Bogdan’s Top 5 Binary Options Technical Indicators and Tools
When I first found out about the existence of technical indicators, I thought “Wow, now trading is going to be really easy. I’ll just follow these indicators”. Well, I wasn’t exactly right because trading as a whole is not easy, but indicators sure were a big help. Of course, there are hundreds of indicators but I still believe the Big Names, the old school indicators are the most useful. That being said, today I’m going to present you with a Top 5 of my favorite indicators:
5th Place: The Fibonacci tool.
Some traders cannot trade without this tool but well, everybody is entitled to their opinion so I’m gonna give you mine: I don’t like Fibonacci. In fact I like it enough to put it in this Top 5 but it only makes it to the last position. Now here’s why: Fibs, as it is widely known, is a tool which offers support and resistance and tries to identify a place where a retracement (pull back, correction or relief rally) might end. As a tool they are better for giving a target level for signals to appear and a way to measure the strength of a signal than they are as a signal themselves.
You will find a more complex description of the Fibonacci tool for binary options here. The problem I have with this indicator is the fact that using it involves a lot of subjectivity. The trader has to identify a swing low and a swing high and that is where its subjectivity enters the picture. I can choose a certain swing high while another trader can choose a different one. This will make us have different levels for our Fibs and this can generate different outcomes for our trades. On the other hand, when you have clear swings on the charts, the subjectivity is not such a big issue and that’s when Fibs become a more accurate tool. Another pro, Michael Hodges, swears by them and discusses how to use them moving averages in the Geek’s Moving Average Pivot Strategy.
4th Place: Bollinger Bands©.
The bands are used to measure volatility but they are so much more. They are also as a trend indicator and tool that provides a handful of very tradable signals. More info about how to use Bollinger Bands for binary options can be found here. Overall this is a good tool and that’s why it made the Top 5, but to be honest I never used it that much, but only because my own system was already pretty set. Whenever I do though it seems to match an confirm the indicators I do use.
In a ranging market, this tool is nothing short of awesome and you can expect price to bounce inside the channel with picture perfect accuracy. That’s why a lot of Binary Options Strategies make use of this tool with success. But once a trend starts, price will break either the upper or lower part of the Bands and all strategies that work outstanding in ranging markets will fail miserably. The good news is that breaking the outside lines, or crossing the mid line, are all great signals too, only for trending markets. The Bollinger Bands And Momentum Strategy is a strategy for 60 minute options that I approve.
3rd Place: Moving Averages.
Taking the last place on the podium are the Moving Averages. Why is this tool higher in my top than Bollinger bands and Fibonacci? One reason is because there are so many combinations of Moving Averages that you are sure to find one that works for you. Some of the best strategies will use several, the Guppy System uses two bands of 6 MA’s and is quite effective. Basically, MA’s are one of the most basic tools, used by the most number of traders, have the most kinds of permutations and still give some of the best signals.
Let’s see, you have Exponential MAs, Linear Weighted MAs, fast ones, slow ones, shifted or not, simple, adaptive… I cannot possibly mention all of them. Let’s just say there are a lot of Moving Averages and some of them give you a smoother representation of price, eliminating all the noise. Another reason why the Moving averages have a place in Top 3 is because I use them every day and I don’t like giving a high score to a tool I don’t use. On top of that, a lot of other custom indicators are based on Moving Averages so you might be using them even if you don’t know you do… oh and by the way, Bollinger Bands use Moving Averages. The center line is a moving average, the outer lines are based on standard deviations of the center line. The most basic way to use it is described here, in the Simple Moving Average Strategy.
2nd Place: The Relative Strength Index (RSI)
To be honest, the difference between First and Second place is tiny, almost insignificant but I tend to use more frequently the indicator in the top spot. Sorry, RSI! Ok, a few words about this tool: first of all, you should know it’s an oscillator, meaning that it moves (oscillates) between given boundaries which cannot be exceeded – more info here. The main use of the RSI is identifying overbought and oversold conditions of an asset but it can also be used to find Divergence. However, this is an advanced technique which is difficult to grasp by the majority of traders and the only reason why Divergence doesn’t take First place with a comfortable lead is because I wanted to keep this Top strictly about indicators. If you think you have what it takes to master Divergence, read this.
1st Place: Stochastic
Alongside the RSI, Stochastic is always on my charts. It is another oscillator indicator and it gets top spot because if I were to use only one tool, I would go for Stochastic as I find it the most versatile. With the right settings, this tool can be amazing for both ranging and trending markets but I must admit that its true power is unleashed when you use a Multiple Time Frame (MTF) version. For a detailed review of the MTF Stochastic, this link is where you need to go. Basically, stochastic can find support, resistance, trend, range, and gives dozens of types of signals in both market directions.
Wrapping it up
Indicators are of great help to traders once they understand that all these tools are far from perfect. A hammer doesn’t hit the nail on its head by itself; it has to be used by a guy who knows that his finger must be kept far away from the nail’s head when the hammer comes down. Also, the hammer doesn’t do the work for you, just how a Stochastic or a RSI will not give you outstanding results if you don’t have a set of other skills, but that’s another story…to help with that I suggest reading this article, Connecting The Dots To Becoming A True Binary Options Trader!