Technical indicators can be used to analyze price action, find possible trading opportunities, and set entry and exit points. They also provide traders with information about market trends, which can help them determine the best course of action when trading binary options.
Before investing any money into a binary options trade, it is important to go to a broker, do your research, and understand the different types of technical indicators, given their usefulness in guiding trade decisions. The following are some of the most important technical indicators:
1: Moving Averages (MA)
Moving averages are one of the simplest and most common ways to trade binary options. They are used to identify the trend in the market with a visual representation of how it is behaving over a set period.
You can tell by looking at the moving averages whether the market is bullish or bearish. If the current price is above the moving average, it is considered a bullish signal, and if it is below the moving average, it is considered a bearish signal.
2: Bollinger Bands (BB)
John Bollinger developed this method in the 1980s, and since then, it has become an important trend indicator. In the same way, it is used in binary options, which show a key part of volatility. This works on the principle of standard deviation and moving averages. Bollinger bands are also offered by many brokers, so you don’t have to figure them out on your own.
Two standard deviation lines are displayed above and below the moving average. When high, the bands widen, and when volatility is low, the bands shrink. When the price goes above the upper Bollinger Band, it is said to be “overbought,” and when it goes below the lower Bollinger Band, it is said to be “oversold.”
3: Stochastic Oscillator
A stochastic oscillator is a momentum indicator, as it can indicate whether a market is overbought or oversold. Having two lines, this is mainly used to identify the momentum of the price, which just changes before the price does. It displays the closing price along with the high-low range for a given time period.
When the stochastic Oscillator rises over 80, it is said to be overbought, and when it falls below 20, it is said to be oversold. This indicator can be used to predict a trend reversal in binary options and can be used to avoid risk.
4: Moving Average Convergence Divergence (MACD)
The MACD is also a trend indicator, using two moving averages and a histogram. MACD tracks a band across a centerline that serves as zero. The MACD band oscillates above this pivot point. If the MACD band stays above zero for a long time, it means that the stock it follows is going up.
If, on the other hand, the band stays below zero for a long time, it means that security is going down. When the MACD crosses above the signal line, it is considered a bullish signal, while a cross below the signal line is bearish.
Using MACD, a trader can predict the size and direction of a market’s movement, which lets them choose the best strike price for their binary options.
5: Commodity Channel Index (CCI)
The CCI is a momentum oscillator that measures a security’s current price in relation to its average price, which is commonly referred to as the “moving average.” It can be easily set up to the trade’s expiry time, and the main idea of the CCI is to find the asset’s deviation from its mean.
CCI can also be very helpful in binary options because it can help the trader figure out when the underlying asset has been overbought or oversold. If the CCI reading is over +100, it might indicate that the asset is overbought and a price drop is possible.
A trader who expects a decline in the asset’s value may choose to put an option on it. If the CCI falls below -100, however, it may signal that the asset is oversold and that a price rebound is likely. A trader who thinks the asset’s price will go up can choose to call the option in this situation.
6: Average Directional Index (ADX)
ADX is a trend indicator that is used to identify significant market trends. ADX is simple to use, and if you are new to binary options trading, this might be your finest technical indicator. Traders can use the ADX to figure out how long a trend in the underlying asset is likely to last. It is charted on a single line from 0 to 100 and may be used on any stock, whether it is in crypto, forex, or futures trading.
These technical indicators can help you kickstart your binary options journey. But you shouldn’t rely too much on any one indicator. Instead, you should use it along with other tools for fundamental analysis. However, if you are still wondering how binary options trading compares to daytime trading, you can click here to understand the difference.