Technical Indicators for Binary Options Trading
In binary options trading, a trader predicts whether the price of an asset will go up or down at the time of expiry. The trader will make a profit if he made a correct prediction. That is to say, whether you can trade profitably depends on how you can win more than 50% of the trades. Many traders use technical indicators to analyze the market movements in order to increase the winning percentage.
Death Cross and Golden Cross
※ On the MetaTrader 4 interface, you can select Indicators > Trend > Moving Average
Moving average crossovers, i.e., death cross and golden cross, are the basics of technical analysis. The death cross is when the short-term moving average crosses below the long-term moving average. The golden cross is when the short-term moving average crosses above the long-term moving average.
- Death Cross: it signals selling and it is time to choose the “Low” option.
- Golden Cross: it signals buying and it is time to choose the “High” option.
In particular, the long-term moving average indicates the trends. It is possible to make a prediction on the movements of stocks by seeing that whether it is moving up or down. In the case of binary options trading, since it is difficult to pinpoint the market reversals by drawing long-term moving averages, the number of candles is usually used to calculate the moving average.
※ On the MetaTrader 4 interface, you can select Indicators > Trend > Bollinger Bands
Bollinger Bands is an indicator used by investors to signal the market reversals. In binary options trading, it is used by traders to indicate the trends. When the price reaches the upper band (+2σ), a trader can choose “Low” because it is very likely that the price will move into a downtrend. Reversely, when the price reaches the lower band (-2σ), a trader can select “High”.
- The price reaches -2σ: choose “High” options because the price is likely to go up.
- The price reaches +2σ: choose “Low” options because the price is likely to go down.
When the Bollinger Bands are narrowing, the price is not volatile and a trader can win the trade by choosing “in” option. When the Bollinger Bands are widening, the trader can increase his winning percentage by choosing “out” option. The above figure shows the standard deviation to 2. In order to make detailed analysis, you can also set the standard deviation to 3.
※ On the MetaTrader 4 interface, you can select Indicators > Oscillators > Relative Strength Index
RSI (Relative Strength Index) is an indicator that indicates the strength or weakness of an asset within a certain period of time. It moves between 0 and 100 and it is a representative of the oscillators. The RSI was developed by J. Welles Wilder and it is originally used on a 14-day timeframe. Now, it is also used on a 9-day timeframe. In the case of binary options trading, the RSI is used on a 5-day timeframe.
RSI moves in the range of 0～100. In general, when the RSI is above 30 and goes up, it is time to buy, and when the RSI is below 70 and goes down, it is time to sell. To put it in a simple way, when the RSI touches the level 30, it indicates that the price is about to rise. When the RSI touches the level 70, it indicates that the price is about to fall.
- Level 30: choose “High” options because the price is likely to go up.
- Level 70: choose “Low” options because the price is likely to go down.
Some investors have set high and low levels to 80 and 20. It does not matter what levels you have set. The most important thing for you is to practice trading and find a proper one. Even though the RSI reaches the level 30 or level 70, it does not mean that the market will reverse immediately. This is because that the time lag is likely to occur. Therefore, you should pay attention to it when you use the RSI.