Indicators and oscillators for binary options trading

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Indicators and oscillators for binary options trading

When working in financial markets with the help of any technical trading tool, the investor needs to solve one basic task – to correctly predict the price movements of the underlying asset. It is an effective forecast, calculated by a set of indicators, can bring a market contract for profit. In this issue, binary options are certainly not an exception. In the trading algorithm itself, the binary option is the rate, specifically on the direction of the market, therefore forecasting and analysis here are the most important technical point of profitable trading.

To generate high efficiency forecasts for trading, professional and private traders use a wide range of tools, the main technical tools in this list are indicators. These specialized services are able to automatically evaluate the technical indicators of the price and form on their basis visualized and relatively accurate signals for opening trading rates. It is the automation of technical analysis that makes indicators such a popular tool for analysis. However, in professional trading options, as, indeed, in other areas of stock trading, there are a lot of skeptics who talk about the ineffectiveness of automatic indicators.

Undoubtedly, indicators give advantages to the trader, but at the same time in the trading environment there are many opponents of these funds. They give a completely logical justification for the inefficiency of indicators, which we simply have to talk about. The fact is that any algorithm for automatic market valuation is nothing more than a reflection of past market indicators or a projection of smoothed market movements. Therefore, as skeptics of work on indicator systems believe, there are simply no methods on the market that can generate forecasts based on indicators for future market movements. The dispute over the performance of indicators has been going on for a long time, and so far traders who are actively using market appraisal programs in their trade win this issue – and this is confirmed by their trading result.

In general, it is worth noting that even the technical rationale for the work of automatic tools, which skeptics lead, allows you to get fairly effective trading indicators when working on indicator strategies. Even the projection and accounting of past market indicators allow making effective conclusions about the development of market trends, which is a signal for trade.

We moved away from the main topic of the article, and decided to discuss professional opinions of investors is not accidental. Analyzing the work of indicators and oscillatory market analysis services in binary trading, it is necessary to talk about the advantages and disadvantages of tools so that potential users can clearly understand the positive and negative factors of work for certain services. We offer you a list of standard and highly effective indicators, which are most often used in binary trading. And the choice of the most attractive and convenient for trading – is yours.

Indicator MA

High-precision trend indicator – Moving Average. In the algorithm of his work he uses the average statistical values ​​of the asset value in the period of market fluctuations established during the settings. Thus, the indicator in automatic mode generates a dynamic level of trend movement on the chart, which identifies trends directions of any construction duration. In the principle of market analysis, this service imposes the market’s desire for balance, that is, the quotes of the asset, despite impulses and trend movements, always tend to balance at a certain level. This makes the indicator work technically sound and accurate in terms of generating forecasts.

Classical signals when using the average in binary trading are:

• The direction of the construction of the indicator moving, which determines the current trend

• Breakdown of the indicator level by quotations of the asset in a certain direction. This signal format characterizes the reversal of the price trend.

In this simple way, traders can generate signals on the chart with relatively high forecast accuracy.

Benefits of the service:

• Simple operating mode on the liquidity chart

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• Relatively good efficiency

• On narrow market valuation ranges, the indicator is not able to react quickly to price movements

• For a long evaluation period, the indicator signals are significantly delayed

MACD indicator

The main algorithm of this indicator is combined analysis approaches. Here, with the help of different periodic moving averages that make up the oscillator part of the indicator, signals of the turning points of trend movements are formed, and the direction of such a fluctuation is determined. In addition, the MACD indicator has a histogram – its task is to determine the impulse strength of trend market fluctuations using a complex calculation model. This indicator is used in high-frequency trading options with a narrow range of expiration. As a set of signals, it is customary to identify such service indicators:

• Crossing removals among themselves in a certain direction

• Breakdown of the centerline of the technical scale of the indicator by oscillator lines in the direction of a new trend

• The indicator of the divergence of the oscillator lines between each other

• The histogram columns are raised or lowered relative to the zero level and the histogram of the level indicator 0 intersects.

