How To Use Bollinger Bands Trade Stock Binary Options

How to Use Bollinger Bands to Trade Stock & Binary Options.
The bollinger bands are adaptive trading bands that indicates changes in volatility and provide a better view of the true extent of the price action.
Developed by John Bollinger in the 1980s, the Bollinger Bands indicator works on the mathematical theory that statistically, 95% of the time, Binary Options prices will stay within the standard deviation from the mean.
Constructing the Bollinger Bands.
There are 3 components to the bollinger bands indicator. There is the upper band, the lower band and the middle band.
First, a 20 period simple moving average of the asset price is computed. This value is represented by the middle band.
The upper and lower bands are then calculated by using two standard deviations from the middle band.
Overbought & Oversold Levels.
When the underlying asset price touches or breaches the upper bollinger band, the asset is said to be overbought. When this happens, the trader can potentially look into going long or buying a call option.
When the asset price touches or breaches the lower bollinger band, the asset is said to be oversold. When this occurs, the trader can take it as a signal to short sell the underlying or buy a put option.
Support & Resistance Levels.
The upper and lower bands can also act as resistance and support levels respectively.
Traders generally avoid going long or buying calls when the asset price hits the upper bollinger band.
Similarly, traders often avoid going short or buying puts whenever the asset price hits the lower bollinger band.
Volatility Indicator.
The Bollinger Bands are also a great tool to use for determining whether the market volatility is currently high or low.
When market volatility is high, the bands expand. When market volatility is low, the bands contract.
Continue Reading.
RSI (Relative Strength Index) Indicator Explained.
The RSI or Relative Strength Index indicator is bounded momentum based technical indicator that attempts to predict a change in momentum. . [Read on. ]
MACD Indicator Explained.
MACD (usually pronounced Mac-Dee) stands for Moving Average Convergence Divergence. The MACD indicator gives the short to medium term trend of the price action. [Read on. ]
Bollinger Bands Explained.
The bollinger bands are adaptive trading bands that reflect changes in volatility and provide a better view of the true extent of the price action. [Read on. ]
Parabolic SAR Explained.
The Parabolic SAR indicator (or PSAR) is designed to calculate the point in time when there emerges a better than average probability of a trend switching directions. [Read on. ]
ADX Indicator Explained.
The ADX, or Average Directional Index measures the strength of a trend and can be useful to determine whether an asset is currently in a trending market or a ranging market. [Read on. ]