Reducing risks by using Bollinger Bands

Reducing risks by using Bollinger Bands

Submitted by adil on Fri, 05/23/2014 - 19:26

Bollinger Bands Help Formulate Your Strategy

With binary option trading, there are always big risks involved in every trade. A successful trader utilizes every resource available to minimize the risks and improve chances for more profits. A Bollinger band is one of many proven indicators that help you formulate a strategy that guarantees success.

How to use Bollinger Bands:

Start by selecting a chart with candle sticks equal to the expiry time of the binary option trades. This means if the expiry time is 15 minutes, the trend chart should contain 15 candles. You must wait until the asset price crosses the center line (which corresponds to the moving average) on the chart with Bollinger Bands. As soon the price crosses this line, enter the market. If the asset price is above the moving average, the price is more likely to go even higher. In this case, it is better to make a PUT trade. Similarly, if the asset price is below the moving average, the price is more likely to plunge even lower, and a CALL trade should be placed.

Regardless of price variations in between, trading in this way will give you 60% more chance of trades expiring in-the-money. The fact every trader must remember is that the market is always plagued with inconsistency. No matter how perfect your strategy is, there will always be some failed trades, because asset prices tend to plunge suddenly on rare occasions. To counter this market behavior, it is wise to commit multiple trades, each valued only a small investment capital, ideally which is no more than 10% of your total account balance.

This will help you to minimize the losses per single trade, and cover the rest with profits made from other trades. So at the closing time, you will have more profits than the previous day. This strategy works fine with all the assets available in binary option trading.

Overview of Bollinger Bands:

In the below chart of EUR/USD currency pair, the three green wavy lines are the Bollinger Bands. The center line is the moving average, while the outer two lines depict standard deviations.

Using Bollinger Bands is pretty simple, you do not need to understand the concepts about how these bands came into existence. You do not need to have a firm grip over mathematics to use them. Almost all the work is already handled by the trading platform software; as a trader you just have to use the available charts and tools to spot the best moment to make a trade.

Bollinger Bands does not help in any way to predict how market will behave in the future. But using them will help you gain total profits that exceed your total losses. This strategy is not going to make you rich within a day. But this is one of the best ways to secure your investment and reap the fruits of hard work in the long run. This strategy helps you cope with the uncertainty in market movements that can inflict big losses to traders if completely ignored.