Bollinger Bands ™ Are Best For Short Term Binaries

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Best Indicator For Five Minute Binary Option Strategy

I don’t typically recommend trading the 60 second binary options because they are so risky. The chance of an asset moving in your direction, or even moving enough in your direction, within the next 60 seconds is so slim as to be near impossible to judge. This is not to say that it can not be done because it can. This is evidenced by the large number of algorithmic traders and options scalpers that exist today. If it were impossible to make money on such a short time frame these traders would not exist. I personally prefer to use at least a five minute chart but this strategy can be used on any time frame from 60 seconds to one week with relative success. What am I talking about….Bollinger Bands ™ .

Bollinger Bands are all about volatility. Volatility is the movement of the market. Trading is about catching market movements in order to profit. It only makes sense that an indicator that measures volatility would be a good tool for traders. There are lots of such tools, and many ways in which to utilize them but Bollinger Bands are by far the best methods for day traders.

Think about it. Short term binaries are all about catching short term movements. The thing is, when you enter a binary options contract you are not necessarily getting in at precisely the spot price at time of purchase. This is because all the brokers include a small amount of slippage into each strike in order to help them maintain acceptable losses. This is not a scam, just the cost of trading and something explained in every brokers terms and conditions I have ever read. They call it “the price at which we are willing to sell options”. It usually isn’t very much but it does mean that the asset you are trading will have to move at least a pip or more to even be at the money. This is why trading 60 second options and other super short expiries is so hard. Not only do you have to be right, you have to be right at exactly the proper time AND the trade has to move up enough to match and exceed the strike price at which the broker has set the option.

Bollinger Bands For Binary Options

Bollinger Bands are excellent for trading short term binary options because they pinpoint times of low market volatility(movement) and then signals when the market start to moves. Once the market is moving the bands also provide numerous follow up signals that savvy day traders can take advantage of. This is how it works. The bands are based on a standard deviation of prices and will get narrower and wider as volatility decreases and increases. When the market is very calm and quiet the bands get narrow, when the market is volatile and moving a lot the bands get wide. The patterns of widening and narrowing are one kind of signal while price action in relation to the bands themselves provide another. There are three lines in the equation. The first is a moving average usually set to 20 periods. This provides a fairly quick indicator but don’t worry, you can adjust the MA if you think you need to. The next two lines are a standard deviation of the moving average value, +2.0 standard deviations and -2.0 standard deviations.

Bollinger Bands Are Best for short term binary options trading

Look at the chart above. It is a chart of the USD/CHF set to 5 minute candles and a standard Bollinger Band ™. Notice how the bands become narrow and then widen over time. When the bands narrow it is because prices tend to trend sideways. When the market trends sideways it is very hard to profit from binary options. When the market moves up or down from one of these sideways patterns the bands get wider, indicating that movement. That is the very first signal you look for, a narrowing followed by a widening. When the bands begin to widen you know it almost time to make a trade. The next step is to wait and see which band price touches when the widening starts. This is usually an indication of direction and what kind of trading you will be doing. If prices touch the upper band the market will usually rally. When price action touches the lower band the market will typically sell off.

Here are links to more articles on trading binary options with Bollinger Bands ™

60-second Binary Options Trading Strategy using Bollinger Bands

This strategy may suit the preferences of impatient binary option traders, as it may be applied on any trading instrument (currency pair, commodity, stock index, etc) during any trading session. In addition, it utilizes one of the most preferred technical indicators, the Bollinger Bands. For a detailed overview of this indicator, you can read the article in our Forex Academy.

The time frame is set to 1-minute, while the Bollinger Bands should be set to default (the middle band is a 20-day Exponential Moving Average, while the upper and lower bands represent two standard deviations from that average). The expiry time is 5 minutes.

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Buying a Call Option

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In order to buy a call option, a trader needs to spot oversold conditions. In case the price of the trading instrument has broken below the lower band, a trader may anticipate a touch and a return within the two bands. Once this occurs and the trader has a confirmation of the move to the upside, he/she may place a buy order. The trader may use candlestick reversal patterns as confirmation.

