that makes the work clear, simple and profitable. This man, who is not yet sixty, has been awarded dozens of awards and prizes. He also gave the world a legendary book, which was subsequently translated into 11 world languages ​​- Bollinger on Bollinger Bands.

The book describes recommendations for working with various assets, and not just instructions for using the indicator. It is ideal for beginners, as it is written in a simple and understandable language, without intricate phrases and derivation of formulas.

John Bollinger has been developing ways to simplify trading in the financial market since 1977, starting long before the advent of today's powerful computers with great capabilities. He developed the Group Power system, which unmistakably identifies the leading trends in various industries. He is the head of several financial institutions and created a site with technical analysis reviews back in 1996. Despite technological progress, the site is still popular.

Bollinger Bands display the volatility of an asset, in other words, they show within what limits its price will move. The indicator consists of three lines:

• Upper limit SMA20+;
• Lower limit SMA20-;
• Simple moving SMA20 in the middle of the band.

These lines are plotted by calculating the standard deviation. But trading platforms carry out automatic calculations, so a trader does not need to know these subtleties.

As you can see in the image, the upper and lower boundaries form a corridor in which the price moves - this is the essence of the indicator. The possibility of profitable trading appears when a candle or a bar crosses the upper/lower border of this corridor. The Bollinger indicator is an oscillator, of which there are a great many. But thousands of traders use it in their work. The clarity and simplicity make it unique. Some traders affectionately refer to him as "Bolly".

The width of the band depends on the volatility of the asset. The higher the volatility, the wider the band, when the volatility is low, the band is narrow, and the price jumps are so slow that it is difficult to call them jumps - so, jumps in slow motion.

As mentioned above, the width of the Bollinger band depends on the volatility of the asset. On the long-term chart, it is clearly seen that the band periodically narrows strongly and the price movement slows down, then expands and the price starts to move at a breakneck pace. Therefore, after each narrowing, it is possible to predict the expansion and the speed of price movement. The moment of expansion provides good trading opportunities.

Most of the time, all the candles are inside the band, the price does not make sharp jumps up or down. This is a period of calm for trading, but if the price starts to approach the border, this may mean an early breakdown, and then a swift movement in the opposite direction. Any breakdown means a trend change, but only if there was no pronounced trend on the chart. If he was, then the breakdown will talk about its continuation, and not about the change.

When a breakdown occurs with a pronounced trend, the trend continues. This phenomenon is known as "Strip Walk". The price comes close to the border or crosses it, then drops for a short time and again rushes up. The first breakdown or touch does not indicate a change in trend or its continuation, but if there have already been touches, then each next one is a confirmation of the trend.

It is impossible not to recognize a strong uptrend or downtrend on the chart, as it is long and literally screams about itself.

Important! Each touch or line crossing is an opportunity to make a successful bet. The best time to trade is when the price bounces back to the middle line after touching.

Reception "W and M-shaped figures"

This technique allows you to understand whether there will be a trend reversal or not, since even the longest price movement in one direction ends sooner or later.

For the first time, such a phenomenon as a W-shaped figure was discovered by another legendary analyst - Arthur Merrill. At the bottom of the graph, there is a pronounced letter "W", most often its right side is located above the left.

Such a phenomenon can be observed both with a stable trend and with its absence. The price reaches the lower border, bounces and touches the middle line, after which it touches the lower border again. After the second touch, it rises again, and if the middle line crosses, then this is a signal for a trend reversal.

With M-shaped figures, everything is exactly the same - they mean a change from an uptrend to a downtrend. At the top of the chart, the price rises to the border, bounces to the middle line, returns to the border again and bounces again. If the chart falls below the middle line, then the trend will change. Sometimes it happens that when the letter “M” appears on the chart, the MACD indicator indicates an upcoming price drop. Such a contradiction in readings is called a divergence, which portends an imminent price change (which happened in the end).

M does not always look familiar, sometimes it can be skewed or crooked, but this does not change the meaning. In the picture below, the letter M is difficult to guess, but all the conditions are met, which means that a change in trend has occurred.

M does not always look familiar, sometimes it can be skewed or crooked, but this does not change the meaning

For binary options, many strategies have been created using Bollinger waves, as well as many similar techniques developed for the Forex financial market, but also suitable for binary options.

It is better for a beginner to start with the simplest and most understandable strategy, without using a lot of indicators, so as not to get confused. According to the experience of many traders, it is the simplest strategy that is the most effective, as it allows them to “feel” the market. It is on this that the success of a binary options player largely depends. The candlestick chart is also very "eloquent", you just need to learn how to read it.

You can successfully trade using only Bollinger waves and the techniques that were described above, namely:

• Letters W and M;
• Walk the strip;
• Line breakdown.

Sometimes they are enough to make successful bets, but you can also use indicators that will hedge a trader who doubts his decisions. It is best to use the price oscillator and the MACD indicator. The basic chart looks like this:

Also, Bollinger Bands are perfectly combined with the RSI indicator (relative strength index) and form a powerful financial instrument that can accurately determine the price direction.

Signals are received quite rarely, but they are quite accurate. RSI, as well as Bollinger Bands, can be found in the basic list of most brokers and in all trading terminals.

