Binary options is easy: trading on trend
- VFX Blog
- For beginners
The practice shows that regardless of the assets’ type (options, stocks, futures) the trading on the trend in most cases ends in profit. As for the binary options signals with the established time of expiration, for them, there is necessary to have a certain price direction.
Here is the definition of the trend:
- Downtrend or «bearish» trend. Each next maximum (top) and the minimum (trough) is lower than the previous one.
- Uptrend or «bullish» trend. Each next price max/min is higher than the previous one.
To simplify the assessment, trend lines are plotted on the graph after at least three max/min. Courses on binary options for newbie’s advice to open the transactions only in direction of the primary trend.
A market without an evident direction (flat or lateral movement) won’t suit for binary options trading. The trading is possible only in situations of fairly wide flat with at least 3-4 candles in one direction when you can open short-term transactions on a rebound from the channel edges.
Trading on the trend
For the options with short-term, the most efficient method is to open the transactions after the breakdown of the trend line and the following reversal in the main direction. You can see the examples of such situations in the pictures below:
When we see the first signs of the reversal, we open a CALL-option on a rising trend or a PUT-option. The duration of the trade depends on the scale of the graph. Unfortunately, most part of the reliable options is worked out, because their expiration periods are at least 2-3 times longer than the period we have chosen for the analysis.
The larger the time period where you see a strong trend, the longer the trade should be.
Recommended Options: «CALL/PUT», «Boundary Out/In», «One Touch», «Stays Between/Goes Outside».
Counter-trending strategy for binary options
Trading on classical trends is profitable only when the movement is strong and rather long. The edges of the price corridor should be close to each other. It is can be hard to find such a narrow corridor in the market.
Quite often price is trending in a very large range. The trader needs to be attentive to identify these movements. Moreover, the trading strategy against the trend can be very profitable in a broad flat.
The price channel should meet special requirements. It doesn’t have to be parallel (for example during the formation of certain graphic figures). Trades can be opened from the middle of the channel in both directions and when they break away from the borders. However, the trader should also control the preferable trend, if it is available.
A signal to open a PUT-option will be top-down from the top edge or from the middle. As for the CALL-option, the signal to open the trade is rebound upwards from the bottom or from the mid-channel. The strategies for trading against the trend may also give numerous binary options signals if the trades know how to apply them.
Moving average as a basic trend indicator
The trustworthiness| of the Moving Average indicator (MA) is assured by the concept of the average price value for the determined time period. This indicator tracks the strength and direction of the trend very precisely. If this indicator is directed upwards, the is moving up and vice versa for the downtrend. The larger is MA, the stronger is the movement of the trend.
In binary options trading, the traders use the moving averages as the standard trend line. The breakdown of the line followed by a reversal will be a signal to open a trade. Another signal to open the transaction is the break from the MA line which continues the movement along with the main trend.
However, for the working binary options strategy, one Moving Average is not enough because of the delay which is relative to the current price. To improve the accuracy of signal traders apply both “long” and “short” averages.
One moving average for an accurate binary options strategy is not enough. Combinations of “short” and “long” averages are used to increase the signal’s accuracy. The number of billing periods depends on the trading asset. The most trustworthy are the pairs in which the periods differ by 5 or more. As example, you may examine SMA (5) + SMA (20), SMA (10) + EMA (50), SMA (20) + SMA (100).
The signals with a high level of power are acquired when the average crosses the faster one: from bottom to top — the CALL-option, from top to bottom — PUT-option. The rebound from the “long” average towards the primary trend can also be viewed as a signal.
When the trader determines the expiration time of an option on the Moving Average combination, he needs to look at a history of quotations (on timeframe period). He should examine the moments when such averages were crossing the lines during a long period (at least 3-6 months). The trader needs to find an average number of candlesticks between the intersection points that were in a profitable sphere for the transaction.
Recommended Options: «CALL/PUT», «Stays Between/Goes Outside», «Boundary Out/In».
Ichimoku Binary Options Trading Signals
The Ichimoku Cloud or Ichimoku Kinko Hyo is a multifunctional indicator that works well with all types of assets. You can find this indicator in all popular binary options platforms. There are many lines that help the traders to identify the signals. Let’s look at the Ichimoku Cloud on the chart:
Ichimoku shows several types of trends (short, medium, and long-term movements) at the same time. With the help of this indicator the traders to define the time of expiration without the long analysis.
As long as the price moves near the Ichimoku or inside it, the market is in a flat position. The dynamic levels of support and resistance will be the edges. If the price moves above the upper border of Kumo, the trend goes up. When it goes beyond a lower border, it is a downtrend. Tenkan-sen line is considered the same trend indicator.
Kijun-sen line displays the probability of a trend change. The intersection of this line of the online chart signalizes the future reversal.
- First signal. The Chinkou Span line breaks the graph. If this happens from the top-bottom, you can open the PUT-option. If the line goes from the bottom-top, you need to open the CALL-option.
- Second signal. The Tenkan line leads Kijun-Sen from bottom to top. This situation is named the Golden Cross, and you should open CALL-option. If the line leads from top to bottom, this is called the Dead Cross. In this case, you should open PUT-option.
- Third signal. We act the same way. If the Senkou-A line crosses, the Senkou-B line from the bottom-up is CALL-option. If this happens from the top-down, this is the PUT-option.
Pay attention to the breakdown in the price chart of Senkou-B lines, and Chinkou-Span. This is the most reliable binary signal. Use it to open several options in the towards of a strong trend.
The Ichimoku Cloud works well on timeframes M30-H4. On the smaller periods, you may utilize the Kumo lines. On timeframes from D1 and higher, you can utilize the signals from the trend lines.
Recommended Options: «CALL/PUT», «Pairs option», «One Touch», «Stays Between/Goes Outside», «Boundary Out/In».
Let's summarize. The trend trading can be very profitable if your analysis is accurate and the expiration time is correct (at least 3-5 periods). Remember, if you want to see how binary options signals work, test them on the demo account first. Then you can move on to the real trades.