A Heiken Ashi Trading Strategy For The Bollinger Channel
The Bollinger Bands are a legendary indicator included in the TOP 5 of the most popular technical analysis tools. In this article we will look at a binary options strategy which is based on this indicator.
At first glance, it seems quite simple, but there is a subtle point to consider. The Bollinger Bands aren’t superimposed on the usual “candlestick” chart, but on the Heiken Ashi instead. This provides for more accurate signals. The trader actually tracks waves of market movement, without paying attention to insignificant price fluctuations.
Overview of the indicators and the strategy
First you should familiarize yourself with the Heiken Ashi – what it is and what its advantage is for trading. It is considered a special mode of building price formations. At first glance, they are not much different from the usual “Japanese candles.” The elements also have a “body” and two “shadows.” However, on closer examination you can detect the presence of a bias. Each Heiken Ashi candle begins its construction from the middle of the previous element. In the case of candles, each element is built from the closing point of the previous one (its edge). The visual difference is obvious, therefore it’s easy to guess that we are talking about the presence of averaging.
Just like “Japanese candles,” Heiken Ashi have 4 points – open, close, high, and low. But the calculations are done differently. Let’s consider this point in more detail.
- Open – this is calculated according to the following formula: the “open” and “close” of the previous bar are divided in half.
- Close – the “open,” “close,” “high” and “low” are divided by 4.
- High – the maximum price for the period, regardless of time. It can be both an opening point and a closing, as well as an oscillation that occurred somewhere in the middle of that time. This is what differs from “Japanese candles.”
- Low – the minimum price for the period. It is calculated in the same way the High parameter is done.
What is the advantage of this type of chart? Traders who prefer the Price Action approach (market analysis without indicators) find it more convenient. The main thing is that the chart becomes smooth and undulating. Moreover, key price fluctuations are not cut off. The only thing left is price noise, which will not affect the final result of the trade. Heiken Ashi is ideally suited for trading on waves, especially in conjunction with the Bollinger Bands indicator.
Setting up the chart and trading platform
Standard trading platforms, including Binomo, do not support the required chart mode. Therefore, we need to use an additional service from TradingView (https://www.tradingview.com). You need to open two tabs with the same asset’s chart – one for analysis and one for trading.
Step-by-step setup instructions:
- Open “Live Charts” on TradingView (https://www.tradingview.com) and the Binomo trading platform (https://binomo.com/).
- In both tabs, we choose the same asset with the highest profit – from 75% or higher up to 89%. In the Binomo tab, select the candlestick mode with an interval of 1 minute, and on the live chart use the Heiken Ashi (see the screenshot above) with the same time frame.
- We add the Bollinger Bands indicator from the catalog of built-in tools on the technical analysis platform (not a custom one as there will be all sorts of modifications, so we need the original version).
Trading signals on the strategy
The combination of tools used creates the optimal conditions for analyzing price waves. The task of the trader is to recognize when previous movement is stopping and reversals are beginning. It is important to differentiate false corrections from true trend reversals.
Signals to enter the market:
- On a decrease – the price is approaching the upper boundary of the Bollinger Bands, touches it, or breaks through it, and then rebounds off of it and returns within the channel again. After that, the red Heiken Ashi candle should pass the middle curve in the channel. After the closing of the bar in the lower half of the channel, a “down” trade is opened.
- On an increase – a similar price reflection occurs, only now it’s from the lower boundary of the Bollinger Bands. The signal is confirmed by the breakout of the rising candle in the middle of the boundary.
A key moment is the point of intersection of the middle of the Moving Average located in the center of the Bollinger Bands channel. Before this boundary is broken, you cannot enter the market.
Expiration – about 5 bars is the best choice. This interval enables you to make a profit by overcoming the short-term correction that is possible in the first 1-2 candles after the signal. The last picture shows the same fragment of the chart as above, but on the trading terminal.
In conclusion, we should note that when trading on this strategy, you should not forget about the rules of money management. Therefore, the maximum amount of investment in a trading contract should be limited to 5% of the account balance.