Bollinger Bands ™ Are Best For Short Term Binaries

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How to read and use Bollinger bands

Bollinger bands are one of the most versatile technical indicators available for technicians or chartists. The uniqueness of Bollinger bands lies in the fact that it combines two main components; the trend and the volatility. The trend, as every trader knows, is one of the most important aspects when analysing any financial market. A trend in the market will determine the direction of the price. Trading in the direction of the trend, also known as trend trading, is considered to be one of the safest ways to trade.

This is due to the fact that trend trading allows traders to take positions on the side of the larger market positioning.

There are many trend-based indicators and the Bollinger Bands indicator is one of them. While the trend is important, another factor is volatility. It is widely known that markets tend to range at least 80% of the time, and the markets trend only 20% of the time. Prices seldom move in a parabolic path.

This begs the question of where to enter the trend. Surely, a trader taking a position when the markets are ranging will either have to stay in the markets for longer at a risk of a decline or a correction, or the trader will have to wait for the markets to break out from the range and resume the previous trend, or at times reverse the trend as well. Answering these two questions can be done with the help of the Bollinger bands. Only the Bollinger bands indicator can be used to address these two main questions when it comes to trading. Volatility is also an essential variable to consider when it comes to trading the markets.

Volatility often goes hand in hand with momentum. When volatility slows, you can expect momentum to also decrease and vice-versa. This is why the Bollinger bands are considered to be unique, as it helps traders to decipher a lot of market information. While there are many ways to trade using Bollinger bands, the indicator was designed to address some key concepts. These include signalling when the markets will undergo a reversal at the top and bottom of a trend as well as addressing when volatility is likely to remain high.

To understand these concepts, let’s dig a bit deeper into what Bollinger bands are all about.

What’s a Bollinger Band®?

Bollinger bands, as the name suggests, is a volatility and trend indicator. The indicator is placed as a chart overlay (meaning that the indicator is plotted on the price chart). It’s comprised of three bands from which it derives the name Bollinger bands.

The Bollinger bands indicator was the brainchild of John Bollinger. Bollinger designed his indicator way back in the 1980’s when computers were just getting warmed up to advanced technical analysis for financial markets.

If you look closely, Bollinger bands are not that different from other bands such as the moving average envelopes indicator, or the Keltner or Donchian channels. All these indicators fall into the category of “bands.” However, by factoring in the concept of volatility, Bollinger bands take on their own uniqueness.

Bollinger bands act like volatility bands. Thus, the outer bands tend to expand when volatility increases and they tend to contract or come close when volatility falls. This visual depiction makes it very easy for the trader to understand when to trade and when to stay out of the markets.

Typically, traders stay out of the markets when volatility drops. But it also means that volatility is likely to expand again sooner and thus prepares the traders to anticipate an increase in volatility.

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How are Bollinger Bands calculated?

Bollinger bands are primarily based upon a 20-period simple moving average. This 20-period SMA forms the basis for the outer bands (the upper Bollinger band and the lower Bollinger band). These outer bands are derived based on standard deviation.

The typical setting is 2%. This means that the outer bands depict a 2% deviation from the 20-period simple moving average line. Sometimes, you will find that prices tend to deviate more than 2%. This is when you can see the price falling or piercing one of the outer bands.

However, Bollinger bands quickly adjust to this new deviation based on the 20-period SMA. While the 20, 2 Bollinger band setting is generally used, traders can experiment with these values. For example, you cannot expect the same level of deviation between a currency or a Forex instrument and a commodity asset such as gold or oil.

Secondly, the settings can also change depending on the timeframe that is being used. The first chart below shows an example of Bollinger bands applied to an NZDUSD chart. The default settings of 20, 2 are applied here to the daily timeframe.

Figure 1: Example of Bollinger band indicator applied to the forex chart

Upon careful observation, you can notice that when price is strongly bullish or bearish, the Bollinger bands tend to expand. Similarly, when the price is moving within a range, you can see how the outer bands contract.

