Using Moving Average To Form A Successful Binomo Strategy

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Top Five Successful Strategies For Trading Binary Options

If you are trading without a strategy or a tactic to help you with binary options, you might as well

The article was written by Connor Harrison from Binary Brokers (BBZ). BBZ makes an effort to educate their traders so that they can understand recommendations regarding binary options, international legislation, risk management and other issues related to trading.

Trading in binary options is one of the popular trends in the financial markets today. Both experienced and novice traders are rushing to include them in their investment portfolios. Just like any other trading platform or business, you must have a strategy to use in order to consistently be making money.

If without a strategy or a tactic to help you trade in binary options, you might as well consider yourself gambling. Relying on luck is not very safe in trading binary options as it will eventually not work for you and might end up losing all of your investment. You will need a solid technique that you can use every time, which will help you make the right predictions. Moreover, you need to employ a strategy that you understand well and which consistently increases your chances of winning.

Bet or Trade?

Strategies are generally categorized into two groups. These categories are;

  • Betting model based strategies – In these strategies, it is assumed that the investor will employ betting strategies, whether they are familiar with financial markets or not. These strategies use several tactics that are designed to increase the probability of winning. Strategies based on the news are the best example in this category.
  • Market behavior strategies – In these strategies, the investor relies almost wholly on technical and statistical data that are readily available or that which they have researched and worked on. While these strategies are a bit harder to understand and master, they are the most reliable ones since they are objective. There are techniques developed to help you understand some of the data, such as charts and which will make it easier for a new trader.

I – Fundamental Analysis Strategy

This strategy is concerned with the analysis of the behavior of the overall performance or attributes of a company. As an investor or trader in binary options, you are interested in knowing about the health of the balance sheet, income statement and the cashflow statement of the company before you consider buying an option. The other factors that you should check out include the employee and the business partners’ satisfaction. In short, this strategy tries to look at the overall picture of the business they want to invest in their stock and at times the overall industry.

II – Technical Analysis Strategy

This is a quite popular strategy in options trading. It is mainly concerned with the study of the past, using different parameters such as charts in order to predict the future price of an asset. This method is not concerned with getting the intrinsic value of an asset. It’s quite useful in options trading because as a trader, you don’t have to delve into the company’s financial statements. Among the tools used in technical analysis include Bollinger bands and Moving Average among others.

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III – Basic Options Strategy

This strategy is quite popular among options traders. It is designed and employed by a trader to safeguard him/herself from incurring total losses on their investments. You will pick an underlying asset or currency that you are interested in and then if the market movement of the strike price is heading towards a good direction, say upwards, you place a call option. At the same time, you will place a put option on the same asset.

Let’s use an example:

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The GBP/USD currency option is going at 1:4000. You place the call option of $100 which will expire in 30 minutes. The payout is 70% and 15% if you lose. In the first 15 minutes the asset is at 1:4015 which is good so far. At this specific time, you buy a put option for the same asset at 1:4015 expiring in 15 minutes at $100. The payouts are the same as those of the call option.

At the end of the 30 minutes there will be two outcomes;

  • Your 30 minutes call option wins and the 15 minutes put option losses. You will have earned $185 from the 70% call winnings and the 15% consolation refund from the put option (the opposite can happen, put option wins and call option losses).
  • Both the call and the put options end up in the money. You will get $340 ($170+$170). Since it’s almost impossible to lose on both options, the general risk of loss in this strategy is only $15 in order to win $140.

IV – Algorithmic and signals

There are apps which are sold and which are very good at trading or analyzing the market data. You might find it appropriate to invest in such an app. This app is installed in your computer and gathers data that you want and then analyzes it to come up with the best possible outcomes. Technical and fundamental analysis data are used here.

The computer will then pick a trade for you to trade in. You could even go ahead and design the app to be actually trading for you. You will however need to be regularly updating the raw data that the app picks its analyzing details from.

V – Co-integration Trading Strategy

There could be two stocks in the market that have a high correlation relationship. This could be because they are in the same industry and are traded in the same market, hence affected by many factors the same way. Given the high correlation between such a pair of stocks, you will find that whenever there is a gap between them it will close soon after. The gap can be caused by the weakening of one stock temporarily. The main task here is to identify the gap.

After identifying the gap, you should buy the call option for the stock that is weak or a put option for the asset if the stock higher in price is bound to come down. Eventually, the two assets will come to the correlation path and that should be the ‘point of exit’.

Final Word

Strategies, just like investment options, are many and you could end up with one which gives you consistent winnings. If you are a new trader, research well and identify the one strategy that best suits your trading portfolio and pattern. If you are a bit more experienced, you can create your own strategy or combine two existing ones to form a hybrid.

Using Moving Averages in Binary Options

What are Moving Averages?

Moving averages (MA and EMA) are indicators that exert their action by smoothing out price action over a specified period of time.

They can therefore be used as a means of predicting future price action. If you look at a chart with a moving average indicator, you can get a sense of price direction from the slope of the moving average indicator.

Generally speaking, it is better to use moving averages that smooth out price action over a longer time frame because they do not respond readily to choppy price movements and so provide more reliable signals.

Of the four types of moving averages, only two should be of concern to the binary options trader. These are:

– Simple moving average (SMA)

– Exponential moving average (EMA)

Moving averages can be used on their own to detect binary options trading opportunities, or they can be used as components of trading strategies in which case, they must be combined with other indicators or other parameters of technical analysis.

Using Moving Averages in Binary Options

Moving averages are prone to fakeouts because of the very nature of their function. The shorter period moving averages respond earlier to sharp price movements, while the longer period moving averages tend to lag with price. So while the moving averages based on shorter time periods can be used to identify new trends earlier, they tend to give many false alarms. If the trader were to rely solely on the longer time frame moving averages, they would only be useful in picking up long lasting trends on the longer term time frames because they lag so much.

