The use of Bollinger + RSI's band-based strategy (hereafter John Bollinger) gives us the opportunity to invest in options with daily maturities (remember that binary options allow us to earn up to 85% of the invested capital).
As already done in the case of Trading Scalping Strategies, let us look at the techniques to be used to succeed in the online investment world.
We could begin by saying that this is a sparkling technique such as the bottles of various champagne Bollinger of France (the most famous is perhaps the Bollinger special cuve). We will confine ourselves to stating that the strategy in question aims to gain high percentages with a single daily investment and, combined with other binary options trading strategies, allows for diversification of the investment and increased probability of profit. This strategy is based on two indicators that are associated: the Bollinger bands and the RSI oscillator.
They are used to establish levels of over-sold and overbought prices. These bands are a signal of change in the volatility of an asset.
Volatility is usually defined as the standard deviation and therefore as the mean square deviation of variance.
When the price of a good reaches the upper band, it means that you are in an area of overbought and the price, shortly afterwards, should drop. More specifically, when the price reaches the lower band, the trend is usually upward.
They are made up of three lines that measure different parameters which, in turn, define deviations. The central line highlights the price trend on a medium-term time frame (15-20 periods). The graph below can be used to give a clear idea of the three lines now analyzed.
What we recommend is to deepen this passage with due attention. In fact, this tool provides the same information as Bollinger's band, but differs from the latter because its moving average fluctuates between two values. The first, placed at 80, indicates the phase of overbought, while the second, at 20, detects the phase of oversold. CSR is one of the most important oscillators: it indicates, in fact, the trend of prices based on a priori parameters and refers to an indefinite number of periods.
CSR is one of the most important indicators. However, it must be specified that the right work of CSR depends on the use of other indicators, such as Bollinger bands. Therefore, great care must be taken not to use CSR exclusively. As shown in the graph below, the combination of RSI and Bollinger bands allows you to establish a cost-effective strategy.
The RSI must be set to 5 periods. The signal is obtained when the price closes over one of the two bands and the moving average of the RSI is positioned in one of the extremes, 80 or 20. From the observation of the chart it is possible to see several trading signals, which can be used at the opening of the next day's session. Now, you can introduce the rule behind the strategy based on a combination of CSR and Bollinger bands.
As already mentioned, they are an important tool to be able to make a careful and above all correct technical analysis, especially if you want to learn to recognize the volatility of the market so that you can act in advance on the timing and relative movements.
To restrict the space within which prices are constantly moving, it is possible to capture certain situations useful for predicting a moving average. For example, to find out if you are approaching a new trend, it is useful to find out when there is price congestion.
One of the reasons why it is so good to work with Bollinger bands and mobile media is to get input signals.
The BandWidth indicator is used to assess volatility. This tool can shrink or widen, taking into account the Bollinger bands trend. He usually speaks of Squeeze when the BandWidth decreases in a certain amount of time.
Remember that the signals can be produced considering the price breakout that is generated with the Squeeze. The complicated thing is to indicate the sense of the breakout price. That's why our CSR comes into play.
Purchase of binary call options: These options can be purchased when the price closes below the lower band and the RSI is at 20 or higher. Purchase of put binary options: These options can be purchased when the price closes above the upper band and the RSI is 80 or higher. In other words, the strategy under examination is based on an assessment of the investment by reference to the overbought or oversold phases of the price. Both indicators must match in both charts. Therefore, action is only taken when the two indicators provide the same signal, as follows:
An excellent Broker with whom to apply this strategy? Certainly, with OptionWeb you will have the opportunity to be followed and you will be able to take advantage of a multi-functional platform.
Today I would like to talk to you about a very effective strategy for Forex (but also for Binary Options). For this technique we will use these indicators (if you want to use an excel sheet as well):
The Bollinger bands were created by the famous American trader John Bollinger. They are a very interesting technical indicator that allows to detect the volatility present on a given market. Visually they consist of three lines:
The static concept of standard deviation (ds) is used to calculate volatility: this measure measures the dispersion of values (the deviation) with respect to a reference average and is therefore able to measure the variability of a historical series.
