Binary Options Trading Tools and Indicators Basic Guide
I have met a lot of traders who trade with just a naked chart and no indicators at all. Their argument is that all indicators are derived from price itself and lag behind it. Indeed, all indicators use price to calculate their values. But does that make them useless? Not by far. Indicators help us filter out the noise in the market and show us the big picture at a glance by smoothing the price movement. Well, at least some of them do, because there are a lot of “bad apples” among all the tools and indicators available out there. So let’s see what we can choose from.
Old School Indicators
Some of the most respected and widely used indicators still remain the old ones, invented by the real market gurus: John Bollinger invented Bollinger Bands in the 1980s, George Lane, together with a group of futures traders, created the Stochastic in the 1950s. In the 1970s, when everybody was smoking weed and listened to The Doors, Gerald Appel was working on his masterpiece: the MACD. Of course, I couldn’t forget about the man who created the Relative strength Index, J. Welles Wilder. These are, in my opinion the bread and butter of a technical analyst. Everybody who wants to have a good understanding of the technical aspect of the market must learn about these indicators in detail. There are other important and useful indicators, and just because they are not mentioned here doesn’t mean they are not good enough.
New School Indicators
These are the fancy indicators, developed more recently, but most of them are just modifications of the old ones. However, there are new tools that can really help a trader, although they don’t show price direction. Among these tools you will find trend lines or Fibonacci levels that are drawn automatically on the charts and also software that can recognize chart patterns or candle formations. There are so many indicators these days that choosing the right one can be quite daunting sometimes. First of all, you must know why you are going to use that indicator. Will you use it for trend recognition or for timing the entry better? Or maybe you will use it to tell you when to close your trade early. Once you know what you are looking for, you will probably find indicators to help you specifically with these. If you don’t manage to do it by yourself, I am sure you will find help on our Forum.
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The Repainting Indicators
These are the ones that everybody tries to avoid… because they lie. By repainting indicators, I mean the ones that look good if you check back on the charts because they will “adjust” themselves even after several candles are closed. That makes it look like they give amazing signals but if you watch them in real time, you will see how they adjust to fit the market… after the market has already moved. That makes them almost completely useless because you will never be able to take the signals you see. To put it simply, if you scroll your charts back, they look like the Holy Grail and in real time they just Suck big time.
The “Puke” Indicators
These are mostly used by the scammers who try to sell you “a secret never heard before, used by major hedge funds and banks”. I am sure you received a lot of e-mails advertising this type of indicator. They try to mess with your head, advertising “easy and quick” profits, no experience needed, no financial knowledge… so you don’t need a lot of intelligence or education because the indicator they sell you will make up for all that. The indicator they advertise is so good that you actually can operate it even if you have a 2 digit IQ. And of course, it will bring you huge profits. To “prove” it, they show you a picture with some repainting indicator that looks great in hindsight, just like I said in the previous paragraph. The big disappointment will come after you actually purchase the “secret” indicator and realize that its only use is… well, actually this kind of indicator is as useful as “puke”. Just don’t buy anything from websites that sell you overnight riches for just $99.99. No indicator sold in this manner will help you with your trading in the long run.
Wrapping it up
I think you need to find the right mixture or “recipe” when using tools and indicators. Some of them help you identify the main trend while others help you pinpoint the exact entry. Finding the right combination requires a lot of hard work and attention to detail. All indicators will give both good and bad signals and can fail if they are used on their own. Therefore, I don’t think that you can rely only on a single indicator to make big bucks in this business. Combine their strengths; and whatever you do, don’t waste your money, because almost all the best indicators and tools are free.