In my early days of trading Forex, long before binary options came along, one of my favorite websites was forex-strategies-revealed.com. I still admire the guys who maintain it for their commitment to bring traders straightforward information, with no fluff or empty promises. The main part of the site – or at least the one I visited the most – is their collection of strategies. That’s where the following strategy comes from and considering the name, I guess you can imagine it’s pretty simple. So let’s see what this “key simplicity” is all about.
How to Use The Key Strategy for Binary Options
For this strategy you are going to need Meta Trader 4 or any other charting package that lets you plot 2 moving averages and a RSI (that’s basically all charting packages out there). The time frame of the chart used for this strategy is Daily but some people mentioned they use it on hourly or four hour charts so I guess you can give it a shot. The two moving averages are 5 period Exponential Moving Average and 12 period Exponential Moving Average (EMA). The Relative Strength Index (RSI) uses a period of 21. Here’s what you get once you set up the charts correctly:
The rules are simple as they should: when 5 EMA crosses 12 EMA going upwards and the RSI is above its 50 level, you buy and when 5 EMA crosses below 12 EMA, going downward and RSI is below its 50 level, you sell. Of course this is a Forex strategy so instead of buying and selling, you will hit Call or Put.
An entry should be taken only after the Daily candle has closed so in other words you have to analyze yesterday’s data (wait for the candle to close). The reason for this is that moving averages and RSI constantly recalculate the data until the candle is closed so you might end up seeing a cross during the course of the day but until the end of the trading day, they might “un-cross”. If you are using hourly candles, you should wait until the end of the hour (same with 4 hour candles).
Summary of rules
- EMA 5 crosses below EMA 12, going downwards
- RSI is below the 50 level (or is just crossing it)
- EMA 5 crosses above EMA 12, going upwards
- RSI is above the 50 level (or is just crossing it)
Expiry time: Discretionary, according to market conditions.
Why does Key Simplicity Suck?
I know that most binary options traders are looking for quick profits and since this strategy is using a Daily chart to find entries, it’s obvious why some will not like it. Considering the appeal of 60 seconds binary options, waiting 2 or 3 days for expiration is almost out of the question so that’s the reason why this strategy sucks for some traders. Another reason would be that moving averages are known to be lagging indicators and this makes them less profitable if a strong trend is not established.
Why Key Simplicity doesn’t Suck?
A Daily chart has a lot less noise than a 5 minute one and this makes it easier to trade with success. Candle formations, chart patterns and Support or Resistance levels are all more reliable on a Daily chart. Sure, it’s a lot slower but this is not some race or trade-a-thon. Another advantage of this strategy is its simplicity; because of this, new traders can use it and get a feel of the market without complicated rules or too many indicators. Actually if this sounds complicated to anyone, they should definitely go back to the drawing board and learn more before starting to trade with real money.
Does this Key fit the Binary Options Door?
Maybe this strategy is not a money making machine, maybe it’s not the best in the world but it’s very easy to trade and I believe that its simplicity will attract people. That’s good because once you start trading – even a simple strategy – you start seeing things and I don’t mean hallucinations. You start to see patterns, ways of improving something, your mind is active and, who knows, you might find an addition to this strategy that will make it very profitable for you. Think of it as a foundation for your very own strategy.