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Two Powerful Trading Indicators, and How I Use Them
Price is the ultimate indicator. Regardless of what indicator you use, it won’t tell you more than the actual price movement itself, because all indicators are derived from price. I prefer to trade without binary options indicators, since the price itself is what I trade. With that said, indicators do present price information in a different way, which can help us isolate moves or underlying strength or weakness we not see on the price chart. While I generally trade indicator free, but here are my two favorite indicators which I do use on occasion to clarify moves, hone in on high probability trades and help filter out the bad ones.
Average True Range (ATR)
By far the indicator I use the most. Simply put, ATR is the amount an asset moves in the day.
The indicator takes an average over a number of days (or bars), such as 10 or 20, to give you a representation of daily price movement of the asset. The average is based on the largest following number: Current High minus Current Low, Current High minus Previous Close or Current Low minus Previous Close. Luckily the indicator tool within your trading platform will calculate this all for you, so all you have to is look at the current indicator reading.
Figure 1. EUR/USD Daily with ATR
Source: Oanda – MetaTrader
Figure 1 shows the ATR over ten days–shown as “ATR (10)”– for the EUR/USD on Daily bars. Therefore, the current reading of 0.0099 means the EUR/USD is moving on average 99 pips per day. If you used a 5 minute chart, the reading you get would be a 10 period average of how much the EUR/USD moves in a 5 minute period.
So how does this reading help you make better trades? Assume it is near the end of the day, and the EUR/USD has already moved up 140 pips on the day and you want to take a long trade. Do you take it?
Maybe, but only if you believe something important is going on. Since the average daily movement is about 99 pips, it is quite likely that the EUR/USD is bit overextended (at 140 pips), having already moved well beyond average. That is not too say that if you go long/buy calls you won’t make money, but it does make you sit back and examine the trade to make sure it is worth taking.
I generally use this indicator as a filter. While wide ranging days happen (much larger than average), I like to trade based on statistics. If I get a signal to go long or short on an intra-day trade, and the asset has already moved well beyond the average, I will usually skip it and look for another trade which has more room to run.
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Relative Strength Index (RSI)
Known as an oscillator, this indicator fluctuates between 0 and 100 and measures the speed and change of price. If you have watched business news or read some technical comments from traders, you will often hear the words “Overbought” or “Oversold.” While the speaker may be addressing something else, often technical analysts are referring to the current RSI reading when they use these words. A reading above 70 is typically overbought, while below 30 is oversold. Once an asset enters these area, a reversal is usually not far off.
But to me, timing is important and therefore standard overbought/oversold RSI readings are pretty much useless. For one, in a strong uptrend, the reading will be frequently above 70, but yet you want to be long most of the time. Same goes for a downtrend; the RSI will frequent the area below 30 and yet you want to be short/buying puts during downtrends.
I prefer to use the RSI in a “relative” fashion; comparing current RSI readings in uptrends to past uptrends, and current RSI readings in downtrends to past downtrends. This concept comes from Constance Brown’s book Technical Analysis for the Trading Professional. What the author finds is that in downtrends the RSI generally stays below 60, and that in uptrends it generally stays above 40.
Figure 2. EUR/USD 4 Hour Chart
Source: Oanda – MetaTrader
In figure 2, notice how the RSI shifts; during the downtrend it often touches below 40 and rarely gets above 60 (red line). But when the trend moves higher toward the right hand side of the chart, the RSI doesn’t move below 40 (green line) and spends much of the time above 60.
This is an excellent method for confirming trends, although some tolerance is often required. The RSI may squeak just beyond the levels mentioned, or the levels used may vary slightly by asset.
Recommended Brokers
Indicators are derivatives of price. Generally I do not use indicators very much, as I prefer just to look at the actual price chart. Indicators can only provide this same price information, but may present it visually in a way that is preferable, or summarize the data for easier use. ATR is one such summarizing tool. It quickly gives you a number–the daily average range–you can work with. If an asset has moved well beyond its daily average range, it’s possible something important is happening, but more often than not I find the trade should simple be skipped if it requires the asset move even further.
The RSI presents price information in a different way, which can be quite useful for confirming trends or catching trend reversals. The RSI has different tendencies during downtrends than it does during uptrends. Typically in a downtrend the RSI stays below 60, and in uptrend stays above 40. When you notice the RSI shift from one tendency to another, the trend has likely reversed.
Can A Beginner Make Money With Binary Options?
But wait! First we have to see if binary option trading is legal in your country.
Binary Options Trading in your Country
Depending on your country, here are the brokers available to you in April, 2020:
Country | Binary Options Available? | Broker Info | Best Broker |
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NO | Trade stocks, indices, currencies. | eToro (visit site) | |
YES | Regulated US Binary Broker | Nadex (visit site) | |
YES | Regulated AU Binary Broker | HighLow (visit site) | |
NO | Trade stocks, indices, currencies. | n/a | |
Mostly YES | Binary Broker for non-EU/US/AU/CA traders | IQ Option (visit site) |
*Other countries: Binary options is still available to most non-EU/US/AU/CA traders however there may be some exceptions.
- EU Traders are banned from binary options trading. The best alternative is eToro.
- US Traders should go to our US Welcome Brokers page.
- Australian Traders have a great choice available: Highlow.
- All other traders (if you are not from the US, EU and AU) can sign up with IQ Option.