When looking at the 20-period moving average, you can see the inclination of this 20-SMA signalling an uptrend.

Thus, combining the information, in an uptrend, the most ideal point of entry is when the price breaks out of the range. As volatility increases, traders are able to find better entry points into a trend based on the expansion of the outer bands.

Signal: W-Bottoms

The Bollinger band’s W-Bottom signals are unique. This is a phenomenon that occurs quite often. When the markets establish the “W” bottom pattern, it usually signals that a bottom is taking shape.

This pattern within Bollinger bands can be a great way to pick the lowest points in an uptrend or even signal the end of the previous downtrend.

The second chart below; Figure 2, illustrates the “W” bottom pattern in action.

Figure 2: Bollinger band “W” bottom signal

The “W” bottom pattern is formed when the price falls to a previous low at almost near the same level. Typically, when this pattern is formed, volatility tends to contract in relation to previous volatility levels.

When the price breaks out of the W-pattern, especially after a series of previous declines, you can expect the trend to change in the near term. Another validation of this change of trend is the considerable increase in volatility after the “W” pattern breaks out.

The “M” top pattern is the inverse of the “W” pattern. Here, you can expect to see the “M” pattern forming after a considerable rally in price or during an uptrend. When the “M” pattern appears, prices tend to consolidate amid falling volatility.

Then, a subsequent downside breakout from this “M” pattern signals a decline in prices.

The “M” pattern is shown in Figure 3.

Figure 3: Bollinger bands “M” signal

What’s unique about the “M” pattern in this example is that it is formed within a larger downtrend, but comes after a modest price correction. Thus, it is important to know that the “M” pattern (as well as the “W” pattern) does not always have to occur at the top or the bottom of a trend.

Once the price breaks out of the “M” pattern downwards, you can see that volatility increases and stays consistent. At the same time, the slope of the 20-period SMA signals that the price is building up downside momentum.

Signal: Walking the Bands

Walking the bands is also a rather simple concept. Walking the bands occurs when momentum and volatility are the highest. Prices in this state tend to maintain the direction for a considerable period of time. When this occurs, prices tend to post highs at or above the upper Bollinger band in an uptrend or lows at or below the lower Bollinger band during a downtrend.

Traders should note that walking the bands can last only for a couple of sessions, after which momentum starts to weaken and the price eventually starts to retrace as a result.

An example of walking the bands is shown in Figure 4.

Figure 4: Walking the bands

In the above example, there are two instances of walking the bands. Starting from the left side, you can see the areas where the price consistently “walks the band” seldom falling back to the 20-period simple moving average.

This strong uptrend is formed after a brief period of low volatility. Moving to the right, we see another instance where the Bollinger bands contract only to later move in a range before strongly trending downwards. As you can see, price action has been “walking the lower band” in this instance, with lows and lower closes forming at or below the lower Bollinger band.

Bollinger Bands – Conclusion

In conclusion, the Bollinger bands indicator is a versatile technical analysis indicator. This indicator allows traders to gauge both the trend and the volatility on the price chart. Formed as an overlay, the Bollinger bands are best used to gauge when to enter into a trend as volatility is just starting to increase.

Traders can also use many other technical strategies along with Bollinger bands and build a profitable trading system.

Bollinger bands and lines

Financial trading with any technical tool requires the trading participant to use specialized tools to predict movements in the liquidity quotations of assets. Traders mainly use technical analysis services, which are characterized by informativeness, speed of calculations and generation of forecasts, as well as the accuracy of trading signals. The list of these tools includes a fairly wide range of resources – from specialized techniques for identifying market patterns and graphical tools to indicators of automatic forecasting. Each successful investor seeks to get the widest possible toolkit that will expand the trader’s potential and capabilities while working in the market. Today, we will consider one of the most popular and technically efficient indicators, which maximizes its effectiveness in binary trading – the Bollinger Waves.

