The Bollinger Bands trading strategy was developed and introduced by John Bollinger and named after him in the late 80s. This particular type of strategy is aimed at those traders who have great technical skills meaning that they would be able to make a technical analysis of the market. Of course except technical analysis it is necessary to include different instruments and tools to have a clear and trasparent idea of the market.
The world “Bands” relates or refers to 3 bands: lower, middle and upper. A trader needs them to define “abnormally” high or low short-term prices in a security.
What is it About?
As it was mentioned above, Bollinger Bands is mostly used by advanced traders with technical analytical skills yet it doesn’t mean that other traders can’t use it especially if it is possible to trade a more simple Bollinger Bands concept where only bands are taken into account for the right decisions.
The main principle is: if a heavy selling occurs – lower band breaks and the stock price reverts back above the lower band moving to the middle one. An immediate signal to purchase the stock happens when the strategy calls for a close below the lower band. That’s exactly how traders are capable of making profit from this certain trading strategy.
What are the Drawbacks?
It is clear that every strategy doesn’t always work the way we want it or the way we know it in the theory. Here the Bollinger Bands trading strategy is not an exception meaning that it also has a few limitations.
For instance, the bands can still be broken and the price keeps decreasing as it rides the band downward. In this case, there is a big chance to lose money as the price doesn’t rebound fast. But during the long run, the concept is always correct and gives traders great chances to win.
Bollinger Bands trading strategy is not that complicated and difficult as it might seem from the first glance and therefore can be used by all traders of different levels with good technical and analytical skills of the market. In order to manage / handle this concept wisely and effectively it is needed to have a good exit strategy. Remember this and you will always have good chances to win the binary options trading battle.