I don’t typically recommend trading the 60 second binary options because they are so risky. The chance of an asset moving in your direction, or even moving enough in your direction, within the next 60 seconds is so slim as to be near impossible to judge. This is not to say that it can not be done because it can. This is evidenced by the large number of algorithmic traders and options scalpers that exist today. If it were impossible to make money on such a short time frame these traders would not exist. I personally prefer to use at least a five minute chart but this strategy can be used on any time frame from 60 seconds to one week with relative success. What am I talking about….Bollinger Bands ™ .
Bollinger Bands are all about volatility. Volatility is the movement of the market. Trading is about catching market movements in order to profit. It only makes sense that an indicator that measures volatility would be a good tool for traders. There are lots of such tools, and many ways in which to utilize them but Bollinger Bands are by far the best methods for day traders.
Think about it. Short term binaries are all about catching short term movements. The thing is, when you enter a binary options contract you are not necessarily getting in at precisely the spot price at time of purchase. This is because all the brokers include a small amount of slippage into each strike in order to help them maintain acceptable losses. This is not a scam, just the cost of trading and something explained in every brokers terms and conditions I have ever read. They call it “the price at which we are willing to sell options”. It usually isn’t very much but it does mean that the asset you are trading will have to move at least a pip or more to even be at the money. This is why trading 60 second options and other super short expiries is so hard. Not only do you have to be right, you have to be right at exactly the proper time AND the trade has to move up enough to match and exceed the strike price at which the broker has set the option.
Bollinger Bands For Binary Options
Bollinger Bands are excellent for trading short term binary options because they pinpoint times of low market volatility(movement) and then signals when the market start to moves. Once the market is moving the bands also provide numerous follow up signals that savvy day traders can take advantage of. This is how it works. The bands are based on a standard deviation of prices and will get narrower and wider as volatility decreases and increases. When the market is very calm and quiet the bands get narrow, when the market is volatile and moving a lot the bands get wide. The patterns of widening and narrowing are one kind of signal while price action in relation to the bands themselves provide another. There are three lines in the equation. The first is a moving average usually set to 20 periods. This provides a fairly quick indicator but don’t worry, you can adjust the MA if you think you need to. The next two lines are a standard deviation of the moving average value, +2.0 standard deviations and -2.0 standard deviations.
Look at the chart above. It is a chart of the USD/CHF set to 5 minute candles and a standard Bollinger Band ™. Notice how the bands become narrow and then widen over time. When the bands narrow it is because prices tend to trend sideways. When the market trends sideways it is very hard to profit from binary options. When the market moves up or down from one of these sideways patterns the bands get wider, indicating that movement. That is the very first signal you look for, a narrowing followed by a widening. When the bands begin to widen you know it almost time to make a trade. The next step is to wait and see which band price touches when the widening starts. This is usually an indication of direction and what kind of trading you will be doing. If prices touch the upper band the market will usually rally. When price action touches the lower band the market will typically sell off.
Here are links to more articles on trading binary options with Bollinger Bands ™