Indicators - The Best Technical Indicators For Digital Trading

Indicators – The Best Technical Indicators
For Digital Trading

Contents ▾
What Are Indicators?

Trading technical indicators with binary options can be a highly profitable trading
style
Why–Doif you know how
Indicators Suitto do it right.
Binary Our article explains the basics and three
Options?
examples
What AreofLeading
strategies that you can use. In detail, you will learn:
Indicators?
What
What AreAre Technical
Lagging Indicators?
Indicators?
Why Are Technical Indicators And Digital Options A Great Combination?
Three Examples
Three ExamplesOfOf
Strategies
Strategies For
For Technical
Technical Indicators
Finalthis
Indicators
With Word On Technical
information, you Indicators
will immediately be able to trade binary options with
technical indicators.
What Are Indicators?

Technical indicators are helpful trading tools that allow price action (/price-
action) traders to understand what is going on in the market and make
predictions about what will happen next.
Some indicators draw their results directly into the price chart, which makes it
easy for analysts to compare them to the current market price. Other indicators
use a separate window to display their results. The most well-known example of
this type of indicator is oscillators. These indicators create a value that
oscillates between 0 and 100. This value and its change over time allow you to
understand what happened in the past and what will happen next.
There are thousands of indicators, but these are the most important types and a
few examples:
Support & resistance: These indicators predict support and resistance levels at
which the market is likely to turn around. When it breaks through such a level, it will
likely create a strong movement away from the price level. Examples: Bottom,
Fibonacci retracement, Pivot point (PP), Top.
Trend: These indicators help you evaluate the strength and trustworthiness of trends.
Examples: Average directional index (A.D.X.), Commodity channel index (CCI),
https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Page 1 of 32
Detrended price oscillator (DPO), Know sure thing oscillator (KST), Ichimoku Kinkō
Hyō, Moving average convergence/divergence (MACD), Mass index Moving average
(MA), Parabolic SAR (SAR), Smart money index (SMI), Trix Vortex Indicator (VI).
Momentum: These indicators help you understand the momentum of a movement.
Examples: Money flow index (MFI), Relative strength index (RSI), Stochastic
oscillator, True strength index (TSI), Ultimate oscillator Williams %R (%R).
Volume: These indicators use the trading volume (the number of assets sold or
bought) to evaluate whether investors are more bullish or bearish. Examples:
Accumulation/distribution line, Ease of movement (EMV), Force Index (FI), Negative
volume index (NVI), On-balance volume (OBV), Put/call ratio (PCR), Volume–price
trend (VPT).
Volatility Indicators: These indicators measure the strength of a movement, which
helps traders to make a variety of predictions, especially for binary options types
that use target prices, for example one touch options, boundary options, or ladder
options. Examples: Average true range (ATR), Bollinger Bands (BB), Donchian
channel, Keltner channel, CBOE, Market Volatility Index (VIX), Standard deviation (σ).
There is no need to learn all of these indicators. Take a look at each category,
choose the one that you like best, and take it from there. It is best to start with
an indicator that you truly understand and like. Later you can add more
indicators to your strategy, allowing your trading to evolve naturally.
Why Do Indicators Suit Binary Options?

Most binary options traders rely heavily on technical indicators. There are mainly
three reasons for this strong connection between binary options and technical
indicators:
1. Technical indicators simplify price action analysis. Price action is the only way to
predict what will happen on such short time frames as you use within binary options.
Just looking at price movements can be confusing, though. Technical indicators can
filter the most important information of a price chart and display it in a way that
everyone can immediately understand. This simplification makes your trading quicker
and easier.
2. Indicators secure your trading. When you analyze the market without any help,
there is a lot of information to take in. Complexity leads to mistakes and bad
decisions, both of which cost you money. Technical indicators eliminate these
mistakes, which is why they help you make more money in a simpler way – a great
combination.
3. Indicators can reveal things no trader can. Within a split second, technical
indicators analyze hundreds of datasets, filter out the most relevant information, and

Page 2 of 32
display it in a way that everyone can understand. Without the help of technical
indicators, most of this information would be inaccessible. It would take years to
calculate the Bollinger bands for fifty assets with ten time periods each. Technical
analysis adds layers of information to your trading that would have been hidden
otherwise.
These points are the reasons why technical indicators and binary options are
such a great combination.
What Are Leading Indicators?

Leading indicators are a special form of market indicators. Market indicators are
everything that helps you understand whether the price of an asset will rise or
fall in the future. They provide an important, helpful, and easy-to-interpret tool of
for binary options traders. With the right strategy, they can help you anticipate
new market movements and find the ideal timing to invest.
These indicators can be categorised into two types:
1. Leading indicators. This type of indicator predicts what will happen to the price of
an asset.
2. Lagging indicators. This type of indicator tells you what has happened to the price
of an asset. While this information is supposed to help you predict what will happen
next, the indication itself focuses on the past – this is the big difference between
both types of indicators.
The goal of leading indicators is to give you a sense of where the price of an
asset is heading. A great example of a leading indicator from another field is the
business climate index. Business managers report their expectations for the
future, and the index creates an aggregated value that easily can be compared
easily to previous months and years. The value and its change over time help
you to predict whether the economy will improve or get worse.
Leading financial indicators do the same thing. They measure something, and
the resulting value tells you whether things will get better or worse.
Why Should I Use Leading Indicators?

