Lately, the binary options on currency pairs have been rapidly gaining popularity, so the broker sites more and more often feature special tutorials and indicators for options that can be freely downloaded.
To answer the question of how and why indicators are used for options, we shall consider the main differences between these derivatives and all other trading instruments, and let's start with the destruction of the most enduring myths that distort the real situation.
If you examine any financial forum, be sure to find the topics where users write that binary options have been specially devised by unreliable companies that have gone bankrupt in the Forex market and are now luring the gambling speculators under a new brand.
In fact, this statement is not entirely correct, since the first trading with such instruments was launched by the largest exchange CBOE in 2008 (to be more precise, the traders got the ability to buy options of "all-or-nothing" type on two instruments – SP500 and VIX indices).
Four years later, binary options were recognized by the Cyprus Securities Commission as a financial instrument, thus becoming subject to the fundamental law of the republic that regulates the relations between the main actors in the markets.
Thus, binary options didn’t just appear out of the blue – in fact, they are a full-fledged financial instrument, which you can use to build very interesting speculative strategies. Why some traders brought the idea to absurdity and began to play with them like in the casino is a separate question, which only the psychologists can answer.
What problem indicators for options should solve
In general, what is the binary option? If we speak in plain language – it is a derivative financial instrument, by buying which a trader is betting on the growth or decline in value of the underlying asset by a certain date (expiration).
The main feature lies in this aspect, because while you have to make accurate price forecasts on Forex, in case of the trades with binary options, a fixed and pre-negotiated profit is credited in all cases when you managed to correctly determine the general direction of the trend, i.e. without reference to particular goals.
Here we are getting to the key point of today's topic: it turns out that when trading binary options, entry point is much more important that exit point, so the indicators for options should generate accurate signals to the opening position, and all the other nuances (selection of expiration, etc.) is just a matter of technique and strategy optimization.
It should also be noted that, despite the fact that brokers have special web platforms, many trading strategies for Forex options are based on a universal and familiar to many traders MetaTrader terminal, so today we will focus on indicators specifically for this platform.
Standard indicators for options
Almost every speculator knows the situation when the indicator model gave a signal to buy (or sell, it does not matter), after which the price was indeed moving in the expected direction, but then froze in flat and rapidly reversed, tearing a stop-loss.
Whatever criticism the binary options suffered, these problems are not relevant for them, since you can always choose a time of expiration of the contract, within which the indicator signal can work in full. Given this feature, many of the indicators for options have been borrowed from a standard set.
One of the most popular algorithms from this list is the Commodity Channel Index. In this case, the option Call is bought after crossing the indicator line -100, and Put option is recommended to buy after achieving the level of 100. Expiration of the option is calculated individually for each timeframe and currency pair by comparing the versions on the history.
Trend indicators for options are no less popular today, even the elementary moving average was the basis of many trading strategies. Typically, deals are made after the breakdown of average prices, and all other details of such strategies are also optimized on history.
Actually, virtually all of the standard indicators can be applied to binary options market, it is easier to name the ones that are not suitable for analysis. This list should include Williams indicators and all the volume indicators.
Custom indicators for options
One of the most talked about developments today is an indicator called ForexMT4Systems_Cycle, included into the trading strategy called Forex mt4 binary. In the chart, it is presented in a separate basement window, but for better perception of signals, the author added special icons to the main chart:
It is recommended to bet on the growth of the selected pair after the blue bar and up arrow; if you see a red bar and down arrow– it's time to buy option Put. Some traders consider additional signals on pink and green bars, but they are less reliable, so the value of the option in these situations is given by half.
Indicators for options can also be complex (combine several formulas), a notable example of which is the Exact Entries Indicator algorithm. It shows the most probable direction of the trend with arrows, i.e. formally it is the usual arrow, but the appearing simplicity is deceptive, since the user can set the parameters of moving averages and MACD in the settings (values are taken into account in the search for signals).
It is impractical to comment on the procedures, because everything is very simple, we should only note that without the use of additional trend filters, the Exact Entries Indicator generates too many false alarms, so it loses in terms of efficiency to its fellow discussed above.
Indicators for options in a full-fledged trading system
And since we are talking about the need for the synthesis of several methods, a good strategy of the six indicators ForexProfitBinary can be an example. From the name, you can already guess that it was created specifically for trading the binary options on the currency pairs. The following chart shows an example of a system template:
One chart represents strength of all major currencies and pairs, so the trader can monitor the situation on multiple instruments. This board is a Forex Profit Supreme Meter algorithm, but apart from it, the strategy includes the following indicators for options:
- Supreme_Bars – red and green candles.
- Supreme_Clocks – notifies the imminent closure of the bar with a beep;
- Supreme_Signal – arrow, gives a preliminary signal;
- Supreme_Filter – histogram of the blue and red bars, acts as a filter.
- Supreme_Dline – another filter.
It is noteworthy that many Forex traders began to use indicators for options in their strategies, since they identify the signals for the deal with higher accuracy compared with conventional methods (they were created for this purpose, by the way).Social button for Joomla