As a way to make this strategy development process easy for you, I will start by covering the vital basics of each indicator and later on dive into how to develop a trading strategy using the two indicators.
Understanding Bollinger bands on Expert Option.
Bollinger bands, or commonly referred to as BB, makes to the list of the most popular indicators on Expert Option, for a good reason.
This indicator is commonly used to detect the prevailing market volatility.
In a simple language, Bollinger bands tell you whether the market is ‘loud’ (good to trade-in). Or whether it is ‘quiet’ (ranging).
To do this, the indicator three lines: two lines plotted two standard deviations away from the centerline (simple moving average (SMA) of the underlying asset’s price.
However, the standard deviation value can be adjusted as per your preference, as we will discuss later.
With that said, these two standard deviation areas make two bands that enclose the price action. As a result, setting (support and resistance levels) also ceiling and floor.
Now, as a rule of thumb, the price of the asset will always go back to the center of the bands. And actually, that is the whole basis of the Bollinger bands indicator on Expert Option.
That is what traders refer to as ‘Bollinger bounce.’
Here is what it means:
When prices approach the top band, it tends to bounce back to the center. On the same note, when the price touches the lower bands, it will turn back towards the top band (each time you see this, trade on a reversal).
With that in mind, it is safe to conclude that the Bollinger bands act as dynamic resistance and support levels.
Well, because it keeps following the price action.
Catching trends with Bollinger bands.
Knowing that now, you are ready to catch any trend early on using Bollinger bands.
What do I mean?
Well, as you already know, the resistance and support levels in the market won’t hold forever.
At some point, the price will break through it.
When the price breaks the bands, brace yourself for a Bollinger band breakout. The breakout happens when the bands squeeze together longer.
This can happen in any of the following two ways:
- When the price breaks out above the top band, that is an uptrend signal.
- If it breaks out below the lower band, a downtrend is imminent.
That is basically how you use Bollinger bands to trade on Expert Option. But there is a catch.
Bollinger bands only work in ranging markets.
Too bad but that’s just it.
As such, when a trend develops, the Bollinger bands lose their ability to deliver quality trading signals. And instead, start feeding you false signals and if not careful, you will end up buying high and selling low all the time.
You don’t want that happening, do you?
That is why we introduce the MACD oscillator in this strategy.
Where does the MACD come in?
MACD, also Moving Average Convergence Divergence is a trend following indicator and it is available in Expert Option. As a result, it will pair perfectly with the Bollinger bands.
The MACD is comprised of two moving average lines with different periods and histogram bars.
When the faster moving average crosses above the slower moving average, it generates a bullish signal.
On the flip side, when the faster-moving average crosses below the slower moving average, that is a bearish signal.
Additionally, the histogram measures the distance between the two moving averages. As such, as the distance between the faster and slower moving average increases, so does the size of the histogram.
Using MACD to confirm Bollinger Band Signals on Expert Option.
The MACD helps seal a huge Bollinger bands’ loophole. Which is, being unreliable when the market is trending.
When the market is ranging, you would buy when the prices touch the lower band and sell when it approaches the upper bands. Unfortunately, you can’t do that when the market is trending.
What then do you do in such instances?
It is simple.
Observe the performance of the MACD and Bollinger bands to confirm your signals.
Confirming bullish signals on “the best expert option strategy”.
- First, the prices continue to interact with the lower bands of the BB indicator for a considerable amount of time and start rallying.
- The MACD line (faster-moving average) should be crossing above the signal line (slower moving average). Additionally, the histogram bars should be developing above the zero line (centerline)
That is the confirmation of a bullish signal on Expert Option. As a result, consider opening a long buy position.
How to confirm a bearish signal on “the best expert option strategy”.
- A bearish signal on Expert Option is triggered by prices constantly touching the upper bands before commencing a retrace.
- This is confirmed by the MACD line crossing (faster-moving average) crossing below the signal line (slower moving average). Also, the histogram bars should be developing below the centerline
And that is how to confirm bearish signal on Expert Option using MACD. When you see such setups, consider opening a sell position.
In case you’re using this strategy on Forex,
- Place your stop loss above the upper band for sell position and below the lower band for buy position.
- Take profit order can be erected at the point where the price touches the Bollinger bands.
Setting up the Best Strategy on Expert Option.
Here is the thing:
This strategy won’t work if you do not add these two indicators onto the chart.
Once you are in, locate the Indicators tab and select Bollinger bands and MACD one at a time. Click Apply to complete the process.
Here is a point to note:
Leave the indicators’ parameters in default.
Additionally, this strategy works best with charts period between 15-minute to 1 day.