About Binary Options Indicators
When trading in binary options, it is extremely important that you have all the tools that will allow you to make educated investment decisions. One of the tools that prove to be extremely successful in helping binary options traders earns big profits are binary options indicators. So what are binary options indicators? Well, before we can fully understand what these are, we have to have a clear definition of what binary options (BO) trading is.
Binary Options Trading Defined
I’ve you’ve dabbled in the financial trading world long enough, chances are high that you already know what binary options trading means. However, for the uninitiated, BO trading can be defined from the word Binary itself. Binary basically means “to have two parts.” So what does that mean in the trading sense? Well, it basically means that if you’re trading in binary options, all you are required to do is predict two things with regard to the asset’s price: Call or Put.
If an asset’s price goes up, then you express the investment possibility of “Call.” If an asset’s price goes down, then you express the investment possibility of “Put.” You, as a trader, will earn profits based on whether your predictions become true within a predetermined timeframe–within minutes or hours, for example.
While binary options trading may look easy on paper, in actuality, there’s still a considerable amount of learning curve involved to truly master it. Also, because of the asset’s volatile nature, predicting whether their value will go up or down may prove challenging. This is where binary options indicators come in.
Binary Options Indicators Defined
So what is a BO indicator? Well, it is a mathematical chart that shows an asset’s upward or downward trend in pricing, volatility, the health of a particular trend itself, etc. The number of trading indicators out there is staggering. And choosing which indicator to use at any given point in time is crucial to binary options trading success.
Types of Binary Options Indicators
There are various indicators for binary options trading. Most of these indicators can be classified under one of the four types below:
While there are traders out there that follow a more contrarian approach to binary options trading, the majority of traders prefer to look at wider trends in the market and then make trades based on where those trends are going. To find out where these trends are going–and make binary options trades as needed–we can make use of trend indicators.
Trend indicators are basically binary options indicators that show a particular asset’s movement in the market, whether upward or downward. The most famous indicator that belongs to this type is the Moving Average indicator.
So what exactly does a Moving Average indicator show? Well, it shows an asset’s average closing price within a particular time period. The basic premise is that when an asset’s current price is below the average closing price, the asset is on a downward trend. This is the perfect time for traders to make a “Put.” If an asset’s current price is above the average closing price line, the asset is then considered to be on an upward trend. This is the best time for traders to make a “Call.”
While trend indicators give binary options traders an idea on an asset’s upward or downward trend, Oscillators, on the other hand, are indicators that serve to confirm asset trends that have already been established. Oscillators–sometimes called Trend Confirmation Indicators–usually help traders by showing whether an asset’s healthy trend momentum is likely to continue, or not.
One extremely popular example of an Oscillator is the MACD, or Moving Average Convergence Divergence. What the MACD does is basically measure the difference between a couple of moving averages, and then plot them against a histogram to make pricing forecasts. MACDs are typically used in conjunction with Moving Average indicators. Getting agreeing indicator signals between them will definitely yield better profits.
If you have used Bollinger band indicators before, then you already know what volatility indicators are. They plot the highs and lows—sometimes the opening and closing—values of different assets.
This indicator is most useful of you want to know how an asset is likely to dip or rise in a given span of time. The most common volatility indicator that you’ll usually see are band based or envelope types.
Many traders consider cycle indicators as one of the most complex
binary trading indicators out there. Why? Because they tend to plot the retracement rallies or dips–troughs and peaks–of an assets price.
What’s even more confusing about cycle indicators is that they have an extremely close resemblance to oscillator indicators, which leads traders to think that they indicate overbought or oversold assets.
Choosing the Right Binary Indicators at the Right Time
Any binary options trader knows that markets rarely move in one direction. In fact, experienced traders know that markets move sideways or range 80% of the time, and only move in a single direction or trend only 20% of the time. When the market activity of a particular asset is trending, the trader must obviously use the trend indicators, specifically the moving average binary options indicator, since it shows an asset’s current value in relation to the average value.
On the same note, when the markets are moving laterally, the best binary trading option indicator to make use of is the Oscillator, since it pinpoints oversold and overbought levels.
What if You Have No Idea Which Appropriates Binary Indicators to Use?
This is where most traders commit mistakes. The simplest and best way to eradicate this problem is to utilize non-redundant binary options trading indicators. For example, most traders utilize both Stochastic indicators and RSI indicators side by side. While these two oscillators may be different on how they perform calculations, these oscillators are basically one and the same and therefore don’t warrant parallel usage.
Likewise, utilizing envelope indicators alongside moving average indicators is also redundant. Why? Because envelope indicators are already “volatility-based” indicators that consider both volatility and trend at the same time.
With that in mind, it is recommended that traders utilize binary options trading indicators that reflect both sides of the spectrum (preferably an oscillator and a trend-based indicator). Utilizing both of these indicator types allows the trader to tread in both sideways and trending markets.
Five Fantastic Binary Options Trading Indicators
Let’ s now discuss what are the five best indicators for binary options trading, and how we can use them to formulate an exceptionally robust and strong binary trading strategy. Every binary options trading indicator out there can be classified under one of these five classes:
Price action has got to be one of the most misunderstood and confused trading concepts here. Not only is it a binary options trading indicator, but also a valuable tool for both normal and binary options traders alike. Price action merges the utilization of chart patterns, candlestick patterns, and support and resistance. While price action may not be the right trading indicator for novices, having a firm grasp of it is essential to trading success.