Buying a Put Option

In order to buy a put option, a trader needs to spot overbought conditions. In case the price of the trading instrument has broken above the upper band, a trader may anticipate a touch and a return within the two bands. Once this occurs and the trader has a confirmation of the move to the downside, he/she may place a buy order. Again, candlestick reversal formations could be appropriate confirmation tools.

Some traders may prefer to use the Average Directional Index (ADX) in order to delimit the area of trading. Therefore, they will look for the ADX to be at or to fall below its 20.0 level.

On the 60-second chart of NZD/USD above the small triangles indicate spots where call and put options (3 puts, 1 call) can be bought respectively, while taking into account the conditions mentioned.

Short Term Trading With Bollinger Bands

Today’s guest is Markus Heitkoetter, CEO of Rockwell Trading and author of “The Complete Guide to Day Trading.” Today Markus is going to show you how to use one of our favorite indicators, Bollinger Bands, in short term trading. Be sure to comment with your thoughts on Bollinger bands and some techniques that you use in short term trading.

Bollinger Bands are a great indicator with many advantages, but unfortunately many traders don’t know how to use this amazing indicator. Before I show you how I use it, let’s quickly review what exactly Bollinger Bands are.

Bollinger Bands consist of three components:

  • A simple moving average
  • TWO standard deviations of this moving average (known as the Upper and Lower Bollinger Band).

If you look at the following images you see the Moving Average displayed as a solid blue line and the Upper and Lower Bollinger Bands as dotted blue lines. (In MarketClub the lines are red.)

So what are the characteristics of Bollinger Bands?

Depending on the settings, Bollinger Bands usually contain 99% of the closing prices. And in sideways markets, prices tend to wander from the Upper Bollinger Band to the Lower Bollinger Band. With this being the case, many traders use Bollinger Bands to trade a simple trend fading strategy: They SELL when prices move outside the Upper Bollinger Band and BUY when prices move outside the Lower Bollinger Band. This actually works reasonably well in a sideways market, but in a trending market you get burned.

So how can you avoid getting burned? By understanding the direction of the market.

I use indicators to determine the direction of the market, and decide whether the market is trending or not. And Bollinger Bands are one of the three indicators that I use for this task.

For short term trading I prefer to use a moving average of 12 bars and a standard deviation of 2 for my settings. In many charting software packages the standard settings for the Bollinger Bands are 18-21 for the moving average and 2 for the standard deviation. These settings are great if you are trading on daily or weekly charts, but John Bollinger himself suggests that when DAY TRADING you should shorten the number of bars used for the moving average. John Bollinger suggests a setting of 9-12, and for me the best setting is 12.

With these settings you will find that in an uptrend, the Upper Bollinger Band points nicely up and prices are constantly touching the Upper Bollinger Band. The same is true for a downtrend: If a market is in a downtrend, you will see that the LOWER Bollinger Band is nicely pointing down and prices are touching the lower Bollinger Band.

How can you know when a trend is over and the markets are moving sideways again?

Well, the first warning sign that the trend might be over is when prices are moving away from the Bollinger Band. And you know that an uptrend is over, at least for now, when the Upper Bollinger Band flattens.

The same applies to downtrends: The first warning sign that a downtrend is over is when prices are moving away from the Lower Bollinger Band, so they are no longer touching the Lower Bollinger Band. And you know that the move is over when the Lower Bollinger Band flattens.

How can you use this information in your trading?

Well, if you use a trend-following strategy, you start looking for LONG entries as soon as you see the Upper Bollinger Band pointing nicely up with prices touching the Upper Bollinger Band. When you see that prices are no longer touching the Upper Bollinger Band, you move your stop to break-even and/or start scaling out of your position. And when the Upper Bollinger Band flattens, you exit your long position, since you know that the trend is over.

You see, when the market is moving sideways, you don’t make any money being in the market just hoping that the market will continue to trend. So exit the position before the market turns around, because you can always re-enter when you see that the market is trending again.

In fact, a strategy I call the Rockwell Simple Strategy actually relies on price tagging an Upper Bollinger Band as an entry signal: With this strategy I use MACD to confirm an uptrend, and I wait until the Upper Bollinger Band starts to point up. I then enter at the Upper Bollinger Band with a stop order, waiting for the market to come to me. I am then using a stop loss and a profit target based on the AVERAGE DAILY RANGE. This strategy is really beyond the scope of this article since we are focusing on Bollinger Bands, but this is exactly how I use Bollinger Bands to determine the direction of the market and decide on the trading strategy I will use.