Page 3 of 32
Leading indicators serve a very important purpose: they can help you
understand whether an existing movement is more likely to continue or to end
soon. With this indication, you can find great trading opportunities and avoid bad
ones.
For example, assume that you find an upwards movement.
If your leading indicator tells you that the movement likely will continue, you know
that this is the right time to trade a high option.
If your leading indicator tells you that the movement likely will end soon, you know
that now is not the right time to trade a high option. You should either stay out of the
market or trade an option that predicts the impending end of the movement.
For any trend follower, swing trader, and almost anyone else, leading indicators
add important information to their trading style. They can help filter out bad
signals, find new trading opportunities, and win more trades.
Popular Examples Of Leading Indicators

There are hundreds of leading indicators. Some of them are similar, some very
different. To help you understand leading indicators better, we will now take a
look at three different examples of leading indicators that allow you to get a
good feel for the different types of leading indicators.
Example 1: The Money Flow Index (MFI)

The Money Flow Index (MFI) (/money-flow-index-mfi) is such a popular leading
indicator because it helps traders quickly evaluate the strength of a trend.
As the name indicates, the MFI compares the money that flows into an asset to
the money that flows out of it. For this purpose, it multiplies the average of each
period’s high, low, and closing prices with the period’s volume and then divides
the sum of all periods with rising prices by the sum of all periods with falling
prices.

Page 4 of 32
(https://www.binaryoptions.co.uk/wp-content/uploads/2017/07/048-eurusd-d1-
gci-financial.png)
The result is a value between 0 and 100.
1. When the MFI reads 100, all the money was flowing into an asset – all periods
featured rising periods.
2. When the MFI reads 0, all the money was flowing out of an asset – all periods
featured falling prices.
3. When the MFI reads 50, the number of sold and bought assets was exactly equal.
Every value over 50 indicates that more people sold than bought the asset, every
value under 50 indicates the opposite.
The MFI’s reading and its change over time allow for two predictions about
future market movements:
1. Extreme values. When the MFI is too high (usually over 70) or too low (usually under
30), the market enters the extreme areas. Traders assume that such extreme values
indicate that too many traders have already bought or sold an asset and that there
are no more traders left that can buy or sell the asset and keep the movement going.
Consequently, they predict that the movement is in trouble and soon will either turn
around or go through a consolidation before it can continue. Some traders use this
signal to stop investing in the movement; some already invest in the opposite

Page 5 of 32
direction.
2. Convergence/divergence. When the market forms a new extreme in a trend (a new
high in an uptrend or a new low in a downtrend), the MFI should mirror this
movement and create a new extreme, too. When the MFI does not mirror the market’s
new high/low with its own high/low, traders have stopped pushing the trend. While
this was still enough to create a new extreme, a continuing decline in momentum
would end the trade. Some traders would use this signal to stop investing in a trend,
some to invest in the opposite direction.
Of course, you can also interpret the MFI in the opposite way:
1. When the MFI reads between 30 and 70, there is enough room for the market to
continue its current movement. Most traders would predict that the movement will
continue for a while and invest accordingly.
2. When the MFI mirrors the current trend, the trend is intact. Most traders would
predict that the trend will continue and invest accordingly.
The MFI is a leading indicator because it predicts that a trend or movement will
continue or end soon. Lagging indicators would only tell you what happened to a
movement in the past.
Because the MFI’s value oscillates between 0 and 100, it is called an oscillator.
Most other oscillators are leading indicators, too. If you like the idea of having a
simple on which to base your investment decisions, take a look at other
oscillators technical analysis has to offer.
Example 2: The Commodity Channel Index (CCI)

Don’t let the name fool you – the Commodity Channel Index (CCI) works with all
types of assets, not only commodities.
Simply put, the CCI calculates how far an asset has diverged from its statistical
mean. The theory is that when an asset has strayed too far from its mean price,
it will soon have to come back. Just like with MFI, the CCI assumes that when
too many traders have bought or sold an asset, there is nobody left to push the
market further in this direction. It has to turn around and consolidate.

Page 6 of 32
(https://www.binaryoptions.co.uk/wp-content/uploads/2017/07/048-
Commodity_channel_index_CCI.png)
In detail, the CCI multiplies the last complete period’s average of high, low, and
closing price with 0.015 and puts the result in relation to a smoothed moving
average.
Values over 100 indicate that the asset is trading higher than 1.015 times of the
moving average’s value.
Values under -100 indicate that the asset is trading lower than 0.985 times of the
moving average’s value.
In both cases, the CCI predicts that the market has moved too far from the
moving average and that the movement will soon turn around.
Some traders also wait before they invest.
When the CCI has risen over 100, they wait until it starts to fall before they invest.
When the CCI has fallen below -100, they wait until it starts to rise before they
invest.
These traders use the CCI more as a lagging indicator. To use the CCI as a
leading indicator, you have to invest when the market crosses the +100/-100
lines – then you invest in anticipation. When you trade the changing direction,
you invest in reaction and use the CCI as a lagging indicator.