To work in the RSI settings, levels 30 and 70 are set. In principle, you can try to set 20 and 80, but there will be fewer signals.

The signal to enter the market is the price chart crossing the upper (70) or lower (30) level on the RSI and the simultaneous crossing of the corresponding Bollinger band.

When using these indicators, it is undesirable that the option life is more than four candles, and the timeframe is below M15. Otherwise, losses cannot be excluded.

The optimal time intervals for its use are intervals of 15 and 5 minutes. Some traders manage to successfully trade on the 1-minute interval, but this is more the exception than the rule. An interesting point is the ability to temporarily switch to longer timeframes. For example, trading on a five-minute chart, you can switch to a half-hour chart and see the full picture - the presence of a trend, its stability, life time, etc., and then go back and open a profitable trade.

Conclusion

The Bollinger indicator is considered one of the most effective for trading binary options, although it was originally created for Forex.

Before you start using Bolly, you need to get to know its capabilities as much as possible. Therefore, it is advisable to read a book about him. Success depends on understanding the factors that affect the indicator - volatility, economic and political events, news, etc.

To understand whether additional indicators are needed or whether a candlestick chart and Bollinger waves are enough, you need to hone your basic strategy on a demo account, and then move on to trading with minimum rates. Not everything will turn out right away, but over time, persistent players determine the necessary nuances of trading that lead them to success.

Bollinger Bands is an oscillating indicator used by traders to measure the level of price volatility in the market. Thanks to this tool, it is possible to evaluate and analyze whether the cost is high or low in comparison with the moving average derived over a certain period, as well as successfully predict the possibility of rising or falling to its level.

Bollinger Bands are three main bands:

• Central - moving average with an averaging period of 20
• Lower - SMA plus 2 standard deviations
• Upper - SMA minus 2 standard deviations

Two bands limit the price movement in the channel, and the third one is equally removed from them. Most of the time, the price chart is located inside the channel, limited by the upper and lower bands. The standard deviation is determined statistically and it shows how far the marks are from the average parameter.

In the MT4 trading terminal, the settings are standard, but a trader can change them in accordance with his strategy and trading conditions.

Using and configuring the indicator

Bollinger Bands is, it demonstrates the dynamic range of movement in the value of an asset, and in the process of performing a trend analysis, it is superimposed on the price chart. It does not have a separate window, it works directly on the chart, it is already included in the standard set of the MetaTrader 4 trading terminal.

The use of the indicator based on Bollinger Bands in the work allows the trader to determine the relative position of the price on the selected timeframe, effectively search for possible entry points, and see the levels of formation of correction waves in case the price rebounds from the bands. According to the developer, Bollinger Bands do not give accurate independent signals to open a position, but they can indicate the interval in which the trend is supposed to move.

The width of the bands is constantly changing in accordance with the volatility of the asset. Thus, the indicator is more of an oscillator that captures the deviation of the current price mark from its average value, creating a kind of corridor for quote fluctuations.

Installing and configuring the Bollinger indicator does not require special knowledge. The analytical tool is included in the MT4 suite, it can be found along the path: «Insert/Indicators/Trend/Bollinger Bands». If you use a trading terminal that does not have a tool, you can easily find it freely available on the net, download and install it by transferring the file to the “indicators” folder of the trading platform, and then reload it.

John Bollinger, the indicator's creator, advised setting the following values ​​for the central moving average:

10 SMA for small timeframes, 20 for medium-term and 50 for long. The value of the standard deviation is also desirable to vary.

Trading on the Bollinger indicator can be carried out using only one analytical tool or in combination with others. Its main task is to determine the corridor for the price movement and the actual boundaries of its changes. When the quote reaches one of the lines, most likely there will be a trend reversal or a short-term pullback. The middle band often acts as resistance, because after its breakdown, the price usually reaches the lower or upper lines.

Main indicator signals

When trading using the Bollinger indicator, you need to remember the basic rules for working with it. For different strategies, the rules may differ, but the simplest indicators are relevant in any case and they are directly dependent on price volatility.

Bollinger Bands key signals:

• The divergence of the bands in different directions is a continuation of the downward or upward trend, the narrowing of the lines is the end of the trend.
• If quotes are moving outside the indicator- this may indicate a continuation of the trend.
• If the quote stays in a narrow corridor of the indicator for a long time - a jump in volatility and a strong trend can be expected.
• The narrowing of the channel of the extreme bands is a signal to close positions, since the trend is likely to end.
• Rebound from the lower or upper line - you can open a position: the first target is fixed near the middle line, and when the price breaks it, the position is closed after the first rebound from the opposite band.
• Continue signal– if the sidelines break through, but the trend is still strong, you can not only leave open positions, but add to the opposite or middle Bollinger band on rollbacks.
• The formation of a new minimum / maximum in the process of falling / raising the price, first outside the bands, and then the formation of a minimum / maximum inside the bands - possible trend reversal expected.
• If the price breaks through the upper line from below and the bar (candle) closes above this line, this is a signal to buy. The breaking of the lower band from above and the closing of the bar (candle) below this band is a signal to sell. It is possible to generate false positives here, so you need to work with signals carefully, it is advisable to use an additional analytical tool as a filter.