To construct the bands, one must calculate an upper band, which is obtained by adding to the moving average double the standard derivation, and a lower band, obtained by subtracting double the derivation from the moving average.
Bollinger suggests realizing the bands at twenty-day intervals, making changes only on the deviation.
From an operational point of view, the Bollinger bands are used for:
Bollinger bands are one of the most important graphics functions used by online bag gamers. Clearly, we are talking about an advanced technique, not for beginners. If you believe that you have a good knowledge of the basis, then try to measure yourself with this technique.
To calculate the Bollinger bands, in fact, it is used to define a period to which the value of the standard deviation multiplied by a given factor is removed or added, obtained with the standard deviation multiplier, compared to the historical price series. Values found... what are they for?
The values indicate the trend and volatility. We need them to assess the risk of a certain action and recognize which trends to invest in. In practice, Bollinger bands offer buying and selling signals. But this only if from the price charts we notice that there are some conditions, i. e. it exits from the upper band and then re-enters it, which indicates that it is necessary to point to the sale; or if vice versa it exits from the lower band and then re-enters it, naturally in this case you must buy.
Of course, we are talking about a predictive analysis, so there is no 100% certainty, but let us make a hypothesis based on certain data, if calculated correctly. There are online platforms that help you calculate Bollinger bands and provide you with more accurate data. It is certainly an excellent strategy to have clearer indications about trends and not to rely exclusively on chance or on one's nose.
As you can see from the image, the three averages must have different colors to distinguish themselves and must be ordered. This means that the average with the least period if we are in a bearish trend must be positioned below the average with the longest period, while if we are in a bullish trend the average with the shortest period must be positioned above the average with the longest period. The Bollinger Bands must be enough wide and the ADX indicator must be in trend above the line of 25.
In this graph EUR/USD there is only one single entry point downwards. The three moving averages are crossing, and a breakout is taking place, i. e. the Bollinger Bands are expanding, while the ADX is rising above the line of 25. It's a great time to invest because the expansion of the Bands plus the rise of the ADX indicate strength in the trend. This technique must be applied especially in breakouts with tidy moving averages. The purchase price fell by almost 200 pips and more. In the case of a bearish trend, the blue moving average will be under green and green under red.
It is advisable to get out of the investment as soon as you see the upward crossroads between the 8-period and 21-period average. This is to avoid losing previous gains. It should be remembered that in this technique no long-term predictions are made because we use charts with a deadline of 1 hour, so it is better to go out as soon as a reverse crossroads between averages occurs.
In this USD/CAD graph we have a breakout point when moving averages cross and Bollinger Bands are expanding. The ADX has just risen again this means strength in the trend. The ascent brings us good gains of more than 100 pips, you have to go out as soon as the opposite cross between the averages happens. For the ascent the blue average is above the green and green above the red one but as soon as blue crosses the green downwards you have to leave the position to avoid losing our gain. We just have to remember that these investments are not long-term investments and we have to be patient in finding breakout points and cross points between the averages. But they are very fruitful investments.
The stop loss must be set 10 or 20 pips in the opposite direction of the investment.
Usually when breakouts are taking place it is even useless to place a stop loss, however you have to know how to distinguish the breakouts, so for those who are insecure it is necessary to place a stop loss.
To notice a breakout, look at both Bollinger Bands and ADX. In the precise moment that the Bands are about to expand the ADX goes back very quickly and the averages are positioned in an orderly manner.
The Relative Strength Index (RSI) is widely used by analysts who want to invest in trading, especially those who trade in Forex, the futures market and stock markets. Please note that this article can be converted into PDF and used as a practical eBook. After having carefully verified its application with Bollinger Bands, we see its functioning in other contexts as well.
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