Best indicator for binary options trading
Short term binaries are all about catching short term movements. The thing is, when you enter a binary options contract you are not necessarily getting in at precisely the spot price at time of purchase. This is because all the brokers include a small amount of slippage into each strike in order to help them maintain acceptable losses. This is not a scam, just the cost of trading and something explained in every brokers terms and conditions I have ever read. This is why trading 60 second options and other super short expiries is so hard.
Not only do you have to be right, you have to be right at exactly the proper time AND the trade has to move up enough to match and exceed the strike price at which the broker has set the option. Bollinger Bands are excellent for trading short term binary options because they pinpoint times of low market volatility movement and then signals when the market start to moves.
Once the market is moving the bands also provide numerous follow up signals that savvy day traders can take advantage of. This is how it works. The bands are based on a standard deviation of prices and will get narrower and wider as volatility decreases and increases.
When the market is very calm and quiet the bands get narrow, when the market is volatile and moving a lot the bands get wide. The patterns of widening and narrowing are one kind of signal while price action in relation to the bands themselves provide another.
There are three lines in the equation. The first is a moving average usually set to 20 periods. Look at the chart above. Notice how the bands become narrow and then widen over time. When the bands narrow it is because prices tend to trend sideways.
When the market trends sideways it is very hard to profit from binary options. When the market moves up or down from one of these sideways patterns the bands get wider, indicating that movement. These indicators can help to show if trend momentum is healthy and likely to continue or reverse. One of the most popular tools in this category is the Moving Average Convergence Divergence or the MACD , which measures the difference between two moving averages and is plotted against a histogram to help forecast price direction.
The MACD indicator can be used in conjunction with other indicators as well. Agreeing indicator signals will generally lead to higher probability trading opportunities. Another technical indicator strategy can be seen with the overbought and oversold indicator tools.
These tools give traders an indication of when prices have risen too high become overbought or become too cheap and are now oversold. Overbought conditions present opportunities to enter into PUT options on the expectation of later price declines while Oversold conditions present opportunities to enter into CALL options as prices are then expected to rise. Basic economics tells us that when asset prices become too expensive, people are less likely to buy that item and more likely to sell it.
This situation represents an overbought condition and PUT options become preferable. Conversely, when asset prices become too cheap, people are going to look to buy this item as it is now oversold and this is a bullish scenario for the asset.
In these cases, CALL options are preferable. Using the RSI, indicator readings below 30 suggest oversold conditions while readings above 70 suggest an asset is overbought. In the graphic below, we can see how the indicator displays sell signals that can be used in options trading:.
For those who find it difficult to decide on potential price direction for an asset, indicator readings can prove to be highly valuable in helping you to find new opportunities. There are many different types of indicators available and many follow similar rules in terms of structure. Most technical traders, however, will use indicators in combination with one another, looking for instances where differing and unrelated indicators show the same signals.
In these cases, traders have a higher probability of accurately forecasting future price movements, and this can greatly help when looking to improve on your trading results in binary options. Your Capital is at Risk. Short Term or Long Term. Using Indicators to Help Influence Your Trades Many options traders have difficulties in determining when exactly to pull the trigger and enter into a new trade.