Full Review of the Paint the Town Red Indicator for Binary Options
I, like all the other writers here at BOTS.com, am always looking for great new tools and indicators. I look for things that will help me and other traders gain an edge. I also look for tools and indicators that may be misleading or pure hokum. In my search this week I found a great community site called Traders Laboratory. It is a forum style site where traders can put forth their ideas for strategies and promote hand-tooled, custom indicators. The site allows users to read, respond and rate custom indicators and is another great resource for the trading community. The site is focused more on forex than anything else but the information provided is relevant to every financial market. Many of the indicators are at least applicable to binary options, if not actually useful.
What Is Paint The Town Red Indicator
The first indicator I found that looked like it had any merit is called Paint The Town Red Indicator. This is a trend following indicator that utilizes a moving average to generate signals. It is a highly visual indicator that can be used in multiple time frames and with multiple moving averages. The premise is that signals are generated when price action moves above or below the moving average, depending on market stance.
The indicator is initially set at 20 bars and is intended for use on charts of 5 minute bars. The moving average length is adjustable, allowing for fine tuning the indicator to different markets. The indicator generates a signal buy changing the color of the chart background when the criteria are met. What this means is that the chart turns green when price moves above the moving average and turns red when it move below.
Why Paint The Town Red Doesn’t Suck
This indicator doesn’t suck because it is a valid trend following indicator. It is a great way for traders to easily see buy and sell signals if it is used properly. Since it is a trend following indicator it is first necessary to understand trend determination. Once trend is established then signals can be taken in the direction of the trend whenever the corresponding signal is generated. Looking at the chart provided by the indicators creator we can see that 8 bullish and 9 bearish signals are generated in a 24 hour period. The underlying trend isn’t given in the example but I hope it was bullish. The bullish win/loss ratio is 5:3, the bearish win/loss ratio is 3:5. This means a bullish trader using this chart should have a 60% win ratio, more than enough to profit using binary options.
Why Paint The Town Red Sucks
This indicator sucks for a couple of reasons. First, it doesn’t offer any kind of trend determination. It can be used for trend confirmation but by the time you have confirmed an intraday trend you may have missed 2 or more signals. Second, it doesn’t offer any form of support/resistance indication. Without that traders, especially inexperienced ones, could continue to take signals well past the time to begin reversing market stance. These two problems are very easy to overcome though. Simply use this indicator in conjunction with other indicators, something that could be said of every indicator in the traders arsenal.
My Final Word On Paint The Town Red Indicators
I think this indicator has use for beginning and experienced traders. However, it needs to be used in a package of indicators and not by itself. It is not a strategy, just a tool. Traders also need to have at least a basic understanding of trend and trend determination. Paint The Town Red is a signal generator and not a measure of trend, strength or support/resistance. When used with a multiple time frame approach and with other corroborating indicators it will provide excellent binary options signals. I recommend this indicator for anyone who appreciates highly visible signals. This indicator will show its true value once you have determined the primary and near term trends, along with potential areas of intra-day support and resistance.
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