This service of indicator analysis was developed several decades ago, and during the practical use it showed itself with the most effective and effective side. Despite the fact that the indicator was originally created for work in the stock and currency markets, as well as for working with standard trade contracts, it is very effective as a service for generating forecasts for binary options, as evidenced by the many optional strategies built on its basis and the responses of traders , which use the indicator in daily trading.

What is the Bollinger Indicator

So, the indicator of the Bollinger line or strip (the differences in the name of the instrument do not matter, but are a reflection of the traders’ preferences in tool identification) is one of the many forms of applying such a trend indicator as the moving average. To build the layout of the Bollinger Bands tool, the trade asset graph uses three medium-range lines with a standard deviation of the calculation of the indicators. In the standard settings mode, the service is used with a build period of 20, that is, the sliders take into account the indicators of the twenty candles of quotations for calculating the movings on the graph and the standard deviation of 2. The latter is necessary to calculate the deviation of the price from the average values ​​for the period of market valuation. In the standard configuration, Bollinger waves have such a technical markup format, where the indicator lines have the following values:

• The upper bar of the instrument displays the maximum values ​​of quotations in the estimated period and the level of deviation from the average range of the asset value
• Average Moving is the standard moving average, which is calculated according to the specified period
• The lower band of the instrument identifies the minimums of quotations and the degree of price deviation from the level of average indicators

Technological acceptance of the use of means for identifying signals for option trading makes the Bollinger indicator a very effective tool for market analysis. Algorithm and format of the service makes the tool extremely informative and allows you to identify as many technical indicators as you need to predict the market. The main indicators of the evaluation are:

• Price levels of a possible reversal of quotations – minima and maxima. These indicators are identified by the indicator’s border removals. This mode of using the service is extremely effective in trading options and will allow you to achieve the highest performance in this segment of the market.
• Volatility of price movement – so we can clearly define not only the trend direction of the market, but also the strength of this movement. This indicator is identified by estimating the level of divergence of the indicator’s border removals relative to the instrument’s median. So, the stronger the lines are removed from the average indicator, the higher the level of volatility of quotations and, accordingly, the trend trend is stronger. Using the indicator of market volatility, it is possible to easily and effectively adjust trading indicators and obtain the most accurate trading signals

• Levels of fracture of medium and short-term trends. To make contracts on the market with longer expiration, use the standard trend reversal signal, which is identified as the breakdown of the indicator’s median in a particular direction. Taking into account the periodicity of the moving average, as well as the frame used to install the service, one can clearly calculate the expiration of contracts and apply the batch mode of trading with short-term rates

• Zone of consolidation of the market – to determine the flat or the level of price consolidation, it is enough to identify the horizontal mode of building the Bollinger channel with minimal volatility. Bollinger waves, thanks to their calculation algorithm, clearly respond to the minimum price movements, so they can correctly determine the market share when certain levels of asset value are reached. In addition to this Bollinger Consolidation Zone, it is possible to generate a highly productive signal for trading in the form of a breakdown of the zone at the time of increased market volatility.

• Technical zones oversold and overbought market. Given that the indicator with its boundary lines determines the highs and lows of the market, one can logically assume that the levels of the quotes chart that are located behind these lines are market zones in which the asset is overbought or oversold, which allows obtaining an additional mode of signal generation when the tool

A wide range of information provided by Bollinger Waves allows you to work on the service in several modes at once, which, by the way, complicates the clear identification of the resource as an indicator of a certain type.

What is the type of service?

In this issue there is an interesting situation – the fact is that many traders use the indicator to refer to quite different types. The first – work with Bollinger Bands as on oscillator services, the latter – use the resource as a channel indicator.
In principle, both options are quite effective. The fact is that the averages, even in the standard application, can clearly identify the channel boundaries in which the price is concluded in a certain period, while the same levels can be regarded as oversold and overbought zones, which undoubtedly refers the tool to oscillator indicators.

