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Hello, traders.
Welcome to BTF301, the first lesson on the Advanced course,
and we will be introducing the Bollinger Bands.
I'm Orlando Gutierrez for BinaryTradingFinance.com.
Please take a moment to go through our risk disclosure.
Remember that trading binary options
is a challenging endeavor.
But it can be highly profitable for the educated
and disciplined investor.
On this lesson, we're going to learn what Bollinger Bands are.
Then, how are they calculated?
The cycles in volatility and trading opportunities,
the overbought and oversold spikes,
and how to trade with the Bollinger Bands.
So what are the Bollinger Bands?
Bollinger Bands were created by John Bollinger in the 1980s.
The idea is to let traders know extremes
in prices on the short term.
Bollinger Bands use a moving average in the middle
and then 1 and 2 standard deviations on both sides
to plot the bands.
This indicator uses standard deviation for its calculation,
because it's a common measure of volatility.
When the price of the security becomes volatile,
the bands expand.
And when the volatility dries up, they contract.
You will always find price trading inside the bands
when using these indicators.
And this is how it looks on your chart.
This is the US dollar, Canadian dollar one-hour chart,
and Bollinger Bands indicator with the settings
on a 20-period moving average, which is the middle band.
And there are 2 standard deviations
above and beyond the middle band, which pull out
the upper and lower band of the indicator.
In periods of low volatility, you
would see the bands contract like this.
And when the volatilities start to come up
you will see the band expand like this.

The cycles in volatility and trading opportunities,
as you know, anything in life has its own cycle.
So does volatility.
If you look closely at our chart,
using the Bollinger Bands indicator,
you will notice two things.
The first one is that there are periods
with extreme low volatility.
And after these low volatility periods,
come high volatility periods.
So when you spot these two cycles, you can do two things.
One, avoid the chop in the contraction.
When the bands are contracted and very close to each other,
it means that volatility is very low.
And remember, as traders, we use volatility
to profit from moves.
If you get caught in the chop, you
will start losing money unnecessarily.
And the second one is wait for the expansion
to begin to buy puts or calls, and profit
from high volatility.
Now this is exactly how it looks on your chart again.
This is the US dollar, Canadian dollar four-hour
chart with the same settings on the Bollinger Bands.
This is the 21-period moving average,
and the 2 standard deviations on the upper
and on the lower Bollinger Band.
Of course, you can use whatever settings you want.
You can choose to use a 50-period moving average,
and a 1 standard deviation.
Or you can choose to use a lower period moving average,
with a 2 standard deviation.
And of course, these will make your Bollinger Bands to vary.
The default setting is a 20-period moving average,
and a 2 standard deviation.
Now, as you can see on this contraction,
we have an untradeable chop.
If you start to trade and buy puts or calls on this area,
it is more likely that you're going
to end up out of the money than in the money,
because there is no definite direction.
But when volatility starts to kick up,
we have a Bollinger Bands expansion,
and that we have an opportunity to the upside,
and then to the downside.
As you can see, the Bollinger Bands
give us a very visual cycle in volatility appreciation,
and are very easy to trade volatility kick-off.
Then we are going to look at the overbought and oversold spike.
Now that we know how to monitor times of high volatility
with Bollinger Bands, we must understand how to use them.
At the beginning, we said that these bands are also
used to monitor extremes in price on the short term,
and this is exactly what we are going to look at now.
When price spikes above the upper band,
the market is overbought, and the high price
is unsustainable.
We are due

for a short term or an immediate correction.
And conversely, when price spikes below the lower band,
the market is oversold, and this extreme low price
is now unsustainable.
The extremes can mark an immediate shift
in price direction.
So when you see a price spiking above the upper band,
it could mean that a reversal might
be in play, because the move that we just saw
is coming to an end.
And when there are price spikes below the lower band,
it could mean that the down move is coming to end,
and the bulls are taking the position on the currency,
or on the security that you are trading.
So let's look at some price spikes over the bands.
Here is the same US dollar, Canadian dollar four-hour
chart.
And we are going to look one by one at these spikes.
OK?
Now, we have the same settings, under the full settings
on the Bollinger Bands, the 20-period moving average,
and the 2 standard deviation to calculate
the upper and lower band.
So here we go.
Here's the first spike that we can look at.
After the price spikes above the upper band,
we can see that it pushed all the way back down.
Then we have a second spike here,
which meant that price was on the immediate reverse.
But then it continued to drop.
So as you can see sometimes, these spikes
do not mean that price is fully reversing.
But they did they do mean that price
is about to have an immediate reversal,
or an immediate correction.
OK.
Then price continued to the downside.
We have a spike here, and we have a move lower
that's spiked all the way above the low Bollinger Band.
And then we have another spike above the high,
above the upper Bollinger Band.
That gave us a signal to buy puts, because it had also
an engulfing, a bearish engulfing candle in it,
and it was quite a nice move all the way down to the lower band.
So, as you can see, we have immediate reversals
after these spikes.
Take a look at this last spike.
Price was moving all the way up, and when
we got the spike above the upper Bollinger Band,
we had engulfing candle, and a signal to buy puts,
which would have end up in the money.
Since this is the four-hour chart,
we would have been trading maybe the end of day,
or a longer term expiry.
But let's say that this is actually a 15-minute chart.
We see the spike above the upper Bollinger Band.
We see the bearish engulfing candle.
And we buy puts for an hourly expiration,
and we count one, two, three, four, five candles;
but we would have ended up in the money on this one, maybe
a two-hour expiration to be sure,
because price was really moving.
So this is all how price spikes can give you scopes or day
trades, depending on what time frame are
you analyzing your charts on and trading from.
But they can give you signals to buy puts or calls.
Now well, we were talking about this.
How to trade with the Bollinger Bands.
When price is trading below the middle band,
we are in a downtrend.
Let's go back to these charts.
As you can see here, when we broke below the middle band,
we started to trade below the middle band,
and price started to dip strongly.
And we started this downtrend.
And we corrected here once and twice,
but then we continued to the downside.
And as you can see, price was trading inside the middle band
and the lower band in this downtrend,
in this down movement.
And then when price broke to the upside,
and started to trade above the middle band,
we started to move up.
So, when price is trading below the middle band,
we are in a downtrend.
And when we are in a downtrend, remember
that we look to buy puts on a correction.
And when price is trading above the middle band,
we are in an uptrend, and we look
to buy calls on pull backs.
We look for reversals to counter trend trade
on spikes

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