ADX MA Binary Options Indicator

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30# Binary Options Strategy: Two MA’s and ADX

Binary Options: End of Day Strategy

Submit by Emy 11/11/2020

Markets: Forex, Commodities, Indicies

Time Frame H1, Exipers time End of the day.

Average Directional Movement Index default setting (ADX 14). A level of 33 is added.

Moving Average Smoothed (21 period slow);

Moving Average Smoothed (9 period fast).

Wait for the Moving Average (9 period) to cross above the Moving Average (21 period) and the ADX is> 33 level.

2. Take an entry when the price comes back down to touch the Moving Average (9 period).

Wait for the Moving Average (9 period) to cross below the Moving Average (21 period) and the ADX is> 33 level.

2. Take an entry when the price comes back down to touch the Moving Average (9 period).

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Very important, do not use this binary options strategy on currencies, commodities, indices that have a positive correlation with correlation R> 0.7, or negative R

Best Combination of Technical Indicators: Elliott Wave plus ADX and MA

Elliott Wave Oscillator

Use a Combination of ADX indicator and DI

Since all of the mathematical formulas take into the account past performance, most of the technical indicators are lagging and EWO is not an exception. Therefore, technical analysts use a combination of several additional tools to avoid fake whipsaws and smooth signals coming from the primary indicator. In this case, we use Simple moving average with 9-bars period and ADX and DI indicator with default threshold (20) and 13-bars period. Timeframes start form 15-minutes, while best underlining asses are cross-rates among currency pairs. We took EUR/GBP as the most liquid and thus most predictable currency pair.

Conditions are simple and understandable. We start trading cycle after a series of signals from all three indicators. First, the price has to cross SMA9 from below (for call options) or from above (for put options). Second, EWO histogram has to start edging higher (call) or lower (put), while the best signal comes when it breaks the zero line. Third, ADX mainline has to edge higher (for both types), while -DI and +DI lines have to perform a crossover (+DI has to appear above -DI for call options, and inverse correlation is required for put options).

If you like this strategy, you might also be interested in this Positional Trading Strategy

Example of using Combination

An example below shows that one of the following conditions has to happen for us to signal that it’s time to grab the money and run away: current price crosses back SMA, or EWO histogram starts edging in the opposite direction, or ADX mainline shorts a local peak. Real Account holders could get additional details about how to benefit on the Elliott Wave plus ADX Indicator and MA Binary Options Trading Strategy.

The Most Important Technical Indicators For Binary Options

Consider the following bets:

  • Pay $45 to bet that the price of gold will be above $1,250 at 1:30 p.m. today. Get $100 ($55 profit) if you win, lose $45 otherwise.
  • Receive $81 now to bet that NASDAQ US Tech 100 index will go below $2,224 at 2 p.m. today. Keep a profit of $81 if your prediction comes true. If it does not, lose $19.
  • Pay $77 to win $100 if the USD-JPY forex rate goes above 78.06 at 2 p.m. today; you lose $77 if it does not.
  • Gain $33 if you bet on the price of bitcoin will go below $379.5 at 3:00 p.m. today. If it doesn’t drop that much, lose $67.

Welcome to binary options. All or nothing, one or zero, these securities are available on Nadex and the Chicago Board Options Exchange (CBOE). Binary options allow traders to make time-bound conditional bets on predefined values of stock indices, forex, commodities, events, and even bitcoin values. Like a standard exchange-traded option, each binary option has an option premium ($45, $81, $77, and $33 in the examples above), a pre-determined strike price ($1,250, $2,244, 78.06, $379.5), and an expiry (1:30 p.m., 2 p.m., 3 p.m. today).

The differentiator is the settlement price that remains fixed at $0 or $100, depending on the option condition being fulfilled. It keeps the net profit (or loss) fixed. The option premium also remains between $0 and $100. (Related: Guide to trading binary options)

Calculating Probability

Since binary options are time-bound and condition-based, probability calculations play an important part in valuing these options. It all boils down to “What is the probability that the current gold price of $1,220 will move to $1,250 or above in the next four hours?“ The determining factors include:

  • Volatility (how much and is it sufficient to cross the threshold/strike price?),
  • The direction of the price move, and
  • Timing.

