When it comes to trading strategies, measuring market sentiment allows investors and proprietary trading professionals to gauge the level of enthusiasm associated with a specific financial security. The concept of overbought or oversold conditions describes when the proverbial rubber band stretches too far, which can be measured using historical price data. A Bollinger band, created by John Bollinger is a technical trading indicator that is used to determine mean reversion points based on the historical distribution of prices. Bollinger band highs points are calculated by measuring a two standard deviations point above a specific moving average.The default which encapsulates approximately 1 month of trading is the 20-day moving average. Bollinger bands show traders prices that are above and below the majority of the distribution, which could be times when prices have moved outside what could be considered normal. A strategy that is often used by traders is to purchase a security when it crosses below the Bollinger band low and sell it when it reverts to the mean.
The Bollinger band width is a derivative of the Bollinger bands, and measures historical volatility. When the Bollinger band width is rising, historical volatility is rising, when the Bollinger band width is falling historical volatility is falling. Bollinger band width can be used along with the Bollinger bands to find periods when a security is more likely to revert back to the mean. Fading is a proprietary trading tool utilized to trade a financial security when it is consolidating and likely to trade in a defined range.
One of the most popular and successful strategies for trading Binary Options is using a system called Bollinger Bands.
Successful day traders are able to adapt their moving averages according to the type of Binary Option contract that was purchased.


Whenever rates come into contact with the bottom band, it indicates there might be a force on the bottom band that will move it towards the higher band and vice versa.
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When using information obtained through this web-site, remember that trading on financial markets, such as FOREX, stock, derivative and commodities exchanges, carries a high level of risk and is not suitable for all investors. The Bollinger bands consist of a Bollinger band high, a Bollinger band low and a moving average that acts as the mean point for the distribution of prices. Traders that focus on day trading might considered 24 hour intra-day points to generate a range that encapsulates one day of trading.
A 2-standard devotion range incorporates approximately 95% of the prices traded within the time frame used to calculate the Bollinger bands. The index would be sold when it crosses above the Bollinger band high, and purchased when it reverts back to the mean. The calculation of the Bollinger band width is the Bollinger band high minus the Bollinger band low. If a market is trending, the Bollinger band width is likely climbing as volatility is climbing. Historically, securities only trend about 30% of the time, which makes it important for day traders to find techniques that will work when a security is consolidating. When a Binary Option rate hits the upper band, it is highly probable there may be a movement downwards towards the lower band. The opposite is also true; this means that if your Binary Option asset price hits the higher band, you may trade down by selecting a Put Trade.


For every time a rate reaches one of the two outer bands, it recovers its moving average depending on whether it needs to go up or down. When using a leverage, there is a possibility of losing funds, exceeding your initial investment. This type of sentiment, fading, which is a mean reversion style of trading, can be measured using multiple time frames and numerous statistical tools – an important tool taught in many stock trading education programs.
This compares to the theory of moving averages, which Bollinger Bands permit day traders to follow a simple mathematical calculation.
With practice and precision, it is highly possible to make a profit trading Binary Options with a Bollinger Bands strategy. On the other hand, if a market is consolidating which would show the Bollinger band width falling, then the security in question is likely to consolidate back toward the mean..
The reason Bollinger Bands have become so popular is their effectiveness, especially for purchasing and selling Binary Options and for understanding their trading signals.
View our Day Trader Guide of recommended brokers who offer educational classes on how to trade using Bollinger Bands. At first, period X is set over a length of 20 days; however with binary options, Bollinger Bands can be measured over a short or long period of time, depending on what is needed.



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