Experienced traders do not advise trading exclusively on Bollinger Bands, since its main task is not to find suitable points for entering / exiting the market, but demonstration of the current state of the market , fixing possible reversals, confirming the continuation of the trend. It only provides information for the analysis of the current situation, but it is better to use additional means to find the right moments to conclude positions.

Strategies with the analytical tool Bollinger Bands

The Bollinger indicator is very popular among traders, therefore it is actively used in various systems with any currency pairs, on various time frames.

Strategies based on Bollinger Bands:

1) - created by chess player Walter Downes, involves making a deal in the direction of the prevailing trend at the end of the correction, suitable for any currency, works on the basis of two Bollinger indicators with a deviation of 1 and 2. It rarely gives signals, suitable for those who cannot trade with a strong psychological stress.

2) — simple and understandable, based on three Bollinger Bands with different periods and deviation, RSI and Stochastic Oscillator. Suitable for all pairs, it is best to trade on H1, the profit is quite high, generating buy and sell signals.

3) - makes it possible to catch market tops and bottoms, suitable for all currency pairs, gives the best results on the hourly chart, based on a combination of three Bollinger Bands with different periods and RSI.

4) "Turn to Kerry" - earnings on the difference in discount rates, for long-term trading, the system is relevant only for currencies with a large difference in interest rates (AUDJPG and NZDJPG). Bollinger bands are set with deviations 1 and 2, work is carried out on a daily chart and only in the direction of a positive percentage.

5) Working with the Bollinger indicator with an alert, where sections of uptrends and downtrends are marked and arrows indicate entry signals at reversal points. The arrows differ in color and direction, their appearance is accompanied by a sound signal.

6) - works on three BBs and two SMAs. Gives good signals to enter / exit the market, multi-currency, for the hourly chart.

7) Trading on the news - work at the moments of the release of important news in an attempt to capitalize on strong price movements. A 5-minute chart is selected, Bollinger bands are set with deviations of 1 and 2.5, and then work is carried out in accordance with the rules and signals of the system. Trading on the news is quite difficult, but many traders try to be at the monitor at the time of news release and try to make money.

8) - involves searching the flat market for narrow corridors of quote fluctuations and placing pending orders in both directions. And the market itself determines which of them will work and when. And BB allows you to more accurately analyze the market and find suitable points for placing orders.

9) “Inside Day and Bollinger Bands” is a trend trading strategy, thanks to which you can earn good profits in just a few transactions. A fairly complex system that requires the use of a filter to determine trades at the top and bottom.

10) 3 EMA and Bollinger Band - involves working with M5 and M30 charts, gives good signals.

11) "Bollinger on steroids" system - works on a daily chart, requires the installation of BB with a deviation of 1 and 1.5. One indicator should be blue, the other white. Generates two types of entry into the market when different lines are triggered, white lines (1.5) are considered more important.

12) Buying on the breakout of the lower Bollinger band - using the oversold condition. So, when the lower band is broken through with a strong selling force, this often leads to a return of the price back: it reaches the broken lower line, and then to the middle band, which can be used to make money.

In the process of trading only on this indicator, the author of the tool does not focus on a specific period, recommending the use of different ones - short, medium, long. In the long term, a preparatory analysis is performed, in the medium term - the main one for drawing up a trading plan, and in short periods, you can look for entries and make deals.

Building price channels and calculating the nearest support and resistance levels is one of the pillars of technical analysis. Trading signals at the breakout of the channel, as a confirmation of the trend or its reversal, are the most clear and uncontested guide to making decisions about opening positions. But, in practice, it turns out that the same price chart makes it possible to build several ranges at once, their number and direction depends on the chosen starting point and time scale.

Perry Kaufman managed to find a solution that would simplify this uncertainty, who back in 1987 proposed using standard deviations (SD) to determine the current strength levels of quotations.

But the real development and theoretical basis of the indicator received a little later - in the 90s, a former lighting operator, and later a financial analyst John Bollinger developed a whole system of market analysis based on the principles of calculation proposed by Kaufman. The system is called "Bollinger Bands", it is a complete rational strategy for determining the dominant trading trends.

A detailed presentation of the rules of the strategy can be found in the book Bollinger on Bollinger Bands, the same review will cover the basic rules for working with the bollinger bands indicator and the practice of using its readings in conjunction with other popular technical analysis tools.

In order to build a successful system based on the Bollinger Bands indicator, you need not only to learn how to read its trading signals, but also to understand the general principle of calculating values, which underlies the operation of this tool. This knowledge will allow you to choose entry points more competently, based both on the mutual position of the chart and the indicator lines, and on understanding the process of deviation formation.

If you do not go into details, then the standard deviation (SD) is most simply described as the spread of specific values ​​\u200b\u200babout the average value of these same values. What does it mean? Suppose there is a period that includes 10 candles:

Let's check the calculation:

Indeed, the standard deviation turned out to be small and amounts to 22 points.

If we take a deliberately wider range of prices in the same period (10), then the value of CO will change significantly:

Which is also easy to check:

Taking into account the new initial data, SO increased more than 3 times and amounted to 73 points.

These simple calculations make it possible to measure the width of the price range and the strength of the momentum. When calculating in a period, it will not be difficult to determine the direction of the trend and identify a flat.

