Full Review of the ULTRA TMA Tool for Binary Options Trading
On our forum and on the main website we have explained and reviewed a lot of complete strategies; however, maybe the best strategy for you is one that you create because it will be custom tailored to your needs and trading style. But in order to create your own strategy, you need to have the right tools and indicators. Then you can combine them to create your own Frankenstein monster, a beast of a strategy. So, less talk, more action: enter the Ultra TMA, a tool I found on forexfactory.com.
What is Ultra TMA and how to use it?
You probably remember that some time ago I reviewed one of my all time favorite indicators, the TMA aka Triangular Moving Average (review here) and you might be wondering what’s different about the “Ultra” version of the TMA. Simple: it has Multiple Time Frame (MTF) capabilities, without repainting. In other words, if I trade the 5 minutes chart, I can apply to it the TMA from a 15 minutes chart or other timeframe of choice. The normal TMA doesn’t have this capability but the Ultra TMA does. Now let’s talk a bit about this tool: it looks like two bands which attempt to keep price inside (similar to the Bollinger Bands if you like) and whenever price goes outside the bands, the probability of a reversal increases. Let me use a visual explanation:
Look at the white rectangles: that’s when price went outside the bands and soon after it did, it returned inside the channel created by the Ultra TMA bands. By the way, that’s a 5 minute chart with a 15 minute Ultra TMA on it. You can see that price is contained for most of the time inside the bands so once it gets out, we can start looking for a return inside. Although in my picture, price returned pretty fast inside the channel, do not assume that you have a trade immediately when price goes outside; the timing of the trade is very important and for that we need another indicator. I like the Stochastic with settings 15, 6, 9 but you should use whatever indicator you see fit. Bottom line is: once price goes outside the Ultra TMA, we might have a trade but that trade needs further confirmation.
Why the Ultra TMA doesn’t Suck?
A higher time frame TMA contains price a lot better than a TMA applied to the current timeframe so the probability of price returning inside after a visit outside is higher in the case of the Ultra TMA. If price surpasses the bands of a 5 minute TMA, the probability of returning is lower than if price would go outside a 15 minute TMA. It’s pretty normal if you think of it because if price went outside the 15 minute TMA, it means it traveled a longer distance and this gives us increased chances of reversals because what goes up must come down and vice versa.
Why does the Ultra TMA Suck?
I can only think of one thing: the Ultra TMA is basically a reversal tool. It tries to show us when price traveled too far and warns about a potential reversal (or at least a retracement). Although it’s amazing in a ranging market, a strong trend will destroy it almost completely. In a trend, price will be outside the bands for most of the time so you can’t just take counter trades whenever price goes above or below the Ultra TMA. That’s why I said before that you need extra confirmation or simply avoid trading counter trend.
Tips for improved accuracy
- Use a trend identifier tool and only take trades in the direction of the trend when price touches (or goes outside) the opposing band. I.e. Calls in an uptrend when price touches the lower band of the higher time frame Ultra TMA.
- Use two Ultra TMAs: the direction of the higher time frame Ultra TMA shows you the trend and the current time frame Ultra TMA gives you the entry. Example: Ultra TMA 15 min goes upwards and price touches (or goes outside) the lower band of a 5 minute Ultra TMA
- Use double confirmation before entering the trade. I.e. use an indicator which shows you overbought/oversold and an indicator which shows you that price may change direction (maybe a quick Moving Average)
Ultra TMA – The Verdict
Some guys make tons of money with a simple Moving Average and some make similar amounts with 10 indicators so it ultimately boils down to what you are comfortable with, what fits your style. Probably that’s why it’s so important to use the tools that you are comfortable with and this makes me say “I don’t know if Ultra TMA is good for you”. Try it and you will have your answer. To me it’s a very good tool which can be very profitable if used correctly but then again, everything can be profitable if used correctly. As always, Thanks to the guy who coded it.
Further Reading and Downloads