«Break Down» Strategy On Bollinger Bands And RSI
Bollinger Bands – is one of the basic indicators available right on Binomo trading platform. This tool lets you estimate the inequality coefficient of the current price position on the chart with regard to its expected position. By overlapping on the chart it shapes the price corridor based on the population standard deviation for the specified period of time. Bollinger Bands is divided into two parts by the middle moving average. The indicator sets several kinds of trading signals: middle level cross, reflection from channel boundaries and its break.
Setting additional filters lets you increase the forecast accuracy. «Break Down» strategy means using auxiliary indicator – RSI. The oscillator allows recognizing balance fault point of forces of «bulls» and «bears» to the one of the sides. This lets you filter true signals of coming price correction from the false noise of chaotic and short time price leaps.
Trading platform adjustment
In Binomo terminal you shall add two indicators – Bollinger Bands and RSI. The settings of Bollindger Bands shall not be changed, leave them set by default. And the standard relative strength index parameters need some corrections. Required first is decreasing period from 14 to 10, and second, set the values of the levels OverBought and OverSold for 50.
You can trade any assets, but they are supposed to be volatile enough. If you prefer trading turbo assets, it’s better to use CRYPTO IDX on small intervals (15 – 60 seconds). Another good option is EUR/USD while American-European trading session from 4 to 8 p.m. Moscow time. The rules of choice for expiration term and investment sum will be described separately below.
The signal to purchase «Up» option
The power equation shall change towards «bulls», pushing the price up. The attributes are following:
- Green candle stick breaks the middle line of Bollinger Bands;
- RSI crosses the settled boundaries line entering OverBought zone.
The sample of the right signal is shown on the image above, marked by yellow marker.
The signal to purchase «Down» option
Opening a purchase deal happens while the power equation changes to the good of «Bears», decreasing quotations. This is displayed by the following indication signals:
- Red candle stick crosses the middle (purple) line of Bollinger Bands;
- The indicator «Relative strength index» moves to the settled zone OverSold.
The sample of the signal is displayed above. Comparing to the previous one it is more qualitative due the higher market volatility. Between touching the upper Bands boundary and breaking the middle Moving Average just one candle stick fitted in.
The sample of the real trading by the strategy
For illustration purposes the efficiency of «Break Down» strategy and revision of the acquired information we will give the example of trading with the described strategy on the real deposit.
In the trading terminal the currency pair EUR/USD was chosen, with the chart interval of 30 seconds. The expiration is equal to 2 minutes. The deposit sum is 10 dollars. There was $303 initially on the deposit.
On the image above you can see that the entry to the market happened just before the signal appeared. The price didn’t yet break the Moving Average Bollinger Bands, and RSI didn’t cross the boundary of the zones. But taking into account the price surge, when within the frame of one candle stick the distance from the upper channel boundary was passed, the decision for the entry to the market was taken.
2 minutes passed. The trading system and the intuition didn’t get in wrong. We received our 81% profit of the option price – this is 8 dollars of clear profit.
Expiration and money management
The described trading strategy allows forecasting the possible price behavior for the next 3-5 price assessments. The precise time depends on a chosen timeframe. In our case it’s 2 minutes. For trading on 15 second interval the turbo-options with 60 second expiration shall be chosen; on a minute interval – with 4 – 5 minutes expiration etc.
The money management is your insurance from possible financial losses. So it’s not right to invest over 5% of the balance into one deal. The recommended price of one option is less than 1%, but for this over 100 USD shall be on your account.
The crucial moment for the strategy
Before the price breaks the middle level it shall certainly reflect from the opposite boundary of the channel. Better that from the moment of touching the lower, or the upper line no more than 5-10 candle sticks passed, optimal value is 2–3. If the price was somewhere in the middle for some time, it demonstrates the weak trend and temporary lull in the market. The similar signal is better to be missed as there is less possibility for it to pass.
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