Price deviation search principle

The standard deviation of the price presented in its pure form is too uninformative for the trader. It is present even in a calm market, and specific numerical values ​​​​depend on the overall volatility of the traded pair. In order to turn the calculated values ​​from a parameter into a trading signal, Bollinger suggested modifying the presentation of the results in such a way that the value SO participated in the formation of the channel.

The moving average serves as the basis (middle) of the channel, Bollinger recommended setting its period at least 25. The upper limit of the range is formed by shifting the central MA by the amount of CO up, and the lower one - down. Since we are talking about the formation of a channel and its breaking through is considered the strongest trading signal, in order to filter out erroneous data, it is necessary to modify the formed range so that the number of false signals is minimal.

However, if pure calculated deviation values ​​are used to search for a breakdown, too many signals will turn out to be false:

And the rule about the time the price stays inside the channel is not respected. In order for the standard (it is also root-mean-square) deviation to begin to be useful, you will have to turn to statistics tools and introduce additions to the calculation algorithm.

Since the closing levels of candles in the selected interval are not any mathematical sequence (with some assumptions, they can be considered random and normally distributed), it means that they can be filtered using the three sigma rule. The rule describes the probability of finding a standard deviation in a range and looks like this:

Usage sigma allows you to expand the range of deviations by selecting only the largest of them.

The first calculation and graph was given for σ = 1, which means that only 68.3% of the candles were within the range: the SD value of the remaining candles exceeds the average value of this value. If we build Bollinger Bands based only on deviations that are 2 times larger than the average ( σ = 2), then a much larger number of bars will fall inside the channel, and the breakdown of the channel will become a rare but relatively unmistakable phenomenon:

Extracting trading signals

The meaning of building a range is to search for such a market condition in which the momentum of the price movement is strong enough for the closing prices of some candles to be outside the channel. The standard deviation of such candles is more than 2 times different from the average, and in the normal distribution lies to the right and left of the 2 and -2 sigma levels.

A range breakdown occurs when candles with the maximum CO value consistently form at its borders. Since the upper and lower curves of the indicator are a modified moving average, sooner or later there comes a moment when the MA does not keep up with the sharp price momentum and the candlestick closes outside the channel.

Breakdown is not the only trading signal that the bollinger bands indicator can provide to a trader. By evaluating the distance between the upper and lower lines, you can determine the presence of a trend and a flat, as well as look for confirmation of technical analysis patterns.

Calculation of indicator readings

As mentioned earlier, the bolindger indicator uses methods from the statistical analysis section, and specifically, the calculation of standard deviations. If mathematics is not your forte, then the formula:

But it can be difficult to understand, even if you explain the meaning of the terms of the equation. For a correct understanding of the calculation mechanism, it is easier to use infographics indicating the sequence of actions.

Installing and configuring Bolinger Bands

The Bollinger Bands indicator has long been classified as a classic, and is available in many trading terminals and web platforms. The main parameters of the Bollinger indicator are the period of the moving average, deviation, shift and the type of prices for calculation. Each type of settings can significantly affect the appearance of the channel, and hence the quantitative-quality ratio of trading signals.

Meaning of indicator parameters in trading

The range width largely depends on the MA period and the amount of deviation. In order for the rule about the ratio of prices inside and outside the channel to be observed, you will need to adjust the values.

On most currency pairs with a period of MA=25, the deviation value is 2, but with a period of 50 it is better to use 2.1. When increasing the deviation, remember that with sigma=2, approximately 95.5% of all bars will be inside the range, and with sigma=3, only 99.7%. This suggests that it is pointless to increase the deviation indefinitely: the larger the sigma, the fewer candles the Bollinger curves will break through. When choosing this parameter, it is necessary to take into account the volatility of a particular trading instrument: with high quote mobility and in markets prone to gap formation, it is necessary to increase the deviation to compensate for it.

Location of range lines and connection to settings

Changing the period value allows you to manipulate the number of bars involved in the calculation of the standard deviation. It is not recommended to set too short periods: in this case, an insufficient number of candles will participate in determining the deviation value and the indicator will lose its information content.

The influence of the deviation value on the number of bars outside the channel has already been mentioned in this review. For example, when choosing sigma=3 , you can observe a change in the number of trading signals:

But the third parameter, shift, can radically change the situation. When sheared = 0 channel boundaries are formed together with the last bar:

But if we shift the channel forward by 5 bars:

The number of intersections of the graph and curves has increased. In some cases, the signals have become more readable, but false breakouts have also been added. You should use the shift very carefully and be sure to check the adequacy of the received signals on the history of a particular pair.

Installation in MetaTrader

To add an indicator to the MetaTrader trading terminal, open the menu "Indicators" -> "Trend" -> "Bollinger Bands"

The indicator settings window allows you to set your own parameter values:

You can also customize the display style of curves: you can change the color, type and thickness of the lines. The "Apply to" drop-down list allows you to select the type of prices to be calculated (opens, closes, medians, etc.), and also allows you to specify the readings of another indicator as a source.

Installation in TradingView

The popular TradingView web platform also allows you to use the Bollinger indicator for market analysis. To install it on the chart, open

"Indicators" and in the search box type "Bolinger Bands".

And then click on the title.