Page 7 of 32
Sometimes the line between lagging and leading indicators can be thin. As long
as you know the difference and trade accordingly, you should be fine.
Example 3: The Relative Strength Index (RSI)

On first glance, the Relative Strength Index (RSI) (/relative-strength-index-rsi)
appears to be pretty similar to the Money Flow Index (MFI). Both are oscillators,
create a value between 0 and 100, and use an overbought and an oversold area.
The difference between both indicators is that the RSI focuses solely on price
change while the MFI also considers the volume of each period. While the RSI
treats every period equally, the MFI puts more weight on periods with a high
volume and less weight on periods with a low volume.
(https://www.binaryoptions.co.uk/wp-content/uploads/2017/07/048-RSIwiki.gif)
Other than that, you can use the RSI just like the MFI. Trade divergences and the
oversold areas above 70 or below 30. When the RSI is between 30 and 70 the
current movement should still have some room; when it mirrors a trend, the trend
is fine.
Neither the MFI nor the RSI is always better. Which indicator you should use
depends on your strategy, your personality, and your beliefs about the market.

Page 8 of 32
Some traders argue that they trade the price, not the volume and that they, therefore,
should ignore volume. They also say that the volume is too similar on the short time
frames of binary options to have an effect. These traders should use the RSI.
Some traders argue that the volume does have a significant effect because it tells you
which direction more traders support. These traders should use the MFI.
How To Trade Leading Indicators With Binaries

All leading indicators can be the sole basis of your trading strategy or an
additional feature to your current strategy to filter out signals. We will present
strategies that use leading indicators in both ways.
Strategy 1: Trading The MFI Divergences With

High/Low Options
We already pointed out that the MFI mirrors an intact trend.
When an intact uptrend creates a new high, the MFI creates a new high, too.
When an intact downtrend creates a new low, the MFI create a new low, too.
When the MFI fails to mirror a trend’s new extreme, the trend is in trouble. The
trend is losing momentum, and while it still had enough power to create new
extreme, it seems that this was the trend’s last extreme.
High/low options offer you the perfect tool to trade this prediction.
When the MFI diverges in an uptrend, invest in a low option.
When the MFI diverges in a downtrend, invest in a high option.
The important part of this strategy is getting the expiry right. While it is highly
likely that the market will follow an MFI divergence by changing direction or
entering a sideways movement, these movements take time to develop. It is
important that you choose your expiry long enough to provide the market with
this time.
When you find an MFI divergence in a 5-minute chart, for example, an expiry of
15 minutes would be insufficient. The market will take at least 10 periods to turn
around, and a 15-minute expiry would only be the equivalent of 3 bars. Choose
an expiry of one hour, and you increase your chances of winning the trade.
You can also trade this strategy with the RSI. You would just switch indicators,
without changing anything else.

Page 9 of 32
Additionally, you can replace high/low options with low-risk ladder options.
Ladder options work just like high/low options but allow you to use a price other
than the current market price as the reference point for your prediction.
After an MFI divergence in an uptrend, you predict that the market will trade lower
than a price that is above the current market price.
After an MFI divergence in a downtrend, you predict that the market will trade higher
than a price that is below the current market price.
This is the safer version of the strategy. Instead of using the current market price
as the reference point for your prediction, you use a price that is further in the
direction from which you expect the market to move away. This strategy will win
you a higher percentage of your trades but also get you a lower payout. Decide
for yourself which strategy you want to use.
Strategy 2: Filtering Trends With The RSI

A trend following strategy follows a simple principle:
In an uptrend, invest in rising prices.
In a downtrend, invest in falling prices.
Despite this simplicity, many traders are afraid that they might invest in a trend
that will end soon. These traders can use the RSI to filter signals.
When the RSI has mirrored the trend, invest in the trend.
When the RSI has diverged from the trend, do not invest in the trend.
The addition of the RSI to a trend-following strategy can help traders to win a
higher percentage of their trades and make more money with a simple check.
Keep the rest of your strategy unchanged. Use the same expiry as before and
invest the same percentage of your overall account balance per trade.
Strategy 3: Trading the MFI’s extreme areas with

high/low options
In addition to divergences, the MFI also creates a prediction when a movement
enters an extreme area. This prediction allows for a simple trading strategy:
When the MFI enters the overbought area, invest in a low option.
When the MFI enters the oversold area, invest in a low option.
The success of this strategy depends on your ability to choose the right expiry.

Page 10 of 32
The market will need some time to turn around, which is why you must avoid
choosing a too short expiry. When you choose your expiry too long, on the other
hand, the movement might be over by the time your option expires.
Experience will help you find the right expiry. The perfect setting depends on the
situation, the period of your chart, and the characteristics of the asset. If you are
looking for a rough number with which to start, try around 5 periods, and then
take it from there.
Similarly to the first strategy, you can also trade this strategy based on the RSI
or with low-risk ladder options.
Leading Indicators – Summary
Leading indicators are an important, helpful, and easy-to-interpret tool of market
analysis. Binary options traders can use leading indicators as the sole basis of
their strategy or to filter signals. They are especially helpful to find the right
timing and avoid bad trading opportunities.
What Are Lagging Indicators?

