Binary Trading could be simple to trade, but the difficulty comes up with how you will win your trade by knowing which direction you will choose. Traders can actually have a higher chance of winning every trade by simply knowing and applying some technical indicators whenever they trade in the market. Technical indicators can help identify price patterns and historical market behavior on market charts. Most of the traders are plainly looking at the wider trends in the market and then they will trade according to the direction of the trends, but sometimes success in using this is not assured.
The Technical Indicators
The technical indicators listed below are used widely in the market and have proven to be effective in some traders perspective. However, there is no 100% guarantee that it will be effective in every trading activity and it also has time-frame factors to be considered.
1. Pivot Point
It is a technical analysis indicator that can determine the overall trend for any given time frames. The pivot point is simply calculated as an average of high, low, close significant prices from the previous behavior of the market. Floor traders at the beginning of the trading will calculate the price data (high, low, and close) day from the previous day in order to calculate a pivot point for the current trading day. Pivot point used for daily charts derives data from the previous month's data. If pivot points for March 1st will be derived from the month significant high, low and close prices of February then it will remain as that for the entire month of March until new Pivot points would be calculated on July 1st trading day.
This indicator is associated with support and resistance levels that are often turning points for the direction of price movement inside the market. Trading above the pivot point is evaluated as ongoing bullish sentiments while trading below the pivot point indicates bearish sentiments.
2. Stochastic Oscillator
It is a technical momentum indicator that refers to the point of a current price in relation to its price range over a period of time. Stochastic oscillator attempts to predict price turning points by the comparison of the security closing price to its price range. It measures the level of the close relative to the high-low range over a given period of time. The sensitivity of this oscillator to the movement of the market can be minimized by adjusting the time period or by taking a moving average of the result.
Stochastic Oscillator is calculated by using this formula:
%K = 100[(C - L14)/(H14 - L14)]
C = the most recent closing price
L14 = the low of the 14 previous trading sessions
H14 = the highest price traded during the same 14-day period.
%D = 3-period moving average of %K
3. Bollinger Band
A technical analysis tool that is placed above and below a moving average also called as volatility bands. This can be used to determine if prices are relatively high or low. It adjusts itself to the market behavior. The bands widen or move away from the average if the volatility of the market rises and if volatility decreases, the bands contract or move nearer to the average. Technical traders can sense easily if the volatility will increase thoroughly when the bands are tightened. Prices will be considered as relatively high when it is located above the upper band and it will be considered as relatively low if it is seen below the lower band. On the other hand, relatively high prices should not be regarded as bearish. As well as for relatively low prices, it should not be regarded as bullish.
4.Commodity Channel Index (CCI)
A very common tool for traders in identifying cycle trends in commodities, equities as well as currencies. It is an oscillator associated with technical analysis to determine if the investment vehicle is either oversold or overbought. CCI can also be used in indicating a new trend or can warn about extreme market conditions. This indicator measures the difference between a security’s price change and its average price change. Prices are well above their average if it has a high positive reading which presents strength. On the other hand, it indicates weakness if low negative reading shows that price is well below their average. This can be used as a coincident indicator which means it obtains above +100 that reflects strong price action that leads a signal of an uptrend and if it dives below -100 it shows weak price action that can lead to a signal of a downtrend.
To calculate CCI, it will be computed using this formula:
CCI = Asset's current price - Moving average of the asset's price
0.015 x Normal deviation from the average
5.Wilder's Directional Movement Indicator's (DMI), Average Directional Index (ADX)
There are three components to the DMI, which are the Average Directional Index (ADX), the Plus Direction Indicator (DI+) and the Minus Direction Indicator (DI-) that presents the updated price direction. It can be interpreted by looking at the positions of DI+ with DI-. If the position of DI+ is above DI-, it indicates that the momentum is uptrend and if the ADV value is greater than 25, it presents strong uptrend but if the ADX value is lesser than 25, it shows weak and unsustainable uptrend. On the contrary, if the position of DI- is above DI+, it indicates that the momentum is downtrend and if the ADX value is greater than 25, it presents strong downtrend bit if the ADV value is lesser than 25, it shows weak and unsustainable downtrend.
These technical indicators are just mathematical representations that are calculated and based on historical trading activity data and the updated price and volume activity which also means that it doesn't exactly show buy and sell signals. Thus, a trader must analyze and understand the signals to find out trade entry and exit points which will correspond to the trader's strategies and techniques in buying. There are varieties of indicators available, but most of the technical traders will combine some indicators with one another to produce profitable results.
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Vinz de la Fuente
INO.com Contributor - Binary Options
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.