To access the Bollinger settings, click on any curve of the indicator on the chart. In the window that opens, you can change the settings:

• Length - changes the period of the moving average;
• Data - the type of prices used for calculation;
• Stnd. Deviation - the value of sigma to determine the deviation;
• Offset – allows you to shift the curves forward relative to the price chart.

On the Style tab, you can change the colors and type of lines, as well as the fill color of the channel.

Now, having familiarized yourself with all the nuances, you know how to set up a Bollinger for a specific currency pair. Next, various trading signals that can be obtained using this indicator will be analyzed.

Trading signals

Bollinger Bands (BB) is a rather peculiar indicator, although its readings are subjected to serious filtering at the calculation stage, in some cases they turn out to be false or ambiguous. Also, there is a clear delay, so novice traders are often at a loss, watching how the indicator misses the beginning of strong movements and forms a breakdown only towards the end of the impulse. But this is not always the result of an indicator error, sometimes we are talking about a misperception of trading signals. Here it is worth explaining how to use the Bollinger and learn how to distinguish good entry points from bad ones.

It was not in vain that the misperception was mentioned above. Every trader knows that a breakout of a channel, for example, up indicates an uptrend. Approximately like this:

The breakout took place, and the direction of the chart changed. But what will the Bollinger indicator show in this situation?

The channel has been broken down - we urgently open short positions, the downward movement has intensified! Yes, this is a false signal, but even from it you can really benefit. If you look closely at the history of trading, you can see that the price always reverses for a short time, breaking through the range. This does not mean that you need to enter against the trend after each puncture, but on pairs with high volatility, it makes sense to try scalping with small targets.

This interesting feature of the indicator, when only 2-3 candles form outside the range, makes the Bollinger indispensable when trading options. If the trader has every reason to believe that the price will most likely reverse within a time interval equal to 3 bars, then it's time to buy an option with an expiration time in the specified interval.

Range breakout

Let's get back to testing. As mentioned above, only candles with the largest deviation will be able to overcome the boundaries of the range. In turn, the growth of the standard deviation (SD) indicates the growing strength of the impulse and that the price is “accelerating” in the direction of the trend. By the size of the bodies of candles that closed outside the lines, one can judge the strength of the price movement:

In any case, it is better to use additional tools to check the indicator readings - Stochastic or RSI oscillators are suitable.

Middle line: rebound and breakdown

The middle line in the middle of the channel is a moving average, which means that all trading signals related to the position of the chart relative to the MA, crossing and rebounding from the middle line are relevant. The presence of the channel boundaries adds a new starting point for the analysis - they act as local support or resistance levels, a rebound from which can lead to the price returning to the moving average level, crossing it and likely reaching the opposite boundary.

In general, the location of the price chart below the middle of the channel indicates a downtrend and the possible formation of new lows. This Bollinger signal indicates the need to open a short position, which is confirmed by the downward trending lower boundary of the channel and the middle line.

If the chart crosses the middle line from the bottom up, it indicates the end of the decline and the beginning of consolidation or a new uptrend. Further development of the situation may lead to a rebound of the chart from the MA level, which will indicate the continuation of the previously started trend.

Channel expansion and contraction

You can identify the beginning of consolidation or flat by narrowing the channel. The convergence of the upper and lower boundaries indicates that the values ​​of the standard deviations for the period are close, the closing prices of the candles have a slight spread. On a narrow channel, the Bollinger strategy for binary options may be relevant, triggered by a price rebound from the border. Its essence boils down to opening in the opposite direction - when the chart touches the upper border, the put option(price will go down) touching the bottom - call(to increase quotes). The proposed trading system is simple, but works relatively error-free only on pronounced side channels.

Confirmation of standard models

Bollinger Bands can provide a trader with additional trading signals when viewed through the prism of searching for standard patterns (figures) of technical analysis. Since the outer boundaries of the indicator represent dynamic strength levels, a rebound from them, especially on a narrow range, indicates the beginning of a reversal. In the example below, a reversal pattern is confirmed using Bollinger Waves "double top".

Here, the chart formed peaks twice at approximately equal quote levels, but the momentum was not enough to break through the indicator border, and the trend began to reverse.

Principles of use with other indicators

In order to exclude the possibility of entering the market in case of an unexpected trend reversal, it is necessary to receive confirmations from other technical analysis tools that are not trend-oriented in nature and are capable of predicting a reversal. More than others, oscillators are suitable for this role.

Bollinger Bands and Stochastic

To reduce the number of losing trades, it is wiser to use a fast stochastic with a short period of %K. At the same time, it is important to pay attention to the position of the signal lines - overbought and oversold zones will help to highlight high-quality signals, and the intersection and direction of the curves - a reversal trend.

One of the options for setting the stochastic %K = 8, %D = 4, BTC/USD trading instrument.

Stochastic helps to choose only the right signals:

• If the chart has crossed the boundary of the Bollinger lines, and the stochastic indicates a continuation of the trend (in the example, the lines are directed upwards = an uptrend), and the overbought zone has not yet been reached, the signal is correct and you can enter the market.
• With a new breakdown after consolidation, it is necessary to pay attention to the position of the stochastic curves: if they are inside the 80-100 zones to break through the upper limit of the range and 0-20 - the lower one, it is not recommended to enter the market, since the probability of a reversal is too high.