Lagging indicators are an important aspect of any market analysis strategy. This
article explains everything you need to know to trade binary options based on
lagging indicators. You will also understand their advantages, disadvantages,
and ideal fields of use.
The difference between leading and lagging trading indicators is the same.
Lagging trading indicators tell you what happened to the price of an asset in the past
in a way that helps you to predict what will happen next.
Leading indicators analyse another factor and predict how it will influence the price
of an asset.
This difference is why lagging indicators are especially useful during trending
periods. When the market is in a trend, lagging indicators can help you make
great predictions; but when the market is not trending, many lagging indicators
use their predictive qualities.
Lagging indicators serve an important purpose and are a vital part of any market
analysis strategy. To see how you can use lagging indicators for your trading,
let’s take a closer look at three popular examples of lagging indicators.

Page 11 of 32
Popular Examples Of Lagging Indicators
There are hundreds of lagging indicators, but let’s keep things simple. Here are
the three most popular lagging indicators every trader should know.
Example 1: Trends
The most popular example of a lagging indicator is the trend. Trends are the zig
zag movements that take the market to new highs and lows.
Trends are zig-zag movements because the market never moves in a straight
line. Every once in a while, every movement has to take a break to create new
momentum. It is simply impossible for all traders constantly to keep buying.

Page 12 of 32
OracleSupportResistanceTrendLineChart.jpg)
This is why trends take two steps forward and one step back. The resulting zig-
zag movements are easy to identify and allow for accurate predictions.
Uptrends continually create higher highs and lows.
Downtrends continually create lower lows and highs.
A trend strategy predicts that the current trend is likely to continue.

When the market is in an uptrend, trend traders invest in rising prices.
When the market is in a downtrend, trend traders invest in falling prices.
Some traders also trade every swing in a trend. A swing is a movement from
high to low, and by trading multiple swings during a trend, swing traders hope to
increase their profit.
Of course, no trend will continue indefinitely. But even with high/low options, you
would only need to win 60 percent of your trades to make money. A well-
executed trend strategy should easily be able to achieve this goal.
A trend is a lagging indicator because it tells you that the market was in a trend
over the last periods. While this knowledge also allows for predictions about
what will happen next, the main indication of a trend is based on past price
movements.
Trends are also the most important lagging indicator. Most other lagging
indicators lose their predictive abilities when the market is not trending, which is
why a trend analysis should precede the use of other technical indicators.
Example 2: Moving averages

Another popular example of a lagging indicator is the moving average. A moving
average calculates the average price of the last periods and draws it into your
chart. It then repeats the process for all preceding periods and connects the
dots to a line.

Page 13 of 32
Moving_Average_Types_comparison_-_Simple_and_Exponential.png)
The position and the direction of a moving average can tell you a lot about what
the price of an asset has done:
When a moving average points upwards, the market must have risen over the last
periods. When it points downwards, the market must have fallen.
When the market is trading higher than the moving average, the market must have
risen over the last periods. When the market is trading lower than the moving
average, the market must have fallen.
When both of these indications point in the same direction, you get a good
indication of what is happening.
When the market is trading above a moving average and the moving average is
pointing upwards, the market is likely rising.
When the market is trading below a moving average and the moving average is

Page 14 of 32
pointing downwards, the market is likely falling.
These indications help you to make a better investment decision.
Example 3: Bollinger Bands

Bollinger Bands are a popular indicator because they create a price channel in
which the market is likely to remain. This price channel consists of three lines or
bands:
1. A 20-period moving average as the middle line.
2. An upper line two times the standard deviation above the middle line.
3. A lower line two times the standard deviation below the middle line.
The market always never leaves the outer two lines of the Bollinger Bands. The
middle line works as a weaker resistance or support, depending on whether the
market is currently above or below it.

Page 15 of 32
(https://www.binaryoptions.co.uk/wp-content/uploads/2017/05/technical-
indicators-bollinger-bands-min.png)
Bollinger Bands can help you to understand whether an asset’s price is likely to
rise or fall.
When an asset is trading near the upper range of the Bollinger Bands, it has little
room left to climb any further. Consequently, it is likely to fall.
When an asset is trading near the lower range of the Bollinger Bands, it has little
room left to fall any further. Consequently, it is likely to rise.
When an asset is approaching the middle line, it is likely to take a break. Sometimes,
the market will break through the middle line; sometimes, it will turn around.
These indications provide you with many trading opportunities.

Page 16 of 32
Bollinger Bands are lagging indicators because they only tell you what happened
in the past. The moving average and the standard deviation are both based on
the last 20 periods. While it is likely that the market will adhere to similar
confides for the current period, too, Bollinger Bands are unable to predict the
trading range 50 periods from now. Then, the market environment will have
changed, and the trading range will be different.
Despite this limitation, Bollinger Bands can be a valuable part of your trading
strategy. We will later see how.
Why Should I Use Lagging Indicators?

