Binary traders involved in trading binary currency pairs most likely at some point or another have encountered the term Bollinger Bands. This refers to a technical analysis tool invented by John Bollinger in the 1980s, which partly evolved from the concept of trading bands.
Bollinger Bands and the related indicators %b and bandwidth can be used to measure the “highness” or “lowness” of the price relative to previous trades.
Technically speaking, Bollinger Bands consist of: an N-period moving average (MA), an upper band at K times an N-period standard deviation above the moving average (MA + Kσ) and a lower band at K times an N-period standard deviation below the moving average (MA − Kσ).
In reality, when investing in binary options one will probably trade several times. Ideally, a trader finishes in the money on every one, but realistically this is almost impossible and eventually some traders will cost you losses. This strategy works with that reality, with some basic mathematical principles, nothing too complicated.
Most binary trading program already do all the calculations for you and all a binary investors has to know is how to spot the signals and get in on the market. The strategy is in essence to provide a logic of where the market is heading to.
The Bollinger bands are simply the three wavy lines that follow the chart. The line in the middle is the moving average, and the outer lines are standard deviations.
When the values of the given underlying asset are above the moving average, each period is statistically more likely to close higher than the last one. Conversely, when the asset is trading below the moving average, it is statistically very likely to close lower.
It is vital to remember that this won’t predict where the market will be when your option expires, but that over time you will have more options expiring in the money than out.
The basic idea behind the strategy is to average the risk over several binary trades, so that as a trader you aren’t as susceptible to market swings and the made binary investment is more secure.