If you have a firm grasp on the basics of using technical indicators within your binary options trading strategy, it might be time to elevate your game to the next level. Using a combination of the MACD indicator and Bollinger Bands is a simple, yet extremely effective method of improving the accuracy of your predictions. Here’s a brief overview of how to approach this particular strategy.
First, let’s look at the limitations that this method imposes. MACD is a lagging indicator. It is great for identifying past trends, but it is not the best at predicting the future. This makes it more susceptible to false signals, and it is unable to take fundamental and developing information into account. Still many traders—both binary and other—do rely on the past when making their predictions, so it is not without merit, either. As long as you are aware of this and capable of looking beyond it, this shouldn’t be an issue at all.
This is partially why we use Bollinger Bands in conjunction with MACD. Bollinger Bands are not foolproof in the information that they give, but they help minimize the potential for errors that are present in MACD alone. Bollinger Bands use an exponential moving average as a center line with a price channel line on each side of the EMA. When you use this with MACD, a lot of those false signals that were mentioned disappear.
Using these two methods together creates a powerful method of price prediction, especially in stable assets where volatility is equal to or less than the market norm. When you are using this, you will be looking for signals that agree with each other from both the MACD and the Bollinger Bands. The MACD should provide evidence that an entry point is valid, and the Bollinger Bands will confirm this by showing where the asset’s price position is relative to the developed channel. This will help you to further pinpoint entry points and allow you to increase the accuracy of your decisions. For example, if the MACD says that prices of the EUR/USD currency pair are about to drop, and the Bollinger Band has the asset’s current price near the top of a channel, this will be a pretty accurate move to act upon with a binary put option. If conflicting signals are given, such as the MACD saying you should go long, and prices being at the top of the channel, then you will know to avoid the trade.
When using this, make sure that you have real time data and that the timeframes you are using are reflective of the expiration times you are going to be trading. If you are trading 5 minute options, then you should double check the data with the timeframes above and below this, such as 2 minute segments and 10 minute segments. This will further improve the accuracy of your trades. The software that you use to make these determinations must offer you the flexibility to evaluate these things with ease so that you are not suffering because of a lack of accurate data.
Although this is not essential for your success with this method, it can help you to improve your correct trade rate in a tiny way if you use a fundamental indicator or sentimental trading analysis prior to executing any trades. The drawback of any technical indicator only trading strategy is that it doesn’t take into account broader trading issues, such as the release of information or trader emotions. These are typically far easier to access than technical data, so if you have an expertise in analyzing the numbers behind each trade, then this simple evaluation will be easy to apply to each trade. Monitor trading forums, read news reports, and double check to make sure that no major event concerning your asset of choice is going on before you begin your trades and you will find yourself in the clear with your technical data the vast majority of the time.
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