Full Review of the High/Low Moving Average Indicator for Binary Options
The high/low moving average indicator is a tool commonly used by futures traders. This tool combines two moving averages based on the high and lows of the period to create a price channel moving average envelope. Find out if this indicator is useful for binary options traders.
What Is The High Low Moving Average Indicator
The High/Low Moving Average indicator is a tool used by futures traders. This tool similar to moving average envelops and price channels but uniquely simple. This tool utilizes two moving averages, one based on high prices and one based on low prices. This is different from the typical moving average which is based solely on closing or typical prices. The average creates a price channel that can be used in a number of ways to generate signals and to confirm trends, support and resistance. Is this tool one that can be used by binary traders? I think so but like most indicators it does come with some caveats.
How Do You Use The Hi/Low MA Indicator
First you have to calculate you moving averages. This tool is based on simple moving averages and uses two different time periods. The high moving average is a ten bar simple moving average, the low moving average is only 8 bars. If your chart package does not include a high/low ma indicator you will have to download the tool or program your charts accordingly. You can not just use an 8 and 10 day moving average.
This tool is not considered to be a crossover tool but it can be used in that way. A solid break above or below the upper moving average can be considered a strong trend following signal. This strategy is best used along with the trend in order to weed out false signals.
A break outside the envelope that is counter to the underlying trend can be considered a contrarian signal. For example, prices are in a solid down trend, hit support and bounce higher. When prices break the high moving average contrarian put plays can be entered.
This tool is also good for finding and confirming support. The moving average envelop will behave similarly to prices and may bounce or break through support and resistance areas. If prices test and temporarily break through a support or resistance area while the Hi/Low envelope confirms that support or resistance it is indicating another contrarian entry signal.
The high/low moving average indicator is also a good trend following indicator. It can confirm trends in much the same way as it confirms support and resistance. When the indicator moves, tests and bounces from a trend line it is signaling a trend following entry.
As an added bonus this indicator can also be used to measure volatility. When the envelope widens it signals that volatility is up and when it narrows it signals that volatility is declining. This is not super useful for binary traders but can be combined with other analysis to find prospective entry points. One possible way to trade on this signal is to enter trend following positions when the envelope is extremely narrow and contrarian positions when it is extremely wide.
Why The High/Low Moving Average Indicator Does Not Suck
This indicator definitely does not suck. For one it combines several different types of analysis into one indicator. This makes it especially useful and helpful for binary traders because you can theoretically add this indicator and remove two others. Moving averages and channels are both well recognized and reliable trading indicators, providing a number of signals. This indicator combines those features enabling it to provide at least 5 different signal types. The indicator is also easy to read and easy for new comers to pick up.
Why This Indicator Might Suck
This indicator might suck because it is only one indicator. I am a big fan of using multiple indicators and multiple time frames in order to get the best signals. By itself this indicator may provide too many whipsaws and false signals to be truly effective for binary options. However, combine it with trend lines, Fibonacci or other tool and discover its true value.
My Last Words On The High/Low Moving Average Indicator
I like this tool. It is simple, easy to read and provides a wide variety of useful signals. It combines multiple types of indicator and theory into one tool and it is useful in multiple time frames. This tool is one of my new top favorites and one that I can endorse for newbies. For best results I highly recommend using it with other analysis and in more than one time frame. As an added bonus, because the tool combines so much it is possible for it to confirm itself. For example, a contrarian signal that is then followed up by a new trend confirming signal or envelop break out is stronger than the contrarian or break out signal alone. Expiration times for these signals will vary but it looks like 4-5 bars is enough, so if you are trading off the daily charts use a 4-5 expiry or if using the hourly charts 4-5 hours.
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