In addition to the classical signals of the instrument, a set of specific indicators is proposed here, which can also be considered as signals of the MACD strategy:

• Construction of trend levels with oscillator lines

• Divergence of the oscillator – the discrepancy between the direction of movement of the indicator lines and the market movement of quotations

This list of technical indicators allows you to maximize the amount of information on the market situation on the chart of quotations and generate an accurate forecast on market trends.

Advantages of the indicator:

• Rapid reaction to market movements

• The widest possible range of signals and estimated indicators

• High efficiency at work on all ranges of market valuation

• Late reaction in the time of high, impulsive market volatility

• Increase in the number of false signals on the minimum market ranges

Indicator of Bollinger Wave

The analysis tool is a mode of combined use of 3 moving averages, where the standard deviation of removals is applied. This technical tool allows you to form on the quotations of the asset dynamic price corridors of fluctuations in the asset market. At the same time, the Bollinger Wave indicator allows you to obtain a large amount of information for analysis: the level of market volatility, the boundaries of trend fluctuations, the points of price reversals in the formation of new trends or corrective movements.

Classical signals of the indicator are considered to be:

• Bounces from the boundaries of price corridors

• Intersection of the centerline of the indicator when the direction of the trend is changed

• To determine the level of volatility of the current market trend, divergences of the indicator’s boundary lines relative to its central moving

This type of indicator generates signals with a forecast accuracy of up to 90%, which leads the user to a high level of technical results in the binary market.

Benefits of the tool:

• Clear signals that determine the turning points of the market

• Good level of reaction to global trend reversals

• Highly effective forecasts

• A large number of false technical forecasts for flat movements of quotations

Alligator indicator

The service, created by the recognized financial market authority Bill Williams, is a classic indicator analysis tool. In his technical algorithm of work, the adoption of the use of different periodic and multi-format moving averages is incorporated. When the tool is working, traders can clearly identify how the trend movement zones, as well as moments of flattening and consolidation. This list of indicators makes it possible to clearly identify coins for the emergence of trend oscillations, which is an effective signal for the design of binary options. The classic indicators for trading on the indicator are the turns and intersections of service removals with each other in a certain direction:

Indicator Alligator is considered a classic high-precision tool for analyzing quotations when trading in a binary market, and allows you to get the highest possible trading results.

Benefits of the service:

• Formalization of signals

• Accuracy of reaction to trend movements of the market

• Relatively low false signals

• A belated reaction to the increase in volatility, which is demonstrated by the market with the emergence of fundamental drivers of market movement

RSI indicator

A technical tool whose task is to define a wide range of indicators: the relative strength of the trend movement, the direction of the trend, the zone of market extremes (the level of oversold and overbought assets). This set of indicators allows us to use the indicator RSI as an independent highly effective strategy. The signals of the RSI indicator are:

• Crossing the levels of extremes of the market by moving an indicator

• Directivity of construction of the trend line of the technical means of analysis

It should be noted that the RSI indicator is often used in trading strategies as a filter for false trading signals of other indicator analysis tools.

Benefits of the service:

• Large volume of market indicators

• Accuracy of forecasts

• Easy operation of the service

• In moments of low volatility of the market and the flat, the service provides many false trading signals

In principle, this is a fairly comprehensive set of automatic indicators for creating highly professional and accurate trading strategies, which are most often used by traders in the binary market. All the rest is derived from these technical means.

It is worth noting that, despite the effectiveness of these tools as mono-indicator market assessment systems, professional investors use them as tools for creating highly specialized highly effective strategies. Simple combinations of this list of indicators and the use of authoring settings based on their own experience in trading make it possible to form an infinite number of trading systems for binary trading.

Let’s follow simple example.