Some newcomers to binary options question whether lagging indicators can help
them at all. They point out that any trader has to predict what will happen next,
and argue that indicators that tell you what has already happened are of little
help with this task.
These traders are mistaken. Lagging indicators can make valuable predictions
and help you gain deep insights into the market. There are two main reasons
why traders use lagging indicators:
1. Lagging indicators are based on proven facts; leading indicators are not.
2. Understanding what has happened helps you predict what will happen next.
Let’s take a closer look at these three advantages of lagging indicators.
Advantage 1: Lagging indicators are based on proven

facts, leading indicators are not
When a 50-period moving average is pointing upward, you know that the price of
an asset has risen more than it has fallen over the last 50 periods. This result is
indisputable. Similarly, when the market is currently trading below the moving
average, you know that the market has recently picked up some downwards
momentum.
This knowledge puts your trading strategy on solid feet. Especially conservative
traders will like lagging indicators because they provide them with a certain
basis from which they can make their decisions.

Page 17 of 32
Leading indicators are different. The volume is a leading indicator, for example. A
volume strategy predicts that a reducing volume indicates the impending end of
a movement. This might be true, but it is not certain, and it is impossible to
prove this connection – you have to believe it. While the volume is slowing
down, the price movement itself can even accelerate. Sometimes, a reduced
volume indicates an ending movement; sometimes it does not.
Simply put, lagging indicators focus on past price movements – which are
known. Leading indicators imply that another factor will influence future price
movements – you can believe that there is a connection, and there might be, but
there are many other factors influencing the market, which is why it is impossible
to say whether this connection influences the market at all and whether it will
influence the market stronger than other connections.
Advantage 2: Understanding what has happened

helps you predict what will happen next.
Lagging indicators also allow for predictions about what will happen next – they
just do so indirectly.
Leading indicators imply that a certain factor will decide where the market will
go next. Lagging indicators make no such assumption. They simply predict that
what has happened before will continue.
When the market crosses a moving average, lagging indicators only tell you what
has happened – the market has recently changed direction. The implied
assumption is that this movement will continue.
If the market fell for the last periods, it seems likely that the same factors that
pushed down the market in the recent past will also push it down shortly.
If the market rose for the last periods, it seems likely that the same factors that
pushed up the market in the recent past will also push it up shortly.
Both predictions are tradable.
Generally, binary options trading requires you to understand what is happening

right now. Since there are so many factors at work right now, it is impossible to
say with is happening with absolute certainty. But understanding what has
happened is an essential part of arriving at a tradable prediction that will be
right in enough cases to make you money.

Page 18 of 32
How To Trade Lagging Indicators
Let’s get concrete. Here are three strategies for how you can trade lagging
indicators with binary options.
Strategy 1: Trade Swings In A Trend With One Touch

Options
Each trend consists of many swings. Each single swing offers a great trading
opportunity for one touch options because it combines strong indications of
direction and length of movement.
Every movement in the main trend direction is followed by a movement in the

opposite direction and vice versa. This simple relationship makes predicting the
market’s direction simple once you recognize a swing.
Now, you could simply trade this signal with high/low options, but swings also
allow you to trade one touch options, which offer much higher payouts but
require you to predict the length of the movement.
In a trend, swings in the main direction will always move at least as far as the
last extreme.
In an uptrend, the next upwards swing will reach at least the price level of the
previous high.
In a downtrend, the next downwards movements will reach at least the price level of
the previous low.
Swings against the main trend direction follow similarly clear rules. The market
usually reverses one-third or two-thirds of the previous movement in the main
trend direction.
In an uptrend, a downwards swing will reverse roughly one-third to two-thirds of the
previous upwards swing.
In a downtrend, an upwards swing will reverse roughly one-third to two-thirds of the
previous downwards movements.
With this knowledge, you gain the clear price target that you need to trade a
one-touch option. Here’s what you do:
1. Wait for an ending swing.
2. Determine the reach and the direction of the next swing.
3. Check whether your broker offers you a one touch option with a target price within

Page 19 of 32
reach of this movement and a realistic expiry. If so, trade it. If not, trade a high/low
option in the direction of the movement.
At this point, it is important to mention that movements against the trend’s main
direction are usually more volatile and take longer to develop. Many traders
avoid trading reversals with one touch options and use high/low options instead.
Decide for yourself how you want to trade reversals.
Strategy 2: Trade The Market Crossing The Moving

