Many professional traders will agree that the easiest way to make money on IQ Option is by using the simplest strategy. This means relying on simple signals such as candle colors. But unless you know how to read candle colors by themselves, you'll need to use them alongside one or more indicators.
In this guide, I'll teach you how to use candle colors alongside Bollinger Bands to trade on the IQ Option platform.
- 1 Setting up Bollinger Bands on IQ Option
- 2 Examples of trading candle colors alongside Bollinger Bands
- 3 Trading psychology principles to follow
Setting up Bollinger Bands on IQ Option
Bollinger bands are one of the most popular types of indicators among traders. To learn more about this indicator, the Guide to Trading with Bollinger Bands on IQ Option is a must-read.
To set up Bollinger Bands IQ Option, click on the indicators feature on your trading interface. Next, select popular and finally select Bollinger Bands.
The standard period of B-Bands is 20 and the deviation is 2. Let these settings remain as they are on your IQ Option trading interface.
Once, set up, your chart should look like the one below.
How to trade using Bollinger Bands
When trading using this indicator, your objective is to look at where the upper and lower bands cross a candle.
If the upper band crosses a bullish (green) candle, it's an indicator that an uptrend is imminent. If the lower band crosses a bearish (orange) candle, it's a signal that a downtrend is imminent.
Using the chart below, the lower band crosses a bearish candle. Since I'm using 1-minute interval candles, I would enter a 5-minute sell position.
Is Bollinger Band a good indicator?
The Bollinger Band is one of the most common technical analysis indicators. And for good reason. It is very easy to determine a short-term trend by looking at the middle line. The width of the band immediately gives us ready information about the strength of the trend. The band itself also determines the probable direction of the price in the future. Note that most candles are within the Bollinger Bands. Of course, BBands is only an indicator. To use it in trading you need an appropriate strategy, which we will come to in a moment.
What indicator goes well with Bollinger Bands?
There are many strategies using the Bollinger Band. Some of them use this indicator in combination with candlestick patterns or support and resistance levels. The indicator itself can also be combined with other technical analysis indicators. Which ones? For example with the Relative Strength Index or RSI. We wrote about such a strategy in the article about combining the Bollinger Bands with the RSI.
Of course, the possibilities are endless here. One could, for example, combine the Bollinger Band with a preset and add the long term moving average SMA200 to filter the signals by the long term trend.
When should you not use Bollinger Bands?
When applying the strategy described today, one should keep a close eye on the Bollinger Band. The best entries are when the market comes out of a consolidation. Then the Bollinger Band is always narrow. It may happen that a directional movement is immediately visible on the chart, e.g. as a result of news or important macroeconomic data. Then the Bollinger Band will be unnaturally wide. I would advise avoiding such situations. It is better to wait for consolidation and join the trend at the breakout.
Examples of trading candle colors alongside Bollinger Bands
Using the chart below, the lower band crosses a bearish 5-minute interval candle. My trade entry point will be at the opening of the next bearish candle. The trade position should last 5 minutes.
This ensures that the trade will close in the money. If I were to enter a 15-minute position, the trade would end even. The reason for this is that the close of the bullish candle is at my trade entry point.
Tips for trading using candle colors alongside Bollinger Bands
As mentioned, your primary objective is to identify where the upper and lower Bollinger Band cross candles. However, how long you hold the position largely depends on the candle time intervals.
If you're using 1-minute candles, your trades should last 5 minutes. If one the other hand you're using 5-minute candles, your trades should also last 5 minutes.
If you look at the chart below, The upper band crosses a bullish candle. The close of this candle is my trade entry point. Since I'm trading 5-minute candles, the trade should only last 5 minutes. If I were to open a 10-minute position, the trade would be unprofitable since the next bearish candle closes lower than my trade entry point.
Using Compounding to trade this strategy
I suggest you trade 3% of your account balance when using this strategy. For example, if you have a $100 account balance, you should only trade $3 in your first trade.
If the trade is profitable, use your return plus the initial investment in your next trade. 3 winning trades should get you a 20% return.Take a look at the table below.
Trading psychology principles to follow
You should have a target profit each time you trade using this strategy. For example, using the table above, your goal is to make a 20% return on your initial account balance. Once this target is reached, you should stop trading.
Avoid placing two or more consecutive positions based on a single candle. In most instances, you'll find that once you've entered a position, the prediction is correct. You might be tempted to enter a similar position based on this. However, remember that success using this strategy also depends on your trade entry point. This should always be at the close of the candle that the band crosses or the opening of the next candle.
Trading Bollinger Bands alongside candle colors is one of the simplest strategies to make money on IQ Option. It will require some practice and patience to fully master this strategy. However, once mastered, you should be able to start getting good returns.
Have you traded using candle colors alongside Bollinger Bands? Please share your views in the comments section below.
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