The main feature of this trading technique is in the deviation of the price. It's based on two technical tools which show moments when the price has gone too far from its average value in a certain period. Both technical indicators calculate the average price and divide it be the current value, determining extreme rates. At the same time, the Bollinger Bands indicator also shows the period of large volatility and the current trend's momentum. It has a middle line in its visual presentation which divides price for uptrend and downtrend. That line is the main one for the entry conditions in this trading strategy. If the price is above the middle BB line, we would consider call options to buy depending on CCI’s behaviour. Put options would be in focus for the opposite situation when the price is below the middle BB line.
The Commodity Channel Index (CCI) was initially designed for commodities in order to clarify turning cycles. However, it’s been modified for binary options trading and it can be easily used for any financial instrument like currency pairs, stock or shares. The CCI is like an oscillator, it also has divergences and overbought/oversold levels. But as long as we are looking for continuation patterns here, we will consider situations when CCI confirms the recent strength or weakness for call or put options, respectively.
The main condition is simple. To stages have to happen in CCI’s action before entering the market. First, it has to come off the oversold level and crossover the overbought mark after that. In case if the current price is above the middle line of the Bollinger Bands, we start buying call options. Otherwise, if the CCI indicator comes into the oversold zone after coming off the overbought territory, and the price is below the middle BB line, then we start buying put options.
Any asset can be used at any timeframe in the ‘Bollinger Bands and CCI’ binary options trading strategy. The only difference traders will feel is the frequency of signals and the distance of the trading cycle. As you can easily guess, the shorter timeframe is, the more frequent trading signals will occur. The same statement is related to conditions of exiting the trading cycle. The longer timeframe is, the longer cycle happens.
The next question is about when traders should stop buying options in the same direction after both CCI and BB gave a signal to pull the trigger? Well, it depends on several factors: the timeframe chosen and trader’s greediness. To be serious, one of the strongest exit signals traditionally comes from the Bollinger Bands indicator. If you were buying call options and the price has reached the upper BB line, then it’s time to get out. And in the opposite, if you were buying put options and the price touched the bottom BB line, then it’s enough, as the likelihood of reversal becomes huge.
An example of ‘Bollinger Bands and CCI’ binary options trading strategy in action is shown below.