Average With High/Low Options
When the market crosses a moving average, it has apparently changed direction.
You can predict that this new movement will continue and invest in a high/low
option in the direction of the movement.
When the market crosses your moving average downwards, invest in a low option.
When the market crosses your moving average upwards, invest in a high option.
The important aspect of this strategy is that you choose the right expiry. For
example, a 9-period moving average can never predict what will happen to the
price of an asset over the next 50 periods. 50 periods and 9 periods are simply
too different time frames.
To avoid making predictions that are impossible to make based on your moving
average, always keep your expiry shorter than the amount of time that is the
basis of your moving average. Ideally, you would use an expiry shorter than half
of your moving average.
Similarly, you should avoid using an expiry that is too short, or short-term
market fluctuations could cause you to lose your trade despite making a correct
prediction. Use an expiry that is at least one-quarter of the time that is the basis
of your moving average.
For example, when you use a moving average that is based on 20 periods and a
price chart with a period of 5 minutes, your moving average is based on 100
minutes (20 times 5). Ideally, you would trade this moving average with an expiry
of 25 to 50 minutes. You could also go a little longer or shorter, but an expiry of
60 seconds would be too short and one of 4 hours would be too long.
Strategy 3: Trade Bollinger Bands With Low-Risk

Ladder Options

Page 20 of 32
Bollinger Bands indicate the market’s trading range, and ladder options allow
you to predict which prices are outside of the market’s reach – this is a great
combination.
The success of this strategy also depends on choosing the right expiry. Bollinger
Bands are lagging indicators, which is why they are unable to predict what will
happen ten periods down the road. By then, the market will have changed, and
the Bollinger Bands’ indication will have changed with it.
To make sure that the Bollinger Bands in your chart create valid predictions for
your option, you have to set the period of your chart to the same value as your
expiry or longer. The important point is that your option expires within this
period because the Bollinger Bands only create predictions for this period.
When you think about trading an option with an expiry of 15 minutes, you need
to use at least a 15-minute chart. If ten minutes have already passed within the
current period, you have to switch to a 30-minute chart to guarantee that you
option expires within the current period.
All you have to do to execute this strategy is this:

1. Set the period of your char to the length of your expiry.
2. Analyse the upper and lower price ranges of your Bollinger Bands.
3. Find a ladder option with a target price outside these boundaries.
4. Predict that the market will be unable to reach this price level.
For example, assume that an asset is trading for £100. The upper Bollinger Band
is at £101, and the lower band is at £99.5. Your expiry and your chart period are
30 minutes, and no time has passed in the current period.
If your broker offers a ladder option with a target price of £101.5, you know that the
target price is outside the range of the Bollinger Bands. Consequently, you should
invest in a low option based on this target price, thereby predicting that the market
will be unable to reach this price level.
If you broker offers a ladder option with a target price of £100.5, you know that the
target price is within reach of the Bollinger Bands. This target price would be a bad
investment based on this strategy.
With this strategy, you will get relatively low payouts. Since you should be able
to win the overwhelming majority of your trades, you should be able to make a
profit nonetheless.

Page 21 of 32
Summary
Lagging indicators are an important aspect of any market analysis strategy. They
offer certain indications about what has happened and allow for quality
predictions about what will happen next. Strategies based on trends, moving
averages, and Bollinger bands have helped many traders create successful
trading strategies.
Three Examples Of Strategies For Technical

Indicators
To help you get started with binary options and technical indicators, here are
three examples of strategies that you can use.
One: Trading The Extremes Of The MFI/RSI

The Money Flow Index (MFI) and the Relative Strength Index (RSI) are simple to
interpret technical indicators that are based on similar ideas. Both indicators are
oscillators, and both calculate the strength of a movement by relating its current
momentum to past momentum. The difference is that the MFI also considers the
volume while the RSI focuses on price action alone. Pick the indicator you like
better; it will make little difference to your final strategy.
Both the MFI and the RSI define an overbought and an oversold area.
When traders have bought an asset for too long, the MFI and RSI assume that there
are not enough buyers left in the market to continue to drive the price up. The market
is overbought and a turnaround likely.
When traders have sold an asset for too long, the MFI and RSI assume that there are
not enough sellers left in the market to continue to drive the price down. The market
is oversold and a turnaround likely.
Based on this simple prediction, you can trade a binary option. When your
indicator of choice reaches an extreme value, invest in the opposite direction
and predict that the market will turn around soon. Some traders also invest when
the market leaves an extreme area, arguing that it is better to invest in a reversal
that has already happened (as indicated by the market’s leaving the extreme
area) than an impending turnaround (as indicated by the market entering the
extreme area). Some traders also wait a few periods before they invest and see if
the market remains within the extreme area.

Page 22 of 32
Two: Trading Bollinger Bands
Bollinger bands are a great technical indicator for binary options traders
because they clearly indicate price levels at which you should expect price
actions.
Bollinger bands create a price channel that consists of three lines. Those are:
A moving average. The middle line of Bollinger bands is a moving average, usually
based on 20 periods.
An upper line. By adding twice the standard deviation to the moving average,
Bollinger bands create the upper line.
A lower line. By subtracting twice the standard deviation from the moving average,
Bollinger bands create the lower line.

