Binary options moving average

Moving Average Strategy.

How Can you Use Moving Averages (MAs) in your Binary Options Strategies?

The Simple Moving Average strategy (SMA) indicator displays values that are calculating by adding the closing prices of the last N period and then dividing the result by the number of N periods. You should note that the Simple Moving Average is a lagging indicator that you can utilize to predict future price movements using past price data.

will also discover that this indicator is more reliable and provides more accurate readings when you use it with an increased number of periods. However, when doing so the SMA has the disadvantage of then responding slower to new price developments.

As with many binary options strategies, the easiest-to-understand ones are often the best. The moving average strategy that is structured on the 5 period and 20 period crossovers definitely fits this bill which has acquired an impressive reputation for being one of the most effective binary options trading tools.

The fundamental concept could hardly be any simpler. You can detect quality trading opportunities whenever the 5 period moving average climbs above or drops beneath the 20-period moving average. Specifically, an upwards crossover generates a buy signal while a downwards one signals a sell alert.

Most advocates of this moving average strategy tend to opt to use it on trading chart displaying the hourly time-frame. This is because crossovers are then often created during the current period. However, you must always remember that moving averages are lagging indicators. This feature implies that when you do detect a crossover, the entry point for your new binary option will lag behind prevailing market conditions.

Example of the Moving Average Strategy.

The following chart demonstrates a strategy based on the 5 period and 20 period moving averages. Crossover points are displayed at which you should consider opening CALL and PUT binary options.

As different assets all possess their own behavioral patterns, one of the major benefits of this strategy is that you will only be searching for small price movements in your chosen direction in order to exploit the high payout rates of binary options. As you can confirm by studying the above diagram, crossovers are very often associated with the creation of new directional trends.

This feature therefore provides you with the optimum chance to activate binary options that will finish ‘in-the-money’. As such, moving average strategies perform better than many other types of strategies that are more dependent on capturing larger price movements in order to counter the impacts of noise and spreads.

Benefits of the Moving Average Strategy.

Moving average strategy operate equally well with Range, Touch/No Touch and UP/DOWN binary options. Many traders have discovered that this strategy can be very effective when combined with Touch binary options. This is an exciting feature because Touch options provide very high returns from 300% upwards. However, as there is more risk involved in trading Touch binary options, you must ensure, as best as possible, that your trades possess sufficient momentum to hit your targeted levels. As the above chart demonstrates, moving average strategies are capable of identifying such trading opportunities since its crossovers are linked to extensive price movements.

However, you will need to gain experience using moving average strategies coupled with ‘Touch’ binary options in order to optimize your profits using minimum risks. Essentially, the primary secret to success is to learn how to identify the best payout ratio for each trade executed. This is because the size of the return is proportional linked to the distance between your targeted level and your opening price.

Consequently, if you select a ‘Touch’ level that is too far from your strike price, then the payout ratio will be large but so will your risks. Subsequently, there will exist a high probability that price will not progress far enough in order to hit your preselected target at least once in order for your Touch binary option to finish ‘in-the-money’. In contrast, if you choose a ‘Touch’ level too close to the opening price of your binary option, then you will have more chance of creating wins but with substantially reduced return ratios.

However, a moving average strategy definitely provides you with the ability to profit from trading the very lucrative Touch binary options. You just need to expend time and energy mastering the grey areas involved in the type of trading as just explained. When you are doing so, you should also investigate the virtues of incorporating ‘No Touch’ binary options into your strategy as well.

Introducing the Exponential Moving Average.

Some traders have found that the lagging element of strategies based on the simple moving average is too restrictive. As such, they have experimented by structuring their strategies on the exponential moving average. This is because after using the simple moving average technical indicator for some time, they discovered that it is good for detecting Forex trends but does not cope very well with price surges. This is because its design stresses all price data equally the same irrespective whether it is old or new.

To respond to changing market conditions more quickly, you can use a technical indicator that that places greater emphasis on newer price data. As the Exponential Moving Average does just that, it can adapt to ever-evolving trading conditions much faster.

You will also be pleased to know that you do not need to perform any mathematical calculations when utilizing an indicator such as the EMA because your charting software will perform this task for you. As such, a number of moving average strategies have been invented based on the EMA in order to trade binary options. For example, one of the most popular is called the Exponential Moving Average Rainbow Strategy. The following diagram compares the SMA to the EMA.

Moving Averages Strategy for Binary Options.

Improve your binary options trading style by learning and implementing the moving averages strategy. We’ve already talked about chart patterns and what their significance to technical analysis is. However, it’s really important to clear out that in most cases things aren’t as clear as in the examples we’ve 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.

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, here’s an example. Let’s 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, it’s 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 isn’t 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 day’s 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 we’ve picked. This is the basis of the principle.

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 don’t 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 won’t 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 we’ve 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.

It’s 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 isn’t 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 don’t 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.

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Binary Options Trading System With Moving Averages.

Moving averages are lagging indicators that can be used to determine buy CALL/buy PUT trend bias. Price below the moving average suggests bearish bias. On the contrary, price above the moving average suggests bullish bias. This binary system is composed of an exponential moving average, a short-term moving average cross-over system with overbought (0.75) – oversold (0.15) oscillator readings to pinpoint entry signals.

Binary Indicators: 100 period Exponential Moving Average, EMA-Crossover_Signal_BO, BOlaguerre ( settings: gamma 0.57)

Time Frame: 5 min and above.

Trading sessions: Any.

Currency pairs: EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CAD, EUR/JPY, GBP/JPY.

Commodities: Gold, Silver.

GBP/USD 5 Min Chart Example (Open Buy Put Option)

All buy PUT binary options signals expired in the money with 81% profit per trade.