So as long as the Upper Bollinger Band is nicely pointing up or down, I am looking for entries according to my trend-following strategies like the Simple Strategy. Once the Bollinger Bands flatten, I am looking for entries according to the sideways strategies I trade. You always want to trade a trend-following strategy in a trending market and a trend-fading strategy in a sideways market.

As you can see, Bollinger Bands offer tremendous help to determine the direction of the market and decide what trading strategy to use. Many traders learn how to use Bollinger Bands to fade the market, but they can be even more powerful when used to trade trends, and in determining the direction of the market.

Best,
Markus Heitkoetter

Markus is CEO of Rockwell Trading and author of the international bestseller “The Complete Guide to Day Trading”. For a limited time INO Blog Readers can download his book free here.

37 thoughts on “ Short Term Trading With Bollinger Bands ”

Thank you .Your article about BB is very good.
Really BB is a good indicator to measure the volatility.They act like support & Resistence. I use BB with candelsticks supported by price and volume indicators.
I would like to know how you trade BB squeeze.
For me the Squeeze or constriction is a opportunity to catch breakouts,and if you antecipate your order your r the winner.But sometimes is very difficult to know if the breakout will go up or down.Can you tell me how you trade this strategy?
FROEHES WEINACHTEN

excellent strategy, been studying bolls for some time – £3000-7400 in one month.

Using Bollinger Bands, Stochastics and MACD to Fine-Tune Your Entries

In my last blog post, I looked at using Bollinger Bands to identify trade setups. Today, I will add two layers of confirmation, the MACD and Stochastics to help identify and confirm trade entries for both Binary Options and Nadex Spread trades

Cam White, Trading Pub
March 20, 2020

Bollinger Bands are a simple, but powerful indicator that can easily help you find dynamic areas of support and resistance on the charts.

Investopedia defines Bollinger Bands this way:

“A Bollinger Band, developed and trademarked by famous technical trader John Bollinger, is plotted two standard deviations away from a simple moving average.”

Bollinger Bands have an upper band, a lower band and a center moving average. The upper band typically acts as resistance, while the lower band acts as support. The center moving average can also act as resistance or support within the channel.

When volatility is high, the bands widen, and when volatility is low, then the bands narrow.

How to Use a “Pierce” in the Bollinger Bands to find trades setups:

This is a 15-Minute Nadex Chart of the US 500 Index on Friday, March 17, 2020

The “Bollinger Pierce”

If you see a candlestick break through the upper upper or lower band, it triggers a likely reversal in the market. Think of this like a rubber band around your wrist. The further you pull the rubber band away from your wrist, the faster and harder it snaps back. This can be a great opportunity for a short-term scalping of profits.

How to trade the “Bollinger Pierce” with Nadex Binary Options and Spreads:

  • Binary Options: Once the upper or lower band is “pierced”, then I’m looking for the shortest expiry available to trade the reversal. Again, select the strike price that best suits your trading personality.
  • Nadex Spreads: The “Bollinger Pierce” can be a good way to scalp some ticks or pips. If a candlestick closes significantly above the upper band or below the lower band, then it can trigger a reversal trade with a tight mental stop/loss.

In the Chart above, three “Bollinger Pierce” opportunities were called out:

  1. 9:15am EDT: The US 500 Index moved down 50 Ticks
  2. 11:30am EDT: The US 500 Index moved up 70 Ticks
  3. 2:15pm EDT: The US 500 Index moved down 80 Ticks

There were ample opportunities to capture a piece of each of those moves with Nadex spreads.

Using the MACD and Stochastic Oscillator for Confirmation.

Notice on the chart above, that when the upper Bollinger Band was “pierced” The Stochastics were overbought and the MACD was crossing over from Bullish to bearish. When the Lower Bollinger band was pierced, the Stochastics were oversold and MACD was crossing over to bullish. Using these indicators can hel confirm your enrty.

Learning how to trade with Bollinger Bands can be helpful for both novice and experienced traders.