Page 23 of 32
The result of this process is a price channel that surrounds the current market
price. Each line works as a resistance or support, depending on the direction
from which the market approaches the line.
When the price approaches a line from the top, it works as a support.
When the price approaches a line from below, it works as a resistance.
Traders can trade these lines in two ways:

1. Trade the impending turnaround. When the market reaches a line, it will likely be
forced to turn around, at least briefly. Traders can trade this prediction and invest in a
movement in the opposite direction of the preceding movement. If you are using a
high/low option, remember that this is a short-term prediction and use an expiry
about the length of one period. You can also use a one touch option. In this case,
make sure to use a target price no further than half the distance to the next line.
2. Trade the market’s breaking through the middle line. The middle line is special
because it can work as a resistance or a support, depending on the market’s current
position in relation to the line. When the market breaks through the line, it changes
its meaning. What was a resistance now becomes a support, or vice versa. Traders
can profit from this significant event and invest in a binary option in the direction of
the breakthrough.
This simple way of making money is ideal for newcomers. Experienced traders
can also add another indicator to confirm the prediction made by the Bollinger
bands, for example a moving average.
3. Trading the Average True Range (ATR)

The Average True Range (ATR) is a technical indicator that is perfect for traders
of boundary options. Boundary options are a special type of binary options
because they are the only type that does not require you to predict the market’s
direction, which is perfect for traders who find this type of prediction difficult.
Boundary options define two target price in equal distance from the current
market price. One above the current market price, one below it. Two win your
option; the market has to trigger either target price before your option ends.
There is no need for it to remain at the price level, and it only has to touch one
target price. Boundary options are one touch options with two target prices.
With boundary options, your task is not to predict in which direction the market
will move. Your task is to predict whether it will move far enough to reach one of
the two target prices. The ATR is the perfect indicator to make this prediction.

Page 24 of 32
The ATR does one simple thing: it calculates the average range of past market
periods. If the ATR has a value of 10 and you are looking at a chart with a period
of 10 minutes, for example, the asset has moved, on average, 10 points every 10
minutes in the past.
You can adjust the number of periods you want the ATR to analyze. Most traders
use a setting of 14 periods, which means that the ATR calculates the average
range of the last 14 periods of your chart.
To trade boundary options based on the ATR, you only have to compare the
ATR’s reading to the target prices.
Let’s get back to our earlier example: in a chart with a period of 10 minutes, the
ATR has a value of 10. If your broker offers you an option with target prices that
are 30 points away and an expiry of one hour, you know that there is a good
chance that the market will reach one of the target prices. Your reasoning would
look like this:
The market has moved 10 points per period.
To reach a target price in a straight movement, the market would have to move 5
points per period. (The option has an expiry of 60 minutes and you are looking at a
10-minute chart. This means you have six periods until your option expires. The
target prices are 30 points away. Divided by six periods, you get that the market
would have to move an average of 5 points per period to get to the market price in a
straight line.)
The market’s average movement per period is twice as high as the necessary
movement to reach the target price.
Generally, the market will never move in a straight line, but if moves in the same
direction for two periods in a row, it is almost there. So there is a good chance that it
will reach the target price.
As you can see from this example, you will always have to discount the market’s
maximum reach. If the market moved in the same direction for 60 minutes, it
would have a range of 60 points. This will never happen, which is why many
traders use a discount factor. They multiply the maximum reach with 0.5, for
example, and when the target price of a boundary option is closer than the result
of this equation, they invest.
You can choose the discount factor according to your risk tolerance and
experience. We recommend using a factor of 0.5 or lower. Higher factors are too
risky.

Page 25 of 32
Also, consider the payout you get for your option. Some brokers offer high-risk
boundary options (faraway target prices, higher payout) and low-risk boundary
options (close target price, lower payout). Higher payouts allow you to trade
profitably when you win fewer trades, which is why you can take more risks and
use a higher discount factor.
Some traders also use the Average directional movement index (ADX). The ADX
indicates the trend strength on a scale of 0 to 100. 0 indicates a complete lack
of direction, 100 that all periods point in the same direction. You can calculate
your discount factor by dividing the ADX’s value by 100.
When the ADX reads 40, you use a discount factor of 0.4.
When the ADX reads 70, you use a discount factor of 0.7.
With this strategy, you adapt your discount factor to the current market
environment.
Final Word On Technical Indicators

Technical indicators and binary options are a great combination. Technical
indicators allow you to make short-term predictions in any market; binary
options enable you to trade these predictions more profitably than other trade
types.
As our examples of the MFI/RSI, Bollinger bands, or the ATR show, there is an
indicator for any strategy. Find the right indicator for you, and you have taken a
big step towards becoming a successful trader.
If you still need a broker with which you can trade binary options, take a look at
our top list of the best brokers;
» Visit
(https://www.binaryoptions.co.uk/binary-
com)
Min Deposit: £5
Trade Amount: £5 - £100,000
Payout: 91%

Page 26 of 32
Bonus:
Has Demo Account: !
Regulated Broker: !
Has Mobile App: !
U.S. Accepted: "
» Visit
(https://www.binaryoptions.co.uk/iq-
option)
Min Deposit: £10
Payout: 91%*
Bonus:
Has Demo Account: !
Regulated Broker: !
Has Mobile App: !
U.S. Accepted: "
» Visit
(https://www.binaryoptions.co.uk/optionfield)
Min Deposit: £5
Trade Amount: £5 - £10000
Payout: 93%
Bonus: 75% Pro Account + 10% CB
Has Demo Account: !