Work in oscillator format

Bollinger waves in the calculation of indicators use, as we said above, the principle of constructing moving averages. At the same time, the root-mean-square shifts of removals that represent the boundaries of the channel identify the highs of the market. If the market were cyclical and, upon reaching certain indicators, simply changed the direction of the trend, then we could use the service only as a channel tool. But the market is not quite elastic and predictable, and here there are many moments of both volatile volatility and inertial movements of quotations. Therefore, we can often observe situations when quotes go beyond the boundaries of the Bollinger Canal. It is in this situation that the service can be viewed as an oscillator. The price out of the indicator indicates a too rapid rise or fall of the price relative to the average values, and this is an identifying indicator for determining the oversold or overbought market. Using the breakdown points of the price of the indicator channel’s boundaries as a signal for placing bids, you can get more than 80% of the resulting contracts in the options market.

Bollinger waves as a channel service

A more classic application of the indicator is the channel mode. In this case, traders use an informative set of signals, which is formed on the principle of trading from the levels of the trend of quotations. In this case, service removals are used as support levels for trend resistance, but not in a standard graphic format, which allows identifying only linear market extremes, and in the mode of building trend lines as dynamic levels of moving averages. This allows more accurate and at any time to identify the possible price range for the reversal of quotations. In addition, in the channel format, you can very productively determine not only short-term trend reversals or corrective movements, but also more global changes in the direction of the market. For these purposes, the indicator of the median line of the indicator or median is used. The main signal in this plan is a breakdown at the price of this level, which indicates a complete change in the market trend.

Strategies based on Bollinger Waves

Given the range of market indicators being evaluated, which uses the Bollinger Wave indicator to form the markup, as well as the information content and a wide range of signals generated by the instrument, this service is an independent highly effective trading strategy. In principle, we have provided the full set of standard signals of the Bollinger Wave strategy, which will allow binary traders to obtain rather high trading figures.
But the indicator, when working in a binary market is used by traders as a means for developing multi-indicator strategies. Often in such strategies, market participants add additional oscillators, such as MACD, RSI, Stochastic. This allows you to more clearly identify signals for trading short-term contracts and leads to increased trading efficiency. In addition, the service can be used in several settings, which allows you to create more efficient systems. For example, traders often use several services with changed parameters of the standard deviation of removals – in this mode the price channel is expanded and the signals in the form of a spread of quotations in the oversold / overbought zones are used as efficiently as possible:

This strategy is very effective when working on highly volatile trading assets at the time of the release of fundamental data.
In addition, you can use a strategy built on the simultaneous operation of two indicators of the Bollinger Wave, which build on the chart a channel with an average build range and a channel with a minimum period:

Thus, the highest accuracy of forecasts for binary contracts is achieved, which leads to an increase in the trading result.


So, we have provided you with a description of the algorithm for the operation of one of the most effective and popular in the trading environment of market forecasting tools. The indicator of the Bollinger Wave, thanks to its technically advanced algorithm of calculation and operation, makes it possible to formulate strategies of any complexity and efficiency. In addition, several signal generation modes offered by this service make it a universal tool for trading on any financial instrument and in absolutely all market situations. Using the principles and format of the market evaluation of this analysis tool, you can achieve the goals in the binary market for a minimum of time, which is the main attractive point of the indicator.

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

Binary Options with Bollinger Bands

Bollinger Band is a binary options analysis tool that was developed and named after popular modern day technical investment analyst John Bollinger. These bands are usually plotted two standard deviations apart from the usual simple moving average. The goal is to discover asset volatility by the location of bands; if the Bollinger Band is moving closer to the average it indicate that the market for the asset is decreasing in volatility and if the Bollinger bands move away from the average then it indicates a more volatile trend.

So the question is , how can volatility be deployed as a technical indicator for calls and puts when trading binary options? Volatility is usually associated with risk and directly translate to the amount of risk or uncertainty about the range of change in a security asset value. So, higher volatility indicates that an asset value will most likely be spread out over a brand range of values which literarily means that the price of an asset can potentially change in a dramatic manner downward or upward within a short period of time. An asset with low volatility often remain steady over a short period of time and tend not to change that much.

