Binary Options Trading System With Moving Averages

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Moving Averages Strategy for Binary Options

Improve your binary options trading style by learning and implementing the moving averages strategy. Weve already talked about chart patterns and what their significance to technical analysis is. However, its really important to clear out that in most cases things arent as clear as in the examples weve presented. In many cases there are lots of price fluctuations and different movements, making it notoriously difficult for an analyst to deduce the correct trend of an asset every single time.

One of the most interesting methods traders use to mitigate the effects of this phenomenon is to apply moving averages. Moving average is just a fancy way of saying that they calculate the average price of the asset for a predetermined period of time. This way they are able to observe the data more clearly, thus identifying genuine trends and increasing the probability of things working out well for them in the end.

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Types of Moving Averages

There are many types of moving averages, but three of them are the most popular, commonly known and most widely used. These three types are simple, linear and exponential. There may be differences in the way the average is calculated, but the interpretations remain the same. Most of the variables come from the fact that there is different emphasis put on different data points. In some cases more emphasis is placed on recent movements, while in other instances the price fluctuations of the whole period of equal importance.

Simple Moving Average (SMA)

As the name suggests, the simple moving average (SMA) is one of the simplest methods to calculate the moving average. As such, it is also very popular and commonly used by many traders and analysts. The method is as simple as they get – in order to calculate a moving average using this method, one needs to take the sum of all the closing prices of the certain period and then divide it by the number of prices taken. To make this more clear, heres an example. Lets say we want to calculate the moving average for a 10-day period. In this case, we take the closing price of all 10 days, sum them together and divide them by 10. This way the strength of the trends can be measured and become more apparent. With all the illusions removed, the trader can make sound choices concerning his finances and not be worried about the outcome. Look at the example below and everything will make sense.

A large number of analysts and traders speculate that the data presented by the SMA is not detailed and relevant enough to be taken seriously. For them, recent price movements are much more essential and they believe that this aspect of the price movement should be given the proper attention and weight. Since simple moving average takes everything into consideration with the same importance, its easy to see why this argument would be held. Certainly, for many traders, recent movements are much more important and if that is not reflected in the average, they feel the average, itself, is not accurate enough. This is what lead to the creation of other methods of calculating the averages.

Linear Weighted Average (LWA)

Some experts strongly believe that the SMA isnt adequate enough to serve their needs, which is why they look elsewhere for reassurance. Where SMA is lacking in respect of relevance for these traders, linear weighted average more than makes up for. The problem is solved by adding more emphasis on more recent data. This is done by introducing more complicated calculations. Instead of simply taking the closing prices, exerts instead take the closing prices for a period of time, then multiply the closing price based on its place in the chronological progression.

For example, if we have a three day linear weighted average, then every day would be a data point, in which case we take the different closing prices and multiply them by the place of the data point. The first days closing price will then be multiplied by one, the second by two and the third by three. Then all the values are summed up and divided by the sum of multipliers (in this case it would be 3+2+1=6), essentially giving us the average with more emphasis on the third day than the first. Of course, if we were to choose a longer time window, the rules would apply all the same and it would not matter how many days weve picked. This is the basis of the principle.

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Exponential Moving Averages (EMA)

Like LWA, EMA strives to put more emphasis on the more recent prices in the time frame. However, it does so in a bit more complicated and perhaps more refined manner, unlike the rudimentary nature of the LWA. To many the exponential moving average is much more efficient and preferred. In most cases you dont even have to know how the different calculations are performed because the data is laid down for you in most charting packages, meaning that you wont have to compute the averages, yourself. Everything you require is laid down before you and all you need to do is make sense of it (which can sometimes be a bit harder than it looks).

As a more advanced technique, EMA is used much more frequently used than LWA. Even though it has its critics, SMA is still very popular, leaving the LWA as the most rarely used of the trio. EMA is much more sensitive to new information than the SMA is. This is one of the reasons why it is preferred to the much simpler alternatives – because it delivers satisfactory enough information to many of the traders who employ technical analysis. If you take a look at the same chart from two different perspectives – that of the SMA and that of EMA, you will notice that as the different values rise and fall, the EMA corrects itself much faster than its simpler counterpart. The differences may be subtle, but they can be important enough to influence decisions in different ways.