The name itself is pretty intimidating. But stochastics are some of the most powerful and unique technical statistics available. So what is the stochastic oscillator anyway? Well, it is a technical indicator invented in the 1950s by George Lane, a trader, author, and technical analyst pioneer. The stochastic oscillator compares the closing price of the stock to its price range over a set period of days, with the idea being the stocks tend to close near Highs during bull markets, and near their recent Lows during bear markets.
By looking at changes in a stock’s stochastics, you can get an idea when a trend might be reversing. The stochastic oscillator relies on two lines: the fast percentage K and the slow percentage D. Percentage K typically uses a 15, 10, or 5 day period, while percentage D uses the simple moving average of percentage K over a period of three or five days.
Percentage K and percentage D appear as lines underneath the stock chart, with the key points being when the two lines intersect. If the fast line pierces the slow line to the upside, this is a bullish move. If the reverse is true, then it is interpreted bearishly. Most charting software allows you to overlay two stochastics: slow and fast. These are not to be confused with the fast percentage K and slow percentage D. Both slow stochastics and fast stochastics have both percentage K and percentage D.
The main difference between slow and fast stochastic oscillators is that slow stochastics use longer trading periods for percentage K and percentage D. And as a result, slow stochastics have fewer intersections and might be too conservative. A fast stochastic, however, has more intersections and might be too aggressive.
Many traders consider the moving average indicator as one of the best trading indicators that are available out there. Its most commendable feature is its flexibility, allowing binary options traders to modify certain aspects such as Close and Open periods, High/Low, and set different moving averages such as Smoothed, Linear weighted, Exponential, and Simple. Typically, traders use the Moving Average indicator to determine the pricing trend in the market. If the prices are below the running average, this means that a downtrend is happening. On the other hand, if the prices are above the average value, then the prices are considered to be on an uptrend.
Pivot points are a way of determining key support and resistance levels. Before computers and charts became a key tool the traders use so effectively, floor traders used calculations based on the data from the previous trading day to determine key buying and selling levels for the current day. They are still extensively used today, as they connect to support resistance levels, which are extremely useful in determining entry and exit points.
There are different types of pivot points that are calculated using previous market data. Most commonly, the previous day’s Open, High, Low, and Close are used. The previous session’s data is used to calculate the main pivot point: the point at which the market is set to pivot around. Once this has been calculated, the main pivot point is then used to calculate the other pivot points.
The pivot points above the main pivot are labeled as resistance pivots notable R1, R2, and so forth. Pivot points that are below the main pivot are support pivots labeled S1, S2, and so forth. When trading using pivot points, the general rule is if the price is trading above the daily pivot, the market is going up, and so our bias should be long. The main resistance levels are R1, R2, and R3.
However, all pivot points can be used as both support and resistance levels in certain instances. For example, if the R1 pivot level gets broken as resistance, it can then act as a potential support once price moves back to it. If the price is trading below the daily pivot, then our bias should be short. The main support levels are S1, S2, and S3.
If the S1 pivot level gets broken as support, it can then act as resistance when the price retraces back to it. We can also use pivots as targets for taking profits. Targeting the next pivot point can give the trader a consistent way of taking profits. For example, if we bought at the daily pivot, we could take profits at the R1 pivot.
As with all support and resistance levels, there is strength in numbers. The more pivot points that we have lined up at a certain area on a chart, the higher probability there is of a price reacting to that area. So far, we have learned that pivot points can act as very strong support and resistance levels, and are calculated using the previous period’s Open, High, Low, and Close. As with traditional support and resistance, once price breaks through a pivot point that was acting as support, it can then be used as resistance. And once price breaks through a pivot point that was acting as resistance, it can then be used as support.
Pivot points can be used as targets once a trade has been placed. There is strength in numbers. The more pivots that cluster together on a chart, the stronger the support or resistance level will be.
Bollinger bands are binary options trading indicators that make use of bands that compress or expand based on forecasted market volatility. In other words, Bollinger bands will not only indicate a market’s volatility but also measure the divergence threshold of an asset’s price according to previous market movements.
Bollinger bands indicators are typically used by traders when trading options in markets that have high momentum. They can also be used to catch breakouts in the market. A typical situation where Bollinger bands are useful is before a big economic event. Bollinger bands have a tendency to expand and contract whenever there’s an impending volatile economic event.
Bollinger bands also make use of a midline that indicates an asset’s moving average. The ability of the Bollinger band to identify an asset’s volatility and moving average is what makes it an extremely useful indicator; an indicator that you will commonly see traders use.
The expiry times for Bollinger band indicator-based binary options trades will depend on the particular time frame chart that’s being used. For example, if a binary options trader wanted to trade in a 1 minute chart, the expiry times will most likely be 5 – 10 minutes. Likewise, if a trader trades in a 5 minute chart, it will have an expiry time of 5 – 30 minutes.
Now that you’ve obtained a clear understanding of what binary options trading indicators are he next skill that you need to gain is how to interpret the information that these indicators reflect in order to formulate an effective trading strategy. This skill, however, is not instantly gained by reading a book or attending a seminar. It is attained through constant practice and having the right economic information at hand.
Don’t forget that utilizing just one indicator will not help you reach a successful trade. You must combine indicators together–run them on top of the other–to accurately forecast market movements that will enable you to make an educated decision on which trade to execute.
Keep in mind that if ever an indicator doesn’t seem to bring the desired result forward, it is either you need to modify some of the setting of the binary options indicators that you’re using, or maybe you’re making use of the wrong trading indicator altogether. Another important thing to know about binary options trading and its indicators is that you always need to perform minor changes and tweaks in its settings in order for you to adapt with constantly changing market situations.
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