The trick, however, when it comes to binary options is picking volatile assets and the trend direction. Bollinger Bands are often the major technical indicator that is used for this particular purpose. So Bollinger band can help you in picking a volatile asset and forecasting either an upward or downward trend for a successful binary options trade.

Some experienced investors who use Bollinger band for trading think that when charted prices of assets are staying between the upper and middle Bollinger bands, then the asset market will probably trend upward. On the other hand, if the asset price stays between lower and middle Bollinger, then the market will probably trend downward.

So you might ask: how does one arrive at a final decision on whether to buy calls or puts on a binary options trade from this information? Most shrewd investors will buy call options when the asset price is in an upward trend and is close to the middle Bollinger band and buy put options when the asset price is trending downwards and is close to the middle Bollinger line.

It is also a general knowledge that Bollinger bands helps investors take advantage of oversold conditions by pinpointing prices that go below the lower Bollinger band and then trend back up towards the center Bollinger band. Accurately predicting this correction at the right time could result in an immensely profitable trade for a trader.

While it is true that there is no sure thing when it comes to forecasting market trend, Bollinger bands are fast becoming one of the most common technical tool deployed for spotting potential extreme short term price movement in a security asset.

Bollinger Bands & RSI

Characteristics of the strategy

  • Type: scalping;
  • Charts period: 30 second – 60 seconds;
  • Currency pairs: any with high intraday volatility;
  • Trading period: the whole trading day Forex


How to trade

Adjust indicators in your trading system:

Signal conditions:

  • CALL – when you see price goes up from lower BB line and RSI also goes up from level 20
  • PUT – when you see price goes down from higher BB line and RSI also goes down from level 80

The vfxalert signal of an Adaptive (M1 or M5) algorithm should be the same direction as a signal of the current strategy.

Expiration time:

How to open the position:

Some bits of advice:

  • The strategy works very well when the trend of M15 or M30 is Flat.
  • For turbo-options, it is highly not recommended to use Martingale or doubling the next transaction to compensate for the losses of the previous one. At small timeframes, mostly “market noise” is traded, trends last no more than 3-5 candles and it is better to wait for a strong signal on the strategy. You can vary the amount of the option depending on the strength of the vfxAlert signal, as shown in the video;
  • The impact on the market of significant fundamental news and statistics can’t be predicted from technical strategies and it is better to refrain from trading during these periods, especially for beginners. Experienced traders can use strong signals from indicators and vfxAlert before the news release as leading, but you can not rely entirely on them.

Relative Strength Index:

The indicator RSI is an oscillator, and therefore it oscillates in a certain zone, limited by the maximum and minimum values. The index of Relative Strength is set on a scale from 0 to 100. It works best, reaching areas of extremes. The criterion for evaluation is two lines drawn at the level of 30 and 70. It is believed that overbought zone is above 70, and below 30 is oversold. Therefore, when the value of the Relative Strength Index reaches and rises above 70, there is a threat of a drop in prices; movement below 30 is perceived as a warning of a near rise. Some analysts advise accepting 30 and 70 levels as boundaries only with side trends, and 20 and 80 with clearly expressed bullish and bearish.

Of course, exceeding levels 30 and 70 does not mean that you need to immediately begin making deals. After all, the market may be in a state of overbought and oversold for a long time, and the oscillator, warning about a change in the trend in advance, does not explain when exactly this can happen.

How to choose the optimal period? The fact is that for different timeframes of the same currency pair, it will be different, so it will not be possible to use once successfully selected indicator period on all time scales of the pair you need. As a rule, the smaller the timeframe, the longer the period should be and vice versa. It is not difficult to find the optimal period for the RSI indicator – you need to consistently look through the periods and look at the overbought and oversold zones. As soon as the main highlights (reversal, key) highs and lows on the price chart begin to be reflected by the indicator in the overbought and oversold zones, and the rest will be (at least most of them) outside these zones, consider that the optimal period is found.

Many traders do not like classical indicators and even indicators in principle. I believe that they simply do not know how to cook them.

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