Major Uses of Moving Averages

As weve already said before, moving averages are used to dispel any illusions and deceptive factors in the data. This means that their primary objective is to assist technical analysts and traders to more easily identify trends and make decisions based on a more general data. Sometimes the information in the short-term can lead us to believe that the market conditions are different form what they actually are and moving averages help us to deal with possible misconceptions. They also help us to set up the levels of support and resistance, which are important as well, if you remember.

Its easy to identify a trend based on the direction of a moving average. If a moving average is going up and the price is above it, then we are talking about a definite uptrend. If, however, the moving average is going down and the price movements are below it, we can clearly see a downtrend.

Another way we can determine a movement in a trend is to have a look at the relationship between two moving averages. If we have a long-term average below a short-term one, then we are talking about an uptrend. If the short-term average is below the long-term average, then we are witnessing a downtrend.

Moving averages can also help us spot trend reversals. There are two main signals for a trend reversal, both of them characterized as crossovers. The first one is when we have a crossover between the moving average and the price. If that should happen, then we are possibly talking about a trend reversal. This is just a signal, of course, which means that this isnt the case 100% of the time. However, the signal is strong enough and accurate in enough cases as to require caution. If there is indeed a change in the trend, it will be reflected in the moving average shortly.

The other signal is the crossover between two moving averages. If we see this, then we can almost always be sure that there will be a trend reversal. If the moving averages are both short-term, then we might be talking about short-term trend reversal. Logically, enough, if we see a crossover between two long-term moving averages, then this definitely speaks of long-term trend reversal.

Just as crossovers are used to signal a trend reversal, moving averages can be used as a tool to determine the support or resistance levels. Long-term moving averages are especially useful in this respect. There many cases when the price of a security would go down until it reaches the moving average, and then go back up. In this case, the moving average serves as a level of support. We know that the price will probably not break it and if it does, this signals of a trend so we will be prepared and will know what to do based on the current status of market.

Moving averages are very useful for technical analysts and help them clear out the “noise” and irrelevant (or less relevant) data they dont really want to pay attention to. They can help predict or confirm trends and give us a nice overview of the situation on the market.

7 Binary Options

One of the most underused and least talked about analysis tools when it comes to binary options trading is that of moving averages. Sure, these are mentioned in many types of analysis tools, but they are rarely talked about in depth. What makes this all the more peculiar is that binary option trading is all about directional movement. Let’s take the opportunity to look at moving averages more closely.

In a lot of strategy scenarios it is very difficult at best to determine the correct movement trend of an asset every single time because of price fluctuations and other short term trends. That is where moving averages come into play; they are a great way of minimizing the effect of these short term trends that often keep you from seeing the correct trending direction. Moving averages are simply calculating the average price of an asset over a set period of time.
One of the nice characteristics about moving averages is that they can be determined using different time frames. The basic thinking behind them is the longer the time frame they are based on, the stronger their indication signal is. The time frames represented within moving averages are called bars. Some of the more popular numbers of bars used to plot moving averages are 9, 15, 30, 150 and 200 bar ranges.

There are three key things that moving averages help you spot that are critical to making successful binary option trades:

1) Trends – in order to trade successfully you have to know which way an asset is trending.

2) Wave Analysis – wave analysis can be a very effective tool in spotting potential entry points in which to make a trade. Several moving averages calculated by using different time frames and then plotted together on the same chart form the basis for wave analysis to take place.

3) Coincident Indicator – If you are not sure of anidentifying signal from other technical indicators, it is often a good idea to overlay them with moving averages for comparison.

As you can see, moving averages are extremely useful tools to keep statistical analysis in balance and to keep trends from looking too skewed. This helps you to be able to see the data more accurately and clearly, in turn, you should be able to make more successful binary option trades which are based on that data. So even though moving averages are often not talked about that much, they play a very large role in successful binary options trading.

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Simple Strategy for Binary Options: Moving Averages and RSI

Learn one of the best trading strategies in the binary options field – the Moving Averages and RSI strategy. We will also show you the tips to use it effectively.