Bollinger Bands on RSI

An interesting feature of Bollinger Bands is the ability to process any input data - from prices from the chart in various averaging options, to the readings of other indicators. In the trading systems of experienced traders, you can often find such a symbiosis: Bollinger Bands processes the readings of the RSI moment oscillator, forming dynamic overbought and oversold zones, which greatly simplifies the decision-making process.

To add a Bollinger indicator to the RSI window, open Navigator - Indicators and drag it to the data window.

Now the process of market analysis is simplified: the intersection on the chart must be confirmed in the breakdown by the RSI line of the Bollinger curves.

Precise adjustment of the oscillator period and the deviation of the superimposed indicator opens up a huge scope for experimentation with various currency pairs.

Fundamentals of strategies using Bollinger Bands

To build a successful strategy for trading with Bollinger Bands, you need to follow some rules specific to this instrument.

Rule #1: Performing a simultaneous assessment of the impact of all three types of trading signals from the indicator, including breakdown, crossing the middle line and channel width, can significantly reduce the number of false entries. But in order to operate with initially correct data, it is necessary to take into account the individual characteristics of currency pairs. Do not forget that each traded asset has its own specific distribution of deviations and its own volatility, tied, among other things, to the time of active trading sessions. For successful trading, the Bollinger Bands will have to be adjusted for each pair and each timeframe.

Rule #2: Using additional indicators to confirm entry points will save a lot of time and an impressive part of the deposit. This review has already mentioned stochastics and a strategy based on Bollinger and RSI, but these are far from the only options. Developing your own trading system based on these and other tools will require a significant amount of time and lengthy test operation.

Binary Options and Bollinger Bands

Some aspects of using the bollinger on binary options have already been covered in this review, now it's time to consider a specific binary options trading strategy based on the search for channel breakouts.

As an example, let's choose an entry in the opposite direction from the breakout direction on a narrow trading range. All that is required in this situation comes down to the sequential execution of three simple steps:

1. You need to find a currency pair that is currently trading in a narrow range. Be sure to check the calendar to see if any important news is expected in the near future that could seriously affect the course;
2. This currency pair should form the intersection of the chart with the Bollinger channel line. It is necessary to wait for the candle to close outside the channel. A more risky option involves opening an option only upon the fact of crossing, when the closing price of the bar again lies inside the channel;
3. Depending on the timeframe, count 3 candles in minutes. If the M5 timeframe is open - 3 candles = 15 minutes. When breaking through the upper limit, open the put option, the lower - call. The expiration time is 3 bars.

You can successfully trade using the Bollinger indicator in Olymp Trade or in any other DC specializing in binary options.

Advantages and disadvantages

A feature of the Bollinger strategy is the need to take into account all the trading signals that exist in the system at the same time. The breakout of the channel is a good signal, but its value decreases sharply on a narrow range or chart position on the opposite side of the center line. To learn how to make the right decisions by analyzing the entire set of data (including confirmations from other indicators), you will have to seriously engage in modeling a trading system based on the trading history of a particular currency pair.

If we start from the breakdown of the channel as the most powerful entry signal, then trading and placing stop orders on the bollinger actually guarantees the prevalence of successful transactions over unsuccessful ones. However, breakouts do not happen so often, and in order not to miss an important trading event, it is reasonable to use bollinger bands alert - an adviser whose task is to inform the trader about the intersection of the curves and the quotes chart.

With the exception of a relatively small frequency of signals and some difficulty in assessing them for a beginner, the Bollinger Bands indicator does not have other serious drawbacks. When set up correctly, it can be useful for both long-term trading on the daily chart and pipsing on the 5-minute timeframe. In addition, it opens up a number of opportunities for those who use the bollinger on binary options, delivering unique trading signals that cannot be obtained using other technical analysis tools.

We will talk about the legendary indicator, on the basis of which many successful trading strategies are based. Bollinger Bands are used by professional traders on Wall Street, as they allow you to perform a qualitative analysis of the market movement.

Before analyzing the variations of working with the indicator….

Let's dwell a little on the personality of the creator of the trading instrument - John Bollinger. Without a doubt, he is a financial genius, has a large number of awards related to finance, and is also the author of the book - Bollinger on Bollinger Bands. The book describes in detail the essence and operation of the instrument, and is also a reference for trading a variety of assets. The main advantage of the book is the description of work in the market in an understandable language, without unnecessary formulas and technical terms.

His work with financial markets began in 1977. And after a short time, he developed his own trading system that allows you to calculate the trend in various groups. He is the creator of the first site in the United States with an analysis of technical analysis - it was created in 1996. John is a great scientist, financial figure and owner of several companies.

Bollinger strategy in binary options

All the methods discussed below are ideal for use, most consider it a highly effective tool. It is recommended to use it on 5 and 15 minute charts. For lovers of turbo options, it is recommended to confirm the signal with indicators on higher time periods.

How the Bollinger Bands indicator works

The main purpose of the indicator is to determine the level of volatility in the market, which it copes with perfectly well. The tool is recognized as one of the best for trading, both for beginners and experienced traders - its popularity lies in its simplicity.