Cam White

The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility. Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex contracts are based on underlying asset classes including forex, stock index futures, commodity futures, cryptocurrencies, and economic events.

Trading can be volatile and investors risk losing their investment on any given transaction. However, the design of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.

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Bollinger Bands, Volatility And You

Bollinger Bands, Volatility And You

Bollinger Bands ™ are one of the most dynamic and versatile trading tools on the market. The indicator was created by John Bollinger in the early 1980’s and captures one of his deepest insights. The idea that volatility was not static, that it changed from day to day, a thought contrary to popular market belief at the time. The tool presents as an envelope, similar to moving average envelopes, Keltner Channels and others but is based on measures of volatility. The bands are created from a standard deviation of price movement over a set period of time, much like basic volatility indicators such as historic and relative volatility. In my opinion, this is the best tool for measuring volatility but also a great tool for binary options traders to understand. It can be used in a wide variety of ways, gives of a number of easily recognizable signals and can be used as a stand alone indicator or with a package of other tools.

The tool is intended to show when prices are high or low relative to past price action. This means that prices are considered to be “high” when at the upper band and “low” when at the lower band. The indicator includes a total of three lines. The first is the central signal line, usually a simple moving average that is typically set to a period of 20. The same data used for the center line is then used to create the other two bands, the Bollinger Bands ™. These are a standard deviation of the central line, usually 2 but it, like the moving average itself, can be adjusted to your liking. Because the bands are based on a standard deviation of price movement they are highly sensitive to volatility in the market and change on a day to day basis as the mood of the market changes. The bands will expand when volatility is high and contract when volatility is low. Signals can be given when prices reach, cross or exceed any of the three bands or when the bands expand and contract, or a combination of the two. The thing to remember is that these signals are not tied to trend. The best use is as I have mentioned above, alongside other indicators, but here I will go over some of the basic signals that binary traders can use.

Simple And Profitable Bollinger Band Signals ™

The most signal is the simple expansion and contraction of the bands themselves. This represents increases and decreases in market volatility. When compared to price action and other indicators these swings can be powerful confirming indicators. For example, the bands have narrowed and the market trended in a tight sideways range and then the bands begin to widen. The widening of the bands means that volatility is beginning to creep into the market, suggesting a stronger move than “normal”. Your complimentary analysis tells you the market is about to sell off so you can assume that the move will be to the downside. Additionally, if the market has been trending and the bands are very wide, then begin to contract, you can assume that the trend is cooling off and then look for entries to suit.

You can also use the bands themselves to give signals. The rules for this vary from trader to trader and style to style, a sign of how adaptable the tool is. The following rules are more like suggestions and should be applied carefully when you first begin to use them with your strategy. The first is that when the bands widen following a period of contraction and price moves to touch either band it is often an indication of direction. There may be a pullback following the first touch but so long as prices do not overly exceed the bands they can be expected to continue in that direction into the near term.

Another signals occurs after the bands begin to widen and volatility has picked up. Basically, the bands provide limits where the market is considered to be highly priced. Usually, when prices exceed the band on either side it signifies that market has gotten ahead of itself and prices are extremely high or extremely low and about to pull back. This signal is good for really short term entries. This signal is incredibly accurate when used with Fibonacci Retracements or other support/resistance analysis.

A third signal useful for trades is the moving average cross. Price action can be expected to move from extreme to extreme regardless of the amount of volatility in the market. As prices trend higher, lower or sideways they will approach the center moving average and give signals. This could be a crossover which means that prices are likely to continue to the opposite band or they will be reversals, and prices will move back to the band they just left.

Look at the chart above. At point 1 price move from a period of low volatility to high volatility, indicating a move is on the way. They hit the upper band but exceed it, indicating the trend is up but that prices may pull back first. At point 2 prices have pulled back, to the center signal line, where they bounced in line with the original indication at point 1. At this time prices move higher again but at point 3 again exceed the band and indicate a pull back. The next pull back was mild, but tradeable, and lead to another trend following entry. Now, at point 4 prices are brushing the upper band but not exceeding it, indicating the trend is up and strong, but not overly priced with no indication of a pull back. When prices meet resistance it fails, as indicated by the Bollinger Bands ™.

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