This journal entry is about testing Bollinger Bands strategy with 15 minute candles and option expiry time of 30-60 minutes. To my mind, this strategy is the most profitable and at the same time simple one comparing to those that I have tested so far. While testing Pinocchio strategy, we found out that using plain strategy does not result in strong signals. Therefore, stochastic technical indicator with traditional parameters (14, 3, 1) was used in order to support trading signals.
Bollinger Bands strategy summary
The strategy is about identification of a moment when the price crosses border (top and bottom) bands. If the price breaks the top band and then comes back, it signals the downtrend reversal. That signals purchasing a PUT option. If the price breaks the bottom band and then comes back, it signals the uptrend reversal make an opportunity for purchasing a CALL option.
To make the signal even stronger, support and resistance levels along with technical indicators should be used. In my case, I used Stochastic in order to identify oversold and overbought assets. If the stochastic is above 80, the underlying asset is overbought while the value below 20 signals about oversold asset.
The first trade using Bollinger Bands strategy was executed with a currency pair AUD/USD. The stochastic indicator demonstrated an oversold asset signal, the price broke the bottom band and changed the direction. However, the general trend was downward. I purchased a CALL option. The option expiry time was nearly 40 minutes.
Unfortunately, the trend reversal did not happen. The broker I am working with, Anyoption, provides a possibility to roll the option forward if it most probably expires out of the money. I used that feature and extended the expiry time of the option.
At the end, the main downtrend did not revert what resulted in out of the money trade.
This trade was executed with Apple stock. The stochastic indicator signaled about an overbought asset. The price broke the top band and reverted. The main trend became rather neutral. All the mentioned above made me purchase a PUT option.
Eventually, the option expired in the money.
Another trade was executed with Amazon stock. The stochastic indicator signaled about an overbought asset. The price broke the top band and reverted. The main trend was slightly directed upwards. I decided to purchase a PUT option.
The trade closed in the money.
Another stock option trade was executed with Alibaba stock. The stochastic indicator showed nearly oversold asset. The price broke the bottom band and reverted. The main trend was rather downward. I purchased a CALL option that time. The option expiry time was nearly 30 minutes.
The main trend did not revert and the option expired out of the money.
This stock option trade was made with Facebook. The stochastic demonstrated an overbought asset. The price broke the top band and reverted. The main trend was directed upwards. The option expiry time was about 10 minutes. I placed a PUT option.
As a result, the main trend did not change the direction and the option expired out of the money.
Another currency pair trade was executed with NZD/USD. The stochastic demonstrated an oversold asset. The price broke the bottom band, however, the reverted candle did not open yet. The option expiry time was roughly 20 minutes so that I purchased a CALL option.
Eventually, the option expired in the money which made me 79% profit.
The last trade was made with a currency pair USD/SEK. The stochastic showed an oversold asset. The price broker the bottom band and the next candle changed the direction. The main trend was headed downward. As a result, I purchased a CALL option. The option expiry time was 15 minutes.
The binary option expired in the money. That made me 77% profit.
Based on the strategy testing results, all out of the money trades were placed when the main trend had an opposite direction. In other words, when I placed CALL options, the main trend was downward while it was upward when I purchased PUT options. That’s the essential factor to consider when placing the trade. I strongly recommend to place trades which correspond to the main trend direction.