BO Trading Indicators
Even though trading indicators are nothing new when it comes to binary options, their significance keeps growing as this industry grows and develops. It could be said that there would be no binary options (such as WMoption) if there weren’t any indicators, but what are these and what is their role? Can they really make the difference?
The major six
While there are certainly more of these than anyone would really care to mention, six of them are the ones most widely applicable to binary options: trend indicators, RSI, MACD, Williams’ oscillator, Stochastic oscillator and CCI. Each of them can be quite effective on its own, but in combination they can provide some superior trading signals to forex and binary options traders alike. To be fair, it is forex trading that first popularized these indicators, but it appears they can be just as effective when used on binaries as well.
Moving Averages Convergence Divergence is one of the most commonly used tools on all financial markets. On its own, the results are far from convincing, but in combination with other tools it could prove to be a potent weapon in your arsenal.
RSI stands for Relativity Strength Index and this type of program is also referred to as an oscillator. Basically, there is a scale from 0 to 100 and anything above 70 or below 30 is considered extreme. When the number is over 70 this usually means that the financial instrument in question is being overbought and that the price is going to fall in the near future. Anything under 30 and the instrument is being oversold so the price is going to jump. While primarily used on stocks and currencies, binaries are also a fertile ground for such instruments.1414
A trend indicator is not an individual indicator but rather a generic name for an entire group of programs whose main purpose is to identify trends and alert traders so that they can act in an appropriate manner and on time. In theory, when the program predicts a downward trend, a trader is supposed to place a put binary (or its equivalent) and if the trend is upward, the call option is needed. In practice, however, these predictions have been known to fail from time to time so a measure of caution is advised.
This instrument is the brainchild of Larry Williams, which probably does not mean much to laypeople but to anyone with a background in economics, the name is bound to ring every bell that there is. And yet, it is surprising how often people confuse it with RSI, due to the similarities between the two. Also a type of oscillator, the range is the same (0-100) but the meaning behind the numbers is different. When this tool shows anything above 80, this means the instrument in question is either at the maximum price or that it has already exceeded it. Either way, the price is about to fall. Anything under 20 means the price is expected to rise.
CCI (Commodity Channel Index) is mostly used on commodities in order to predict future price action. The default value is 100 and anything below means the price is going to fall. Anything above 100 and the price is going to rise. By itself, it does not necessarily mean that much but in combination with other tools, it could be quite reliable.
Primarily developed for use in forex, it is far more commonly used when trading binaries. Like most oscillators of this type, it shows numbers ranging from 0 to 100 and traders base their actions on what the numbers show.
In the right hands, any kind of indicator is effective, but this does not mean that their predictions should be taken for granted. As a matter of fact, these have been wrong on a number of occasions and their predictions should never be taken at face value. The thing is, there are simply too many things to consider and keep track of for individual traders to manage on their own. And as the industry develops, becoming more automated, these things are only going to improve and receive more attention. Soon enough, they may well end up taking over for individual binary options traders, but this day is far away. For now.