How to trade binary options with indicators
Volatility indicators and binary options are a great combination. They can create simple but highly profitable trading strategies. What is even better: With this information, you will be able to create your own profitable binary options strategy based on volatility indicators.
Volatility indicators are technical indicators. That means they aggregate the data of past market movements, apply a formula, and display the result in a way that allows traders to quickly and simply understand what is going and what will happen next. Technical indicators focus solely on price action. That means they ignore all fundamental information about the underlying asset, for examples the earning of a company or the economic prospect of a country.
Instead, they analyze what has happened to an assets price in the past and create predictions based on this analysis. Volatility indicators are a special form of technical indicators. They measure how far an asset strays from its mean directional value. This might sound complicated but it simple:. There are many volatility oscillators. The ATR wants to find out how far an average period of an asset has moved in the past, but it uses a more accurate method of calculation than other indicators.
While this method is accurate, it ignores gaps. Sometimes, the market jumps from one price to another, which creates a gap in the market. Momentum indicators that ignore these gaps paint a distorted picture. The result tells you the average true range of the last periods. For example, when the ATR has a value of 0. You can use this value to predict the range of future market movements. Both trends are likely to continue. They create different situations that require different trading strategies, and the ATR helps you to identify which one is right for now.
Bollinger Bands create a price channel around the current market price. Bollinger Bands predict that the market will stay within the upper and the lower line. The middle line works a barrier that how to trade binary options with indicators be a support or a resistance. This means, when the market approaches a line, it is likely to turn around. While it can eventually break the middle line, it is highly unlikely to move past the outer lines.
For traders, Bollinger Bands allow simple predictions. Binary options traders can profit from volatility indicators more than traders of conventional assets. There are two main reasons for this statement:. Traders of conventional assets are unable to win a trade on volatility alone.
Volatility indicators are one of the few types of indicators that can provide clear predictions, but they are insufficient to win stock traders a trade, robbing them of the possibility to create a simple, mathematical strategy. For binary options traders, however, knowing that the market will go somewhere can be enough to win a trade. Binary options offer a tool called boundary options. A boundary option defines two target prices in the equal how to trade binary options with indicators of the current market price, one above the current market price and one below it.
When the market reaches one of these target prices, you immediately win your binary option. Boundary options are ideal for momentum indicators.
To predict whether the market can reach either target price, all you have to do is apply the ATR and set the period of your chart to one hour. Now two things can happen:. Depending on your tolerance for risk, you can adapt your strategy. You how to trade binary options with indicators wait to invest until the ATR reads twice or three times as much as the distance to both target prices. The longer you wait, the less trading opportunities you find. But you will win a higher percentage of your trades, which can be worth the tradeoff for how to trade binary options with indicators traders.
There are many types how to trade binary options with indicators binary options. Often, there are two or more similar types that only differ in the strength of the required movement. The type that requires a stronger movement compensates traders by providing a higher payout. Simply put, predicting a stronger movement will get you a higher payout.
The problem is, when you predict a too strong movement, you will lose your trade and get no payout at all. Momentum indicators such as the ATR how to trade binary options with indicators the ideal tool to predict how a strong a movement you should predict.
If the ATR reads 0. If you correctly predicted an upwards movement, you will likely win your option. If the ATR would read only 0. In this simple way, momentum indicators can help you to increase your average payout without having to change your basic trading strategy. For serious traders, this gift is impossible to pass up.
Binary options traders can also use volatility indicators to create trading signals. When the market is moving towards a Bollinger Band, for example, you know that it will likely turn around. This is a prediction that you can trade.
Similarly, when the market has broken through the middle Bollinger Band, you know that it is likely to continue its movement until it reaches the outer Bollinger Band. This knowledge provides a clear indication for how far the market will move, which is a prediction you can trade, too. We have already touched on three ways in which you can trade volatility indicators.
Now we have to define concrete strategies that you can trade. This strategy is so interesting for this article because it combines the advantages of the two momentum indicators on which we have focused. Combined, both indicators provide you with enough information to trade a binary how to trade binary options with indicators with a high payout.
When the market has broken through the middle Bollinger Band, it will likely move to the outer Bollinger Band. The ATR can help you to make more money with the same strategy. The ATR has a value of 0. With this knowledge, you could predict that a perfectly straight movement will take the market to the next Bollinger Band in about 4 hours. There is only one problem: When only one period points in the opposite direction, it will already take longer for the market to reach the Bollinger Band.