• Moving average located in the center (standard period - 20).
• Upper moving average 20+ (deviation x2).
• Lower moving average 20- (deviation x2).

The standard deviation lies as the fundamental criterion used for the calculation and drawing of the bands. It works thanks to a special formula that traders do not need to know, because the whole process takes place automatically. The main part of the indicator that we are interested in is the corridor filled with gray on the chart, its borders coincide with the upper and lower bands. When the candle of the chart goes beyond the boundaries of the channel, you should look for opportunities to enter the market.

Bollinger bands are an oscillator that abounds in trading instruments, but it occupies a special position in the rating of traders. When market volatility increases, the corridor widens, and when volatility decreases, the corridor narrows. These are the main points that you should pay attention to while working with the indicator.

Basic tricks for using Bollinger Bands

Let's take a look at some of the most commonly used methods. Mostly quite simple but effective ways.

Due to the ability to show the change in volatility in the market, you can see how the corridor narrows and widens, which demonstrates the wave-like construction of the chart. After analyzing the chart and work, we conclude that after the narrowing of the extreme lines, their expansion follows, respectively, the price moves in one direction. This happens cyclically, which means that after each narrowing of the extreme lines, you can expect the price to rise or fall.
It is enough to look at the chart how the price movement changes after narrowing and expanding. Due to changes in the channel width, traders can find a lot of opportunities to enter a trade.

Most of the time candles spend inside the channel - in this situation, nothing interesting arises to enter the market. Interest wakes up as soon as the price candle of the asset approaches one of the channel boundaries - this moment provides opportunities for opening a deal. Let's say the price goes down, touches the lower Bollinger band and breaks it - this indicates an imminent price reversal and the candles will go back to the channel. When the price rises, the situation is similar, only the entry must be made on a decrease.

An important nuance: it is not possible to predict 100% price movement, a price change near the channel boundaries can occur only in the absence of a pronounced trend. You can determine the possibility of entry using the following trading method.

The breakout of the extreme lines is a signal for the following price movement:

• the price will change the movement;
• strengthening of the trend;

The chart shows how a walk along the upper band occurs - this is a continuation of the trend. At this time, the price reaches the upper line or crosses it, drops slightly, bounces off and goes up with renewed vigor. The example clearly shows that there were several touch points and the general trend continues to go up. Exactly the same situation works with a downtrend.

The recommended time to enter a trade is touching one of the indicator borders. It is necessary to wait until the price bounces to the middle line and go in the direction of the trend. Such trading is available with a good trend, but the question arises: how to determine a trend reversal? For this, special trading figures “W” and “M” are used. The author of the indicator found about 50 such figures, which are similar in terms of construction principles.

"W" shape

The pioneer in identifying this pattern is Arthur Merrill, a trader whose ideas Bollinger used to improve his offspring. It is defined at the bottom of the graph, it can place the first part of the letter a level higher than the second - however, this item is optional.
Let's consider the location of this figure by points on the following chart.

1. The first lower value.
2. Return of the price to the middle line and rebound.
3. Price movement to the lower line (candle does not touch).
4. Crossing the middle line and moving the trend up.

This figure, when all conditions are worked out, shows a change in the direction of the trend. Entry must be made at point 4, as soon as the price has crossed the moving average, enter in the direction of price movement.

"M" figure

This figure should be looked for at the top of the chart - it forms a double top. On the chart, we see the first breakthrough to the upper Bollinger band, then the price drops to the middle line and rises again, but does not touch the upper band, followed by a sharp drop and a breakdown of the middle line.

Location of the M-figure

1. The first top value.
2. The price drops to the middle line.
3. Price movement to the upper line (candle does not touch).
4. The intersection of the previous lower level (marked with a blue dotted line).

After the conditions are met, you can enter the market on a new trend. Also, it is worth noting that before the price decrease, there is a narrowing, and after it, the expansion of the bands. The use of these patterns refers to simple trading strategies using Bollinger Bands.

Combining Bollinger Bands

To successfully work with the indicator, you will need to properly study all the figures and situations that we have considered in the article. To do this, study history, look for patterns, highlight them on the chart and trade on a demo account

In this article, we will look at what kind of Bollinger Bands trading strategy is for binary options and Forex. Also here you will find tips on its use and settings.

For stable earnings on binary options, you need to learn how to properly analyze charts. Based on such information received, further movement of quotations of the value of various assets is predicted. The process of training traders is connected with practical development, and novice users always run the risk of losing their own funds very quickly.

Increase

It is important to use strategies based on Bollinger Bands correctly when trading in order to close most transactions with profit. All the nuances can be worked out in practice using a demo account.

• In an uptrend, you need to buy CALL options with a maturity depending on the time period used on the open chart. The most opportune moment is when the value of the currency pair moves up in the upper channel, after which it is realized to the middle band.
• During a downtrend, income from binary options trading should be obtained by purchasing a binary PUT contract. The time to complete the transaction is selected in accordance with the timeframe of the chart. The ideal time to open an order would be after a rollback to the middle line of quotes, but the price should move in the lower channel.
• If the side trend prevails on the financial international exchange, then the cost moves from the upper to the lower Bollinger Band. This means that trading on binary options CALL or PUT is carried out according to the following rules: when the quote of the currency pair approaches the upper line of the upper channel, it means that it is necessary to open a deal on the forecast of a fall in value (PUT option). If the value of the asset fell on the lower channel to the lower border, then it would be logical to buy binary options for further price growth (CALL binary option).