Now the above points noted may be of concern to traders who trade forex because in the forex market, profits are a function of how many pips can be garnered, which puts a lot of emphasis on getting in on the trend early. In binary options where a single pip can put the trade in the money, this is less of an issue. Consequently, the trader should primarily be concerned about picking up trend direction.

This leaves binary options traders the option of using moving averages in the following ways:

a) Using moving average crossovers

b) Using moving averages as dynamic support and resistance tools.

Moving Average Crossovers

If you use the moving average crossover strategy, you are essentially aiming to find tradable points where the faster moving average crosses above or below the slower moving average (you can read our article dedicated to moving average crossover strategy here).

The CALL signal would therefore occur if the faster moving average crosses above the slower moving average, and the PUT signal would be generated if the faster moving average crosses below the slower moving average in a downward direction.

A good combination would be to use a 10 SMA and a 20 SMA. Crossovers must always be traded with confirmation, either with candlestick patterns or some other indicator which would confirm the move in the direction of the crossover.

MAs as Dynamic Support and Resistance Tools

Moving averages move in the direction of the trend, but in this manner, they can also function as dynamic supports (in an uptrend) and dynamic resistances (in a downtrend). We use the words dynamic because the supports and resistance points they form are not at the same static horizontal level, but are constantly changing. In other words, when the price takes a brief retracement, it is expected to bounce off the moving average in an uptrend and retreat from a moving average in a downtrend. The 50 EMA is a good moving average to use for this setup.

For the binary options trader, all that needs to be done is to place a CALL at a dynamic support and PUT at a dynamic resistance. Further confirmation is provided if the candlestick pattern at the dynamic support/resistance supports the move (e.g. a morning doji star at a dynamic resistance in a downtrend).

Assuming there is a break of the moving average, it will change function because such a break indicates a trend reversal. So a broken dynamic resistance will automatically become a dynamic support level, and a broken dynamic support will turn around to become a dynamic resistance.

Moving averages can be used to pick out binary options trades of the Call/Put variety, but they usually require confirmation because they tend to either produce fakeouts or lag behind the market.

More About Adam

Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

Best Binary Options Strategy Techniques That Work

A profitable binary options trading strategy can be unlocked using technical analysis, a technique that uses the study of historical market data to predict future price movements. This article will provide you with an understanding of the most commonly implemented technical analysis strategies for trading binary options, and will provide an introduction to some of the more advanced techniques you will become familiar with in time that build on the knowledge obtained from our beginners guide to binary option trading which you can review here.

Before employing some of the key technical analysis techniques and formulating a comprehensive trading strategy, you will need to have a solid understanding of how to read financial market charts.

Reading Financial Market Charts

Candlestick charting was developed by the Japanese in the 1700s to track the movement of rice prices and has now evolved into a key modern day tool for interpreting financial market charts and the timing for the entry and exit of trades, including binary option trading. Candlestick charts are an efficient way of displaying a securities opening price, intra day high, intraday low and closing price for any given period.

It is this understanding of how the security has performed historically via the interpretation of candle stick charting which forms the basis for the formation of the best strategy.

Creating Binary Option Strategies

Binary Option strategies created by technical analysis falls under the following types: trend indicators, momentum indicators and volatility indicators. Each of these types of indicators divulge different types of information. and at times may give conflicting signals. Successful binary options traders combine indicators to give powerful, profitable trading strategies that can be refined or condensed to form a 60 second binary options strategy for example. Types of each type of binary option trading strategy include:

Trend Indicator: Moving Averages

Moving averages smooth price action to allow the trader to more accurately determine when to enter or exit a binary option trade. The simple moving average indicator averages the past prices from a discrete time period and allows the trader to determine if the current price is above or below the moving average. The trade entry or exit signal arises when the security price crosses the moving average. For example, the trader should buy a call when the price rises above a 50 day moving average, or buy a put if the price falls below the 50 day moving average. A more sophisticated implementation of moving averages is using short term averages crossing over longer term averages to signal a trade entry or exit. For example the 50 day moving average rising above the 200 day moving average indicates that the security is in a significant upswing and the trader should purchase a call option.

Momentum Indicator: Relative Strength Index

The Relative Strength Index indicator (RSI) measures the speed and change in price movements of a security and tells the trader if a security is overbought or oversold and is a momentum indicator which compares the value of average gains and average losses over a timeframe, which is generally 14 days. You can read more about the RSI equation here, however as a trading signal or strategy the trader would consider buying a put if the RSI is greater than 70, or buy a call if the RSI is less than 30.

Volatility Indicator: Bollinger Bands

A Bollinger band is the band that is created by a line that plots two standard deviations away from a simple moving average. Assets rarely trade for any extended period outside of their Bollinger bands, and any security outside of the Bollinger bands is generally prime for a reversal move which can be profited from by trading binary options.

Binary Options Strategy Video Walkthrough (With IQ Option)

Watch this video for a step-by-step walkthrough on how to apply the technical analysis techniques you’ve learned make a profit trading binary options with IQ Option.

If you’re interested in binary options trading with another broker aside from IQ Option why not read our list of the best binary options brokers. And, if you’d like to get some hands on experience trading binary options risk free, check out our post on the benefits of binary options demo accounts.

Editor’s Note

Interested in trading ordinary options? Options trading is somewhat less risky and more slowly paced than binary options trading; we’ve got a great compilation of options trading strategies too, right here: personalincome.org/top-7-options-trading-strategies

It pays to diversify. Get your equities game on. Learn the ins and outs of trading stocks from one of the veteran geniuses in the business, John Thomas, founding father of hedge fund trading. Subscribe to his insights, webinars, and trade alerts.

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