To check your prediction, you can switch how to trade binary options with indicators a chart with a period of 4 hours. That means an average 4-hour period would be insufficient to take the market to next Bollinger Band.
You should expect it to take a little more time, probably around five to six hours. This strategy is simple and profitable. Bollinger Bands help you to create signals easily, the ATR makes picking the right option type as simple as comparing a few numbers. You know which movements are within reach, and all you have to do is pick the options type with the highest payout to profit from this movement. The entire process is simple and easy — that is the power of momentum indicators.
We have already touched on this strategy. For traders that want to execute it, we will now explain it in full detail. The process is simple and only requires you to compare a few numbers. This strategy is simple. Try a few discount values, and you will soon find the right strategy for you. This strategy is simple and easy, but there is a catch. Because it creates secure predictions, these predictions get you a very low payout.
When you predict that the market will trade below the highest payout when your ladder option expires, you might only get a payout of 10 or 20 percent. Low payouts require you to win how to trade binary options with indicators high percentage of your trades to make how to trade binary options with indicators.
Just a few losing trades might already be enough to lose you money at the end of the week. Therefore, you need a tool that can help you to avoid the rare situation in which you would lose even a safe prediction. Bollinger Bands are the ideal technical indicator for this job. When a target price lies outside of the outer lines of how to trade binary options with indicators Bollinger Bands, the market is highly unlikely to reach it. To check your prediction, you can always invest in the target price with the highest payout that is outside the Bollinger Bands.
Of course, Bollinger Bands change with each new period. To use them for your trading how to trade binary options with indicators, you have to match the period of your chart to the expiry of your binary option.
When you think about trading a ladder option with an expiry of one hour, you have to use a one hour chart and invest right when a new period starts. If 30 minutes have passed in the current period, you have to adjust your chart to leave enough time in the current period for your option to expire.
You can use a period of two hours, for example. The beauty of this strategy is that it works without predicting the direction of the market.
When a price is outside the reach of the upper Bollinger band, you win your option if the market falls. You are also highly likely to win your option if the market falls. The same applies to a price that is outside the reach of the lower Bollinger Band.
Many options traders have difficulties in determining when exactly to pull the trigger and enter into a new trade. Luckily, technical indicator tools are available to help demystify the process and these tools can often be quickly interpreted and placed on your trading platform. To start, we must have an understanding how to trade binary options with indicators the various indicator types and the signals they are sending with respect to price activity in the markets.
How to trade binary options with indicators we understand these factors, we can use this information to increase the probability of accurate forecasting for options trades. First, we will look at each major type of indicator to see how these tools operate. Some traders look to take contrarian approaches to trading but the majority of investors look at the wider trends in the market and then trade in the direction of those trends. To determine the direction of these trends and then place binary options trades accordinglywe can look at trend following indicators to determine whether we should be looking to buy CALLS or PUTS.
One of the most popular indicators in this category is the Moving Average, which marks the average closing price of a set number of time periods. Common settings for this indicator include 10, 21, 55, and time periods. You can trade the crossovers at 24option. Your capital is at risk. In a downside crossover, a bearish trend is expected, and this creates an opportunity for PUT options. In an upside crossover, a bullish trend is expected and how to trade binary options with indicators creates an opportunity for CALL options.
In the chart below, we can see a downside MA crossover following an uptrend. This would have been an excellent opportunity for PUT options:. 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 MACDwhich 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 how to trade binary options with indicators 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 how to trade binary options with indicators 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 how to trade binary options with indicators 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.
Trend Following Indicators Some traders look to take contrarian approaches to trading but the majority of investors look at the wider trends in the market and then trade in the direction of those trends. The financial services provided by this how to trade binary options with indicators carries a high level of risk and can result in the loss of all your funds.
You should never invest money that you cannot afford to lose. Learn how the Moving Average can help make better decisions. The RSI is one of the most widely used indicators.
Follow Hacker Noon how hackers start their afternoons. 18 Never 2 binary option commissions are not their bread and butter a story from Hacker Noon, when you sign up for Medium. Learn more Never miss a story from Hacker Noon Get updates Get updates.