Page 27 of 32
Regulated Broker: "
Has Mobile App: !
U.S. Accepted: "
» Visit
(https://www.binaryoptions.co.uk/24option)
Min Deposit: £250
Trade Amount: From 0.1 lots - £100,000
Payout: -
Bonus:
Has Demo Account: !
Regulated Broker: !
Has Mobile App: !
U.S. Accepted: "
» Visit
(https://www.binaryoptions.co.uk/bdswiss)
Min Deposit: £10
Trade Amount: From 0.1 Lots - Varies by asset
Payout: N/A
Bonus:
Has Demo Account: !
Regulated Broker: !
Has Mobile App: !
U.S. Accepted: "

Page 28 of 32
» Visit
(https://www.binaryoptions.co.uk/raceoption)
Min Deposit: £250
Payout: 90%
Bonus: 100% Deposit Match
Has Demo Account: !
Regulated Broker: "
Has Mobile App: !
U.S. Accepted: "
» Visit
(https://www.binaryoptions.co.uk/ayrex)
Min Deposit: £50
Payout: 85%
Bonus: 30%
Has Demo Account: !
Regulated Broker: "
Has Mobile App: !
U.S. Accepted: "

Top 5 brokers
» Visit
(https://www.binaryoptions.co.uk/binary-com)
Rating: 95/100

Page 29 of 32
Min Deposit: £5
Payout: 91%
Bonus:
Has Demo Account: ! Yes
Has Forex Trading: ! Yes
Has Mobile App: ! Yes
Regulated Broker: ! Yes
U.S. Accepted: " No
» Visit
(https://www.binaryoptions.co.uk/iq-option)
Rating: 90/100
Min Deposit: £10
Payout: 91%*
Bonus:
U.S. Accepted: " No
» Visit

Page 30 of 32
(https://www.binaryoptions.co.uk/optionfield)
Rating: 89/100
Min Deposit: £5
Payout: 93%
Bonus: 75% Pro Account + 10% CB
Has Forex Trading: " No
Regulated Broker: " No
U.S. Accepted: " No
» Visit
(https://www.binaryoptions.co.uk/24option)
Rating: 88/100
Min Deposit: £250
Trade Amount: From 0.1 lots - £100,000
Payout: -
Bonus:
U.S. Accepted: " No

Page 31 of 32
» Visit
(https://www.binaryoptions.co.uk/bdswiss)
Rating: 87/100
Min Deposit: £10
Trade Amount: From 0.1 Lots - Varies by asset
Payout: N/A
Bonus:
U.S. Accepted: " No
Binary options trading is a high risk investment tool. It may not be suitable for every
investor. None of the information on these pages should be considered as financial advice.
Terms & Conditions (/terms) | Privacy Policy (/privacy-policy)

Contact Us (/contact-us) | About Us (/about-us) | Testimonials (/testimonials)
Copyright © 2020 BinaryOptions.co.uk

Page 32 of 32

Indicators - The Best Technical Indicators For Digital Trading

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Indicators - The Best Technical Indicators For Digital Trading

Uploaded by

Copyright:

Available Formats

Indicators – The Best Technical Indicators

For Digital Trading

What Are Indicators?

What Are Indicators?

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Why Do Indicators Suit Binary Options?

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

What Are Leading Indicators?

Why Should I Use Leading Indicators?

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Popular Examples Of Leading Indicators

Example 1: The Money Flow Index (MFI)

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Example 2: The Commodity Channel Index (CCI)

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Example 3: The Relative Strength Index (RSI)

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

How To Trade Leading Indicators With Binaries

Strategy 1: Trading The MFI Divergences With

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Strategy 2: Filtering Trends With The RSI

Strategy 3: Trading the MFI’s extreme areas with

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

What Are Lagging Indicators?

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

A trend strategy predicts that the current trend is likely to continue.

Example 2: Moving averages

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

These indications help you to make a better investment decision.

Example 3: Bollinger Bands

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

These indications provide you with many trading opportunities.

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Why Should I Use Lagging Indicators?

Let’s take a closer look at these three advantages of lagging indicators.

Advantage 1: Lagging indicators are based on proven

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Advantage 2: Understanding what has happened

Both predictions are tradable.

Generally, binary options trading requires you to understand what is happening

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Strategy 1: Trade Swings In A Trend With One Touch

Every movement in the main trend direction is followed by a movement in the

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Strategy 2: Trade The Market Crossing The Moving

Strategy 3: Trade Bollinger Bands With Low-Risk

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

All you have to do to execute this strategy is this:

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Three Examples Of Strategies For Technical

One: Trading The Extremes Of The MFI/RSI

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Traders can trade these lines in two ways:

3. Trading the Average True Range (ATR)

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32

Final Word On Technical Indicators

Trade Amount: £5 - £100,000

https://www.binaryoptions.co.uk/indicators 4/29/20, 03:32