Increase

Both indicators, in addition to the direction of the trend, clearly show the level of spread in price quotes - volatility. If Bollinger Bands are gradually narrowing, and the trend is strictly sideways, then this is the most important moment when you need to be patient in order to then confidently take profits.

It must be remembered that the stronger the Bollinger Bands narrow, the stronger and sharper the price will jerk in a particular direction. With such a jump, binary contracts should be purchased. It is best to work with H1 and H4 timeframes, since price jumps will turn out to be more confident and longer, and the expiration time of binary contracts is 30 minutes - 1 hour, respectively.

Graphic parameters and indicator functions

One of the best binary options trading strategies is based on the Bollinger Bands indicator. This strategy demonstrates very strong signals for opening CALL and PUT contracts.

Unlike many others, it can be used to trade not only classic, but also OneTouch or Range contracts.

To work, you need to put the Bollinger indicator on a live chart. In trading, we will use the standard settings of this indicator.

Trading rules follow from the capabilities of the indicator itself - the approach of the cost to the extreme lines of the bands signals that there is already enough movement and it is necessary to wait for the market to reverse. It looks something like this.

Increase

This approach is very simple, it has both its advantages and disadvantages. In particular, the advantages include universalism (suitable for any timeframes and assets), accuracy (a high percentage of profitable trades). The downside is short term.

It is important to know that the approach of the price to the bands does not provide an unambiguous signal about a powerful trend change. Often this will be a local corrective shift.

Because of this, transactions are opened, with rare exceptions, 1 - 3 candles ahead. In most cases, it is pointless to open more than one candle ahead. If the strategy is often used in binary options, then in Forex it is only for scalping.

Trading signals

To demonstrate trading signals, let's take a timeframe of 1 hour. Binary options are the basis, but for Forex the situation is similar.

Up signal

It is necessary to purchase an increase contract when the following conditions are simultaneously met:

• The lower band was crossed by a candle from top to bottom.
• The candle closed below the lower Bollinger Band.

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This is a great signal and a good buying opportunity.

Down signal

The reverse situation is observed when a signal to open a trade for a fall appears:

• The current candle was opened within the Bollinger Bands.
• The candle crossed the upper band from bottom to top.
• The candle closed above the upper Bollinger Band.

Increase

Important conditions

The situations discussed above are classical. Quite often they give very accurate signals, but not one hundred percent.

To improve the performance of this system, users can change the standard deviation (when setting the indicator, the basic parameter) from "2" to "3". As a result, the Bollinger Bands become wider, and the cost approaches them.

This will reduce the value of the static probability of receiving a false signal. In this matter, practice should be used to determine for which particular underlying assets what deviation is considered optimal.

Another very popular is the modification of this system, when the user does not wait for the price to go beyond the range. For binary options, this strategy is classic. In it, the purchase of an option is done directly when the price approaches the bands.

This method is especially relevant for flat market situations and small timeframes.

Increase

The screenshot shows an example of this modification of the Bollinger Bands system. It shows that during a calm market, which is not subject to a trend, such a modification is well suited. Of the 12 signals, 2 closed with a loss, and 10 made a profit.

How to use a binary options strategy. Instruction for beginners

For binary options, a large number of strategies have been created using Bollinger Bands. There are many similar techniques that are developed for Forex, but suitable for the binary options market.

It is better for beginners to start with the most understandable and simple strategy, where many indicators are not used so that there is no confusion. The experience of many traders says that it is the simplest strategy that will be the most effective, it allows you to “feel” the market. This largely determines the success of a binary options trader. The candlestick chart is very “eloquent”, you need to learn how to read it correctly.

You can trade successfully using only Bollinger Bands and the techniques described above. Sometimes they are enough to make successful bets, but you can use indicators that will act as a safety net for a trader who doubts his own decisions. The value oscillator will work best too. The screenshot below shows a view of the basic graph.

Increase

Bollinger Bands are also perfectly combined with the RSI indicator (relative strength index). Together with it, a powerful financial instrument is formed that very accurately determines the direction of value.

Signals are received very rarely, but quite accurate. Like Bollinger Bands, RSI can be found on most brokers in the basic list. It is also present in all trading terminals.

In the settings for work, you need to set the level to 30 and 70. You can use 20 and 80, but there will be fewer signals.

To enter the market, the signal will be the intersection of the cost of the lower (30) or upper (70) level on the RSI, the simultaneous intersection of the corresponding Bollinger line.

When using these indicators, it is undesirable to choose an option time of more than 4 candles, and a timeframe indicator of less than M15. Otherwise, losses cannot be excluded.

For its use, the optimal time intervals will be intervals of 15 and 5 minutes. Some traders trade in 1-minute intervals, but this is faster than the exception to the rule.

An interesting point was the ability to temporarily switch to longer timeframes. For example, if you trade on a 5-minute chart, you can switch to a half-hour chart to see the full picture - the trend, its presence, life time, stability, etc. Then you can go back to open a profitable deal.