Trading binary options is not a mere gambling that you do over the internet. In fact, it is also an advanced mathematical science, whereby traders need to carry out analysis and researches. While candlesticks and trends analysis are major components of a successful trade, technical indicators are equally important to enhance your trading experience and make more accurate decision.
You don’t need to be scared about these technical indicators. Nowadays, technical indicators are automatically computer calculated sets of data retrieved from the market.
These are helpful for traders to understand the market and make onpoint predictions about the future of an asset price.
Furthermore, with the advent of new technologies, it has become much easier for traders to visualize how markets are trending. Furthermore, it also helps spot historical market behavior of assets and hence predict the different trades outcome.
What are the different technical indicators which exists and how can you use them to optimize your trades? In this article, we are going to cover some of them.
Zig Zag Indicator
ZigZag Indicator is the most commonly used technical indicator available in the industry. This indicator is used to determine the support and resistance areas and determine price trends. To have an accurate trend analysis, this technical indicators uses both Swing Highs and Swing Lows.
But hold on, what are these?
- Swing High happens when the price of an asset is higher than the price before and after.
- Swing Low happens when the price of an asset is lower than the price before and after.
With this said, Zig Zag is often used by traders to disregard random price fluctuations and try to make profit when the trend changes. However, one characteristics of ZigZag is the fact that it requires a consequent large move from the asset and by the time the pattern line changed direction the move might already be over.
Another specificities of ZigZag is the fact that it cannot be traded on its own. This indicator works well the RSI indicator. Concretely speaking, if the ZigZag indicator shows a bullish movement and the RSI indicator is going in the same direction over a specific expiry time, a trader can place a Call option.
Barry Indicator is among the simplest technical indicators which draws support as well as resistance levels. These two concepts are essential for traders. However, it is often difficult for new traders to grasp how to spot Support and Resistance levels.
With some level of maturity, traders can use this indicator to be more accurate in their trades. In fact, provided that you effectively installed this indicator in your MetaTrader platform, you will be able to identify Resistance levels through red lines while, on the other side, Supporting levels through blue lines.
However, this indicator does not identify future Support and Resistance Levels. In fact, this indicator is only capable of identifying the Support and Resistance which have already occurred.
RSI and Value Chart Indicators
RSI means Relative Strength Index. This indicator is used to spot two main conditions of overbought and oversold. According to most traders, they use level 70 for overbought and level 30 for oversold. This can reach level 80 and level 20 respectively for greater accuracy.
Moving on to the RSI charts. Overbought are located at highs while oversold are located at lows. On the other side, value chart indicator works on similar targets. Green bar are known as bullish movements while bearish movements are represented by red bars.
News indicators act as a reminder of upcoming news from the market or when brokers will have new releases. News indicators are important as they help traders to know how market news affect the price of assets. Forgetting about the different news may result in your trade being isolated. This can have negative effects on the outcome
Bollinger Bands Indicator
Initially created by John Bollinger, this indicator is a must to locate both Support and Resistance levels. Going deeper in the definition, Bollinger Bands are defined as lines which indicate the two deviations above and below a Moving Average.
Bollinger Bands help traders to be aware of the market volatility by addressing the non-linear lines of Support and Resistance levels of prices. The further the distance between the bands, the more is the market volatile.
Harmonic Patterns Indicators
Harmonic Patterns Indicators is an advanced technical analysis which requires traders to learn how to draw them. This technical indicator draws harmonic patterns on the charts and generates technical signals with entry points, stop-loss and probable targets.
Harmonic Patterns work for all pairs and time scales. This technical indicator tries to predict the future assets’ prices movements. As such, it measures how long current moves will last and can be used to set apart reversal points.
Fibonacci tools is a technical indicator used to predict points of Support and Resistance. Fibonacci numbers are known as 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc. There are several Fibonacci tools. Among these are Fibonacci Retracement which is the most commonly used. This is created by taking two extreme points on a stock chart and dividing the vertical distance with Fibonacci ratios of 23.6 %, 38.3%, 50 %, 61.8% and 100%.
Once these different levels are specified, horizontal lines are drawn to indicate the possible areas of Support and Resistance.
Moving Average indicates the average value of an asset over a specific period of time. This indicators takes in consideration various past prices to predict trends. Furthermore, this tool helps traders to have a graphical overview of the current trends and hence spot Support and Resistance levels. This tool also help traders to determine long-term trends more precisely.
How to choose the perfect technical indicator?
There are a wide variety of technical indicators which are useful to traders to predict and spot trends. However, there are some technical indicators which requires traders to have a minimum experience in the trading binary options. Hence, it is primordial to understand trading binary options and the different prerequisites. Here are some factors you need to consider before choosing the perfect technical indicator.
Choose according to your level of knowledge in understanding the technical indicators.
- Some technical indicators work in combination with others. This means that you will have to opt carefully.
- Choose according to accuracy of the technical indicators.
- Understand both Support and Resistance
- Trade the opportunities with the most profits.
BinaryOnline advises its traders to learn how to master the use of these indicators to be able to make more accurate decision when trading. You can also learn these techniques through our Definitive Guide To Binary Options.