Beginners think that all a trader needs to do is go on one hot streak!
New traders often say to themselves: “just ten wins in a row and all of a sudden I will be a new trading mogul”. People looking for quick money think, that they can quit while they are ahead on a hot streak and go home richer than they could possibly imagine.
The truth is that you need a strategy and discipline to make successful trades on the long term. You should start by picking a legit broker first.
If you are just starting out with trading, then this is the perfect guide for you to start making money with binary options trading.
Here is our #1 Rated Broker
IQ Option – Best Trading Platform
IQ Option is a trading platfrom that is regulated by CYSEC. It is the best trading binary options broker on our website. It’s a perfect pick for new traders.
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How To Get Started With Binary Options Trading
Unfortunately binary options trading was banned in most countries but there are many more assets that you can trade: stocks, commodities, bitcoin, indices and more. There are many safe and regulated brokers.
You can start with a trading signals provider, especially if you are a beginner. FX Atom Pro looks really promissing.
- Step1: Sign up with 24Option
- Step2: Make a first deposit
- Step3: Start trading using trading signals
Alternatively you can choose a reliable broker like IQ Option that offers free demo accounts.
IQ Option is the most trusted trading platform at the moment. They are regulated by CYSEC and they have a stellar reputation in the industry. The minimum deposit is only $10 which is perfect for beginners.
Forex Trading – The Best Alternative To Binary Trading
Binary options trading may be too risky for you. Or maybe you heard too many horror stories about binary trading? We recommend you to try out Forex trading instead.
Forex brokers offer CFD and even Cryptocurrency trading. Most Forex brokers are regulated and have been around for many years. Here is the best Forex brokers:
Rank | Broker | Min. Deposit | Regulated | Features | Review | $100 | YES | + CRYPTO TRADING | TRADE NOW | $200 | YES | + ASIC LICENSE | TRADE NOW | $200 | YES | + COPY TRADING | TRADE NOW
Common Mistakes of Beginners- And How To Fix ThemWhen a beginner goes in unprepared trading binary options, the broker will feast on them. New traders often make mistakes such as taking way to big a position for one trade, taking a bad loss, and then staying way to small the next 5 times. They may even experience winning easily on small trades, but they never make back the big loss. New traders take way too many trades, let emotions control their trading, and don’t have the self control to stay out of low percentage trades that they know have small chance of making them money. After knowing all the pitfalls, why would a new trader ever decide to open a binary options account and become a trader? Well, they do it because they have the power to win systematically if they have some intelligence and a plan on their side. A new trader needs to understand the most common pitfalls, otherwise they may not even know that they are making a mistake while they do it! With that in mind, here are the most common mistakes new traders make, with what they should do instead.
How Beginners Can Make MoneyEven with so many ways to mess up, beginners to binary option trading can make money if they work hard and follow a system. The key to binary options trading is to control risk. As a result, a trader can never lose too much money on any particular trade. Hypothetically, a trader has a 50% chance of being correct on any trade whether they buy a call or a put option. To make money, a trader only needs to be correct on about 60% of trades of the trades that they take. This means that of the trades that a beginner with absolutely no edge (an edge is something giving a trader a better than random chance to make money) would take, they need to figure out how to turn about 20% of them into winning trades. Binary Options – How Much Can You Make?: This is not a simple question. There are certainly traders who make a living with binary options. You could make thousands of dollars every month. However the best is if you start with lower expectations. Making hundreds of dollars steadily is a good way to start. Here are possible ways that any beginner can easily do this:
Binary Option Trading Is Not Easy For BeginnersThe problem with this dream is, how often does this really happen? Let’s just say a lot of brokers would never be in business if it happened very often that beginners made money. Above all, beginners have dreams of being smarter, better, and luckier than everyone else who has every done something, but the harsh reality is that trading in any form is not easy. Especially when it comes to making money from trading, it takes hard work, dedication, and a commitment to learning. And when I say learning I don’t mean just reading a couple articles, I mean actually learning from your wins, from your losses, from hard earned experience. As a result never take a trade and learn nothing from it, especially as a new trader. What Our Readers AskedThe short answer is yes, you can make a lot of money trading binary options. However it will be very hard to do so if your initial deposit is low. Always keep in mind that binary options is risky and you could also lose money. A binary options broker makes money when you lose your trade. This is the main reason why there are not fees when trading. Yes, many traders have success with binary options trading. You can even follow some of these traders. In order to do so, pick a broker that offers social trading. This way you can pick your favorite trader and copy their actions. Do We Recommend New Traders Even Try Binary Options?Of course! Every successful trader was new at some point. Just because a lot of traders go into trading without educating themselves or having realistic expectations doesn’t mean you will as a new trader. In fact, since you are reading this article you almost decidedly will not. At How We Trade our job is to prepare new traders for success. So move forward knowing you have a strong ally in us! Interested in opening an account? Check out our homepage for the best trading platforms, along with our top rated binary options brokers. IQ Option – Best Trading PlatformIQ Option is a trading platfrom that is regulated by CYSEC. It is the best trading binary options broker on our website. It’s a perfect pick for new traders.
The Most Important Technical Indicators For Binary OptionsConsider the following bets:
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 ProbabilitySince 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:
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:
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.
%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 Levels above 80 indicate overbought, while those below 20 indicate oversold.
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. Best Binary Options Brokers 2020:
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