Technical indicators suitable for binary options trading should incorporate the above factors. One can take a binary option position based on spotting continued momentum or trend reversal patterns. Let’s look at some of the popular binary option technical indicators:

  • Wilder’s Directional Movement Indicators (DMI) Average Directional Index (ADX): Composed of three lines, namely ADX, DI+, and DI-, and their relative positions, this indicator aims to capture the strength of an already identified trend. Here is the table for interpreting the trends:

Position

Momentum

ADX Value > 25

ADX Value

Here is an illustration, using 3M Company (MMM) stock:

Image courtesy StockCharts.com

Depending upon the identified momentum and trend strength, an appropriate buy/sell position could be taken.

  • Pivot Point(in conjunction with support and resistance levels): Pivot point analysis helps determine trends and directions for any given timeframe. Because of the flexibility in timing, pivot points can be used for binary options, particularly for trading highly liquid major currencies. A good example (with calculation and graphs) is included in the article Using Pivot Points in Forex Trading.
  • Commodity Channel Index (CCI): The CCI calculates the current price level of a security relative to the average price during any given timeframe. The average price level is usually the moving average. Time periods can be selected as desired, allowing the trader flexibility in choosing when a binary option expires. The CCI is useful in identifying new trends and extreme conditions of overbought/oversold securities. It is very popular among day traders for short-term trading and may be used with additional indicators such as oscillators. In the below formula “price” is the asset’s current price, “MA” is the moving average of the asset’s price, and “D” is the normal deviation from that average. High values above +100 indicate the start of a strong uptrend. Values below -100 indicate the start of a strong downtrend. The CCI is computed with the formula:

  • Stochastic Oscillator: In an interview, the creator of the Stochastic Oscillator, Dr. George Lane, said “it follows the speed or the momentum of price. As a rule, the momentum changes direction before price.” This important underlying detail indicates extreme cases of overbuying and overselling, allowing reversals for bullish and bearish phases to be identified. The crossover of %K and %D values indicate trade entry signals. Although a 14-day period is standard, binary option traders can use their own desired timeframes.

%K = 1 0 0 ( C − L14 H14 − L14 ) where: C = most recent closing price L14 = low of 14 previous trading sessions H14 = highest price traded during same 14-day period \begin &\text <\%K>= 100 \left ( \frac < \text– \text > < \text– \text > \right ) \\ &\textbf \\ &\text = \text \\ &\text = \text \\ &\text = \text \\ \end ​ %K = 1 0 0 ( H14 − L14 C − L14 ​ ) where: C = most recent closing price L14 = low of 14 previous trading sessions H14 = highest price traded during same 14-day period ​

Levels above 80 indicate overbought, while those below 20 indicate oversold.

  • Bollinger Bands: Bollinger bands capture an important aspect of volatility. They identify upper and lower levels as dynamically generated bands based on recent price moves of a security.

Commonly followed values are 12 for simple moving average and two for a standard deviation for top and bottom bands.

Contraction and expansion of the bands indicate reversal signals that help traders take appropriate positions in binary options. Overbought situations are indicated if the current market price (CMP) is above the top band. While overselling is indicated when the CMP is lower than the lower band.

A challenge in binary option trading is correctly predicting the sustainability of a trend over a given period. For example, a trader may take the right position for an index, predicting it would hit 1250 at the end of a five-hour period, but the level was achieved in the first two hours. Constant monitoring is needed for the rest of the three hours if the trader plans to hold the position until expiry, or a predetermined strategy should be executed (like squaring off the position) once the level is reached.

The Bottom Line:

The technical indicators discussed above should be used for timely actions with constant monitoring. One major disadvantage with technical indicators is that the results and calculations are based on past data and can generate false signals. Traders should practice caution with detailed backtesting and thorough analysis for high-risk, high-return assets like binary options.

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    2nd place! Good choice!

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