Here are the steps to execute buy Call using the moving averages system:

Price above the 100 period Exponential Moving Average (bullish trend) Wait for the EMA-Crossover_Signal_BO GREEN arrow BOlaquerre rises back above 0.15 from below (oversold) Buy Call Option at the open of the next bar.

Here are the steps to execute buy Put using the moving averages system:

Price below the 100 period Exponential Moving Average (bearish trend) Wait for the EMA-Crossover_Signal_BO RED arrow BOlaquerre falls back below 0.75 from above (overbought) Buy Put Option at the open of the next bar.

At least 4 candlesticks. Some examples:

5 Min chart: 20 min expiry. Hourly chart: 240 min expiry.

As with everything, please experiment with the expiry time settings to find out what works best for your trading style.

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Moving Average in Binary Options.

In binary options trading, it is essential for the binary options trader to have a basis on a Call or Put action. Different techniques are used to make an informed decision. Some may rely on just financial news and world market trends. Others employ more sophisticated formulas to predict the movement of the price of a specific asset. No matter what technique is used, the risk of a binary options trader is greatly reduced when proper analysis is made.

Technical analysis has been used by binary options brokers since it came to the market a few years back. Traders have seen the invention of hundreds of indicators which they factor when they purchase binary options. Some technical indicators are more popular than others. Some may be objective to some traders. But reliable and useful analysis techniques such as the moving average is preferred over the others by newer binary options traders.

Moving average is exactly what its name implies. It denotes the average of the price movement of an asset for a specific period of time. Moving averages have different derivatives. But, their underlying purpose remains the same. The purpose of moving averages (hereon referred to as MA) is to help binary options traders track the trends of financial assets by smoothing out the day-to-day price fluctuations, also called noise. When the daily fluctuations are disregarded, a more direct trend results, and a general action or direction can be traced from the curve.

By identifying trends using MA, traders are able to make those trends work in their favor and increase the number of winning trades. A clear understanding of why moving averages are important is what the binary options trader needs in order to appreciate the technique. How they are calculated is what will be discussed here.

Simple Moving Average.

Moving averages are a common way to gauge the direction of a current trend. Every type of MA is a mathematical result that is calculated by averaging the number of past data points. Once the average is determined, it is then plotted into a chart. This would allow binary options traders to look at smoothened data rather getting confused with the the day-to-day price fluctuations that are inherent in all financial markets.

The simplest form of a moving average is aptly known as a simple moving average (SMA). This type of moving average is computed by taking the arithmetic mean of a given set of values. For example, to calculate a basic 10-day moving average you would add up the closing prices from the past 10 days and then divide the result by 10.

Say we have these following value points:

12, 10, 7, 8, 7, 10, 10, 8, 9, 13, 7, 6, 9.

From the above given set of values, the sum of the prices for the past 10 days counting from the rightmost value (9) is 87.

8 + 7 + 10 + 10 + 8 + 9 + 13 + 7 + 6 + 9 = 87.

This sum is divided by the number of days (10) to arrive at the 10-day average.

If a binary options trader wishes to see a 50-day average instead, the same procedure would be made, but the sum would be divided into 50 to include the prices over the past 50 days. The resulting average from our example, 8.7, takes into account the past 10 data points. This gives the binary options trader an idea of how an asset is priced relative to the past 10 days.

So why is it called a “moving” average if it’s just plain average. Because, as new values arrive, older data points will be dropped from the set to make way for the new values. Thus, the data set is constantly “moving” to account for new data as they becomes available.

This method of computation ensures that only the most current information is being accounted for. Here’s the continuation of our example. Say a trading day closed adding a new value (12) to our history.

12, 10, 7, 8, 7, 10, 10, 8, 9, 13, 7, 6, 9, 12.

Once the new value of 12 is added to the set, the past 10 data points now includes the 12 and drops the first 8. The new count of 10 data points now start from 12, changing the sum.

7 + 10 + 10 + 8 + 9 + 13 + 7 + 6 + 9 + 12 = 91.

Because of the relatively larger value of 12 replacing the lower value 8, a binary options trader would expect to see the average of the data set increase. In our example, the SMA went from 8.7 to 9.1.

After obtaining the different SMAs, they are plotted in a chart and connected together to create a moving average line. You will be able to find these curving lines on charts that technical traders use.

Exponential Moving Average.

The Exponential Moving Average (EMA) is a type of moving average that gives more weight to recent prices to make them more responsive to new information. Don’t get intimidated by the equation as it is widely used and mastering it is not really necessary since nearly all charting platforms do the computations for you. However, for purposes of discussion, the EMA equation is:

EMA = (P * a) + (Previous EMA * (1 — a) )

From the formula, we notice that when we calculate the first point of the EMA, there is no value available for the Previous EMA. This can be resolved by obtaining an SMA and continuing on with the above formula for EMA. Traders usually use simple spreadsheets that are available in the Internet that includes real-life examples of how to calculate both a SMAs and EMAs.

Also, by looking at how the EMA is calculated, it can be found that more emphasis is placed on more recent data points, making it a type of weighted average. EMA responds more quickly to the changing of prices. This means that for a certain time period, the EMA has already forecasted that a price would go down while the SMA would still need to go through more periods for find the prices falling. This responsiveness is the main reason why more binary options traders prefer to use the EMA over the SMA.

The use of EMA charts has helped binary options traders forecast trends and directions based on moving average values. The EMA is used in many strategies, so it is recommended to master reading EMA charts. How to use these values to set up trend forecasts is what many charting platforms provide.

Some binary options brokers also provide charts that show moving averages. See our list of binary options brokers, and choose one that you are most comfortable with. Let us help you in your way to success.

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