Strategies with Bollinger Bands & ADX Indicator - Forex Techniques

Bollinger bands. Our test on the use of the indicator in trading strategies. A useful analysis tool for you too? Read review & conclusion.

We have already presented some strategies based on technical indicators. We also found that in most cases you only need two types of indicators. Namely, one indicator that shows a trend and another that can show the strength or dynamics of the trend. The second indicator is then considered a filter indicator.

In this strategy too, we use a trend indicator, that is the Bollinger bands, and a filter indicator, that is the ADX. The Bollinger bands were developed by John Bollinger, a technical analyst, in 1980. Bollinger bands consist of three bands, of which the band that runs in the middle forms the moving average of the price, i.e. the moving average in relation to a certain period. The lower and the upper band are determined by the average fluctuation range within this period.

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The idea is as follows: According to statistical assumptions, the current price always moves in Towards its mean. If the price reaches the upper band, there is a high probability that the price will now move back to its mean. Basically, the Bollinger bands are trend following indicators, but they also show zones where the trend can briefly reverse.

The ADX indicator is an indicator for determining the trend strength. The indicator was developed by Welles Wilder, also a technical analyst, in 1978. It compares high and low prices within a period and calculates extra values ​​that indicate whether there is a trend or not. The fluctuation range is then included in the calculation. This is the only way to compare the upward and downward movements and to define the respective strength of the trend.

The ADX indicator shows the strength of the trend, but not the direction. That means: If the ADX rises, the trend gains strength, regardless of the direction in which the trend is moving.

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When can put or call Buying options based on the two indicators?

If we only take the Bollinger bands and apply them to the 4-hour chart, we could use every touch on the upper band to buy put options, At this point it should be said that if you apply it to past courses, it also looks good. In practice, however, the bouncing off of the prices on the bands is not so easy to identify, especially since the Bollinger band is not a leading indicator, but is calculated from the price, but what we could do is to use the ADX in the trend direction act. More specifically, we only buy options when the ADX shows a strong trend and only in the direction of that trend. The middle band of the Bollinger bands then determines our time of purchase.

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Strategies with Bollinger Bands & ADX Indicator - Forex Techniques

The following rules can therefore be set up:

1. If the ADX rises significantly during an upward trend, we buy call options on the middle band. 2. If the ADX rises significantly during a downward trend, we also buy put options on the medium band. 3. If the ADX falls significantly during an upward trend, we buy put options from the upper band. 4. If the ADX falls significantly during a downward trend, we buy call options from the lower band, so we can make the most of the ADX by acting in the direction of the trend when the trend is strong and only against the trend when the trend is weak.

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Conclusion

Strategies that are traded using technical indicators are very popular among traders. Nevertheless, one has to bear in mind that most indicators do not have a lead time for the actual price, but have been calculated from this. It is therefore important to pay attention to the correct filtering, if the filter indicator confirms a trend, then the option should always be bought in this direction. Counter-trend strategies should only be used if the filter indicator shows weakness.

Bollinger bands and ADX indicator - trading binary options in 5 steps

Targeted strategies can be used in trading the chances of success certainly increase, although of course they are by no means to be seen as a guarantee of a profit. More importantly, traders know what binary options are and how they are traded. In order to provide traders with the most important information, we have compiled relevant facts for trading binary options in the following slideshow:

Such strategies can be implemented well with the broker StockPair. The broker stands out for its simplicity and the clear trading platform. In addition, StockPair customers can use an advanced chart analysis function as soon as they open an account. A demo account is possible on request from support.

Strategies with Bollinger Bands & ADX Indicator - Forex Techniques

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