When an asset of a simple analysis tool set consisting of the SMA trend indicator and the MACD and RSI oscillators is installed on the liquidity schedule, we get a classic strategy for high-performance trading in the binary market. At the same time, the template for markup graphics has a simple and understandable mode even for the beginner:

The signal system of this strategy also has a simple formalized regime and allows you to receive up to 86% of the effective rates while operating on the market, which enables investors to expect a stable and high financial result:

We offered you an optimal set of effective indicators for creating trading strategies of any complexity and efficiency. Of course, the full list of the indicator tools available today in the network includes hundreds of titles, dozens of approaches for assessing the market and allows you to create an unlimited number of trading systems. You only need to make a choice and experiment to get the best possible result.

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

Indicators and Oscillators

Indicators are calculations, like many other of the concepts involved in technical analysis. They are based on different factors, such as the volume and price of a security and help determine volatility, momentum, money flow and more. Indicators are additional sources of information that help confirm price movements, trends and to determine the quality of the data in different charts.

Two Distinct Sorts of Indicators

There are two distinct sorts of indicators – leading and lagging. Leading indicators, as the name suggests, precede price movements and have something of a predictive quality, while lagging indicators come after and are used mainly as confirmation tools. Normally, a leading indicator is strongest when we dont have any obvious trends or fluctuating price movements. This is quite natural because it is then when they can most comfortably point to a direction and make a prediction due to the lack of trends. Unlike leading indicators, lagging indicators are useful especially when there is a trend simply because they can easily confirm it.

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As far as indicator construction is concerned, there are also two types – those that fall into a specific range and those that dont. Oscillators are indicators that fall into the specific range. They are among the most common indicators. When the security is near either end of the range (top or bottom, if you will), then this signals of overselling or overbuying. If the security is overbought, then it will be near the top of the range and if its oversold, it will near the bottom of the range. The indicators that are not bound in the range can still signal for buying or selling, but the way they do it can vary significantly.

There are two main ways in which indicators can be used to form buy or sell signals. The first one is through crossovers. Crossovers form when the price moves through a moving average, or two moving averages cross over one another. Crossovers are by far the most used in the decision making process. The alternative is way is through divergence. Divergence is an interesting phenomenon characterized by the fact that the direction of a trend and the direction of the indicator are moving in alternate directions. This is a clear signal that the trend is weakening.

As weve already mentioned, indicators are an invaluable source of additional information and can tremendously help the trader to make the right choice. Indicators are useful for determining momentum, trends and many other facets of an asset. Even though there are those traders who only use one indicator in their process, indicators are best used in combination with patterns, trends and other indicators.

Accumulation/Distribution Line

This popular indicator helps the measurement of the money flows in an asset. The main goal here is to determine the ration of buying to selling, and the way to achieve this is to compare the price movements of a period to the volume of the same period. In other words, the calculations look something like this:

This indicator can help traders determine how much buying or selling of a certain asset there is. Its no a bounded indicator, but it helps identify the tendency toward buying/selling the asset, which in turn aids the trader in making up his own mind on what to do with the asset. The trends in this indicator are very important and often used.

Average Directional Index

The average directional index is a lagging indicator, meaning that its used during the times of a trend. Its main purpose is to determine whether a current trend is strong or not. This indicator is rarely used to identify a trends direction, but its very efficient in determining the strength of a trend.

The ADX has two components, each of which measures a price movement – the positive and negative directional indicators. The positive directional indicator (+DI) is used for an uptrend while the negative directional indicator (-DI) is used for a downtrend. They measure the strength of a trend on the scale of 1 to 100. If a trend has readings lower than 20 according to the ADX, then this means that the trend is weakening. Naturally, if the exhibited values are above 40, this means that the trend is standing strong.

Oscillators in Binary Trading

When viewing charts that are , there are indicators called oscillators that are used. As we have learned, moving averages (MA) and trends are important when a binary options trader studies the direction of a stock. Binary options brokers will use oscillators when the charts are not showing a definite trend in either direction. Therefore, oscillators are most useful when a company’s stock either is in a horizontal or sideways trading pattern, or has not been able to establish a definite trend in an unpredictable market.

