This binary options strategy based on Bollinger Bands requires looking for an entry at the moment of “overbought” and “oversold” in a price chart. In general, it’s all about seeking the moments of backing off or correction in a 5-minute chart.
With this strategy, you should use your own discretion. Despite its simple foundations, it comprises a couple of strategies and its effectiveness is not solely dependent on the rules and indicators. The knowledge and experience are needed here, which is why we classify it as an expert strategy.
The point is to find a candle which will alarm us that the next candle is entering the opposite direction.
Is it effective? Every strategy is as effective as the trader who uses it. The strategy and indicators are mere tools supporting the trader’s decisions. Not everybody will be successful, as the additional market know-how is needed. However, it’s a good strategy when using a demo account. Still, when a situation is controversial, for instance there is a strong trend, it’s best to wait for a confirmation from the alarm candlestick instead of entering in an instance, even at a price of a great entry.
It is therefore recommended that a person using this strategy for real be well-experienced as far as watching charts and fast market analyses go. The time interval is 5M, so there isn’t much time to analyze the chart before making a decision to open an option. Mechanically following the strategy may not be enough to fully realize its potential. While it’s easy to install, it’ll be hard to use for those who have just started and do not understand all the particulars of the indicators used.
How to install?
Download .rar, copy the indicators into your MT4, paste and start the template in 5M interval.
Here’s what should be seen in the chart: bands, RN and PA levels, and VC candle as well as STC line in the additional window. Here’s how it should look:
Set the alarms for the indicators.
Download the strategy:
- Look for a candle which closes outside the Bollinger Bands chart. The candle should cross the band with both of the corners of its real body. It’s the signal candle, which opens within the Bollinger Bands and closes outside the chart.
- The next candle is the entry candle and it should be played in the opposite direction than that of the signal candle. We enter at the moment of the signal candle’s expiry, if it closed outside the band chart. We may also have 2 or 3 signal candles before we decide that the next candle meets the strategy’s criteria.
- VC candles and the STC line must be in OB or OS level or just before the entry candle’s opening.
- For OB/OS, 7/-7 setup is a minimum for VC (or 8/-8 for those who are familiar with the strategy).
- STC levels are set to 90 and 15 (or 90 and 10 for those who are familiar with the strategy).
- Bollinger Bands levels are set at 20.2.
- We don’t use this strategy 15 minutes before and after important market events.
An example (click to enlarge):
- The candle’s real body should be longer than 3-4 preceding candles.
- If the signal candle’s real body is shorter or equal to 3-4 preceding candles, then this signal should be ignored. We wait until the next candle is close to the Price Action (PA, blue and red horizontal line) or the RN level (horizontal Round Number). If those lines are achieved and both VC and STC meet the basic criteria, then we open the option when the signal candle crosses the colored lines (the real body is at the level or – even better – touches them).
- If the signal candle is short, but otherwise meets the basic criteria, then it can be accepted if the preceding candle meets the signal candle criteria and has a longer real body. In other words: a short candle can be a signal candle if it’s at least the second signal candle.
- To avoid “waterfall” either wait or go with the following rule: if more than 25% of the VC candle’s real body if over the red/green line (OB/OS), wait for the next VC candle with a shorter colored end or without such an end, unless the signal candle touches the RN level.
- Sometimes two VC candles are on OB/OS level and the price chart keeps at the trend. Then, we take into account the length of the VC candle and how deeply it penetrates the OB/OS level.
Usually the penetration level remains the same, but the length of the VC candle keeps on getting shorter. Generally the closest PA levels should be watched after the 3rd or 4th candle, if there are any. If the 3rd or 4th candle is the signal candle meeting the basic criteria and it’s close to the PA level at the same time, we can go on the next candle after the signal candle closes close to the PA level (it’s best to open the option before the level is touched).
- One of the commonest mistakes is choosing the signal candle one too early. Even if it has a long real body, we should still pay attention whether the RN level is not above the candle. If it is, such a candle should be considered signal candle no. 1 and the next one, signal candle no. 2 (as confirmation). Only the next candle is the entry candle. If the signal candle distinctly crosses the RN level so that it dynamically keeps at the next RN level and then it extinguishes above the first RN level, we check whether the next candle confirms this direction and is closer to the RN level (signal candle no. 2). At the same time, we check whether the level of OB/OS penetration on the VC candle is lower (the colored end is getting smaller). If those conditions are met, the next candle can be the entry candle.
- Signal candle no. 1 will meet most criteria in most trends. We don’t enter on the first candle, because – since it’s a trend – the strength of the trend should be compared with the VC chart.
- If the signal candle’s real body is OK, it reaches or is about to reach the closest SR level and the VC is close or at level ⅞, then – despite the lack of the colored end or an adequate penetration level – we can go on the next candle.
- If we have a candle that extinguishes on Bollinger Bands median and the next 1 or 2 candles stop at the edge or go over the band level, then the next candle is the entry candle:
- This strategy can be used in any market, but the currency market is the recommended one, especially the following currency pairs: EUR/USD, AUD/USD, GBP/USD, USD/JPY.
- We only play candles with a long real body, except for situations when a short candle is another signal candle.
- We do not play within 15-30 minutes from the opening of the session. It’s best to avoid the Sydney session. It’s best to play from the middle of the Tokyo and London sessions.
- We avoid opening 5-minute options 15 minutes before and after TOH (top of hour) and BOH (bottom of hour).
- The strategy has been successfully employed in a 15-minute chart with 15-minute expiry date.
- To confirm our entries, we can check the chart in longer time intervals (up to 30 minutes) and verify the current trend. This way we can also confirm if the candle is “overheated” or if it gets weaker next to the SR levels.
“Waterfall”: how to avoid it?
If we can’t handle avoiding strong trends and choosing the optimal candle, we can set Bollinger Bands at 2.3 level. We’ll have fewer signals, but they will be more noticeable. We can also observe more currency pairs to achieve the optimal signal level.