Trading with Moving Averages and RSI

The Moving Average and Relative Strength Index (RSI) are two of the most well-known and useful technical indicators in the online trading world. The Moving Average helps identify entries when the market is trending, while the RSI provides high-precision trading signals in a consolidating environment. Due to their strengths, combining the Moving Average with the RSI can create a comprehensive trading system usable in various market conditions.

In this article, we will show you how to build a highly accurate binary options trading system using the Moving Average and RSI indicators.

The Moving Average Indicator

The Moving Average (MA) is one of the oldest technical analysis tools; it was even used before computers were invented. The main function of the MA is to sketch trends in the market, helping traders find trend-following entries.

On the charts, the MA is displayed as a line that follows price action. It shows the average price of an instrument over a specific period of time. For example, a 10-period MA line on the daily chart is constructed by taking the average price over the last 10 days.

The calculation for the MA can be done using the close, open, high or low price of a candle. However, traders usually use the closing price to calculate the MA.

There are 4 types of Moving Averages namely Simple, Exponential, Linear Weighted and Smoothed MAs. Among them, Simple and Exponential MAs are the most commonly used. The Simple Moving Average is abbreviated as SMA, while the Exponential Moving Average is EMA.

Moving Averages can be used for any kind of financial instruments (stocks, indices, FX currency pairs, cryptocurrencies, etc.). It delineates market trends much more flexibly than a trend line does, and that’s why it’s extensively used.

The Relative Strength Index (RSI)

The RSI is a famous oscillator first introduced in 1978 by the legendary trader J. Welles Wilder. The original purpose of this indicator is to identify overbought and oversold areas where reversals or corrections can occur.

On the charts, the RSI is displayed below as a line moving between 0 and 100. The 30 and 70 levels help traders determine when an asset is overbought or oversold. An asset is considered overbought when the RSI exceeds 70; conversely, the asset is considered oversold when the RSI crosses below 30.

The 50 level of the RSI is also important. It helps determine which side is dominating the market. If the RSI moves above 50, it indicates that bulls are having the upper hand; contrarily, a movement below 50 signals that bears are prevailing.

The RSI is often used to find trading opportunities in the sideways or consolidating market conditions. It can also be used to determine if a trend is coming to an end.

How to Trade Binary Options With Moving Averages and The RSI

As mentioned, Moving Averages work best when the market is trending, while the RSI is a killer in the consolidating environment. Therefore, the combination of these indicators can make a comprehensive binary options trading system that works in various market conditions.

To trade binary options with the Moving Averages & RSI system, you first need to determine the current market condition. When the market is trending, the MAs will be used as the main tools to find trend-following entries, while the RSI acts as an assistant tool to confirm signals from the MAs. On the contrary, when the market is moving sideways, the RSI will be used to find trading opportunities, while the MAs act as assistant tools to affirm the current market condition.

Below are the ways to trade with the Moving Averages & RSI system:

  1. When the market is trending:
  • Call signal: When prices are above MAs, and the RSI is between 50 – 70.
  • Put signal: When prices are below MAs, and the RSI is between 30 – 50.
  1. When the market is moving sideways:
  • Call signal: when the RSI crosses above 30 (in other words, it returns from the oversold territory).
  • Put signal: when the RSI crosses below 70 (coming back from the overbought territory).

Below are some useful tips when using the MA & RSI system:

  • The default parameters of MAs and the RSI are 14, and these parameters are the most commonly used among traders. However, you should change them according to your trading time frame and instrument. Typically, traders use low Moving Average settings (5, 10, or 15-period) on short-term time frames (1 minute, 5 minutes, 15 minutes), and use high settings (50, 100, or 200-period) on long-term time frames (4 hours, daily, weekly, monthly).
  • Combining candlestick patterns with the MAs & RSI system can help you find more accurate trading signals. For example, when the price is above the MA and the RSI is between 50 – 70, you should wait for a candlestick pattern confirming bulls are prevailing before opening a buy position.
  • Using 2 or 3 MAs with different parameters can help you identify trends more accurately. Some commonly used MA sets are EMA 8 & EMA 20, EMA 20 & SMA 50, and SMA 100 & SMA 200.

Conclusion

The Moving Averages & RSI trading system is comprehensive, flexible, and easy to use. Its installation is also simple because these indicators are integrated on most trading platforms today.

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