Two Powerful Trading Indicators, and How I Use Them
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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 of the various indicator types and the signals they are sending with respect to price activity in the markets. Once 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 this 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 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.
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 website 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.