The true value of the oscillator is seen when the stock is either overbought or oversold. Using oscillators a binary options trader can see when the stock is losing momentum on the uptrend, the level at which the stock moves into an overbought situation. This simply means that the buying volume has been diminishing for quite sometime. This also means that traders will then start to sell their shares. Conversely, when a stock has been sold by a greater number of investors for a consistent period of time ranging from one to six months or longer, the stock will enter an oversold situation.

Stochastic Oscillator

The stochastic oscillator was introduced by George C. Lane in the late 1950s. The term stochastic means “guess” or “random” in Greek while to oscillate is to move back and forth. Stochastic oscillators consist of a scale from 1 to 100 and two stochastic lines, where one line is the “fast” stochastic, and the other is the “slow” stochastic. Signals are generated when the “fast” stochastic line crosses with a “slow” stochastic line. The indicator also produces signals when the stochastic line moves into the overbought region of the scale (i.e. 80 or above) or the oversold region (i.e. 20 or lower).

Stochastic Lines

A full stochastic consists of two lines, %K and %D. %K tracks the current market spot trade for a currency pair while %D smoothes out the %K line by calculating and plotting the exchange rate as a moving average. The following is the formula used to calculate stochastic lines

  • %K = 100 x (Closing Price — Lowest Closing Price for N Periods) / Lowest Closing Price for N Periods
  • %D = 3-Period Moving Average of %K

%K is the stochastic fast and %D is the stochastic low. This is because %D is a moving average based on the past 3 %K valuations, making it slower to react to changes in the spot rate.

It is always helpful for an indicator to be bounded in a constant range, such as the stochastic oscillator is between 0 and 100. For one thing, binary options traders do not need to worry about matters like inflation: there will be a similar pattern for an uptrend in the Dow whether it is looked at in 1950 or 2000, without any need to rescale it. This means recurring patterns in a market over a period of decades can easily be seen. It also means that the stochastic indicator can be used for intermarket analysis. Since the oscillator is bounded as it is, the patterns have the same size regardless of whether a trader is watching a stock that trades for $1, $20 or $50, a currency pair, or an interest rate future.

One major problem of the fast stochastic is the lack of smoothing. Jagged %K lines are common. They reach extreme readings quite frequently, jumping about and making it hard to interpret. An easy solution can actually be applied. Traders use a smoother line of the fast stochastic as the %K line instead, and then average it, using the new average as the %D line. The new line is the average of the average of the old line. This is how the slow stochastic is constructed.

Using the Stochastic Oscillator in MT4

The stochastic oscillator indicator can be added on the charts in MetaTrader 4. The binary options trader just needs to perform the following steps. First, open MT4, go to Insert-> Indicators-> Oscillators-> Stochastic Oscillator as shown below.

Next, the Stochastic Oscillator Settings Menu appears. Here, the trader can modify the different parameters of the indicator. The window should look something like the figure below.

There are two types of parameters: calculations, and visuals. Calculations are parameters that include the amount of periods used for the stochastic oscillator and other parameters. Visuals include how the indicator will look (color, thickness of lines, etc.)

Here is a summary of the parameters:

  • %K period: defines how many previous periods are used to calculate the main signal.
  • %D period: defines the amount of periods used to smooth the %K values.
  • Slowing: defines the number of recent calculations to average together for additional smoothing of %K.
  • Price field: defines if the lowest lows and highest highs are used for calculation or lowest closing and highest closing prices.
  • MA method: defines the moving average method for calculating the %D signal.
  • Fixed minimum/maximum: Defines the visual borders of the indicator. (stochastic values always range between 0 and 100)
  • Colors: defines colors for the Main (%K) and Signal curve (%D). They are shown in another tab as shown below:
  • Levels: The usual way of trading the stochastic oscillator is by looking for overbought or oversold conditions. These are shown by a value of over 80 (overbought) or under 20 (oversold). The levels will define the lines on the chart.

To change the indicators parameters at anytime, or to delete them, the trader can right click on the indicator to show the contextual menu shown below:

Start using this kind of indicator to integrate them to your trade. We have a list of the top binary options brokers that will help you get started with trading binary options using their great features and bonuses.

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