MACD – A Useful Indicator For Trading Binary Options

If you haven’t as yet read the following articles ‘What Exactly Is Binary Options?’ or ‘The Difference between Fundamental & Technical Analysis’ then I would recommend reading these articles beforehand if you are not familiar with the concept of Binary Options and/or technical analysis.

 

When it comes to trading Binary Options, undertaking your research on how a specific asset is doing (with regards to the changes in price) within the last few hours, days, etc. is vital to your success.

For if you were not to undertake any form of analysis, then the chances are that you will effectively be just a gambler.

And when it comes to undertaking our research, technical analysis and the various tools available to us through this form of analysis is what the vast majority of us Binary Options traders rely on.

Out of the hundreds of patterns and indicators which one can choose from within technical analysis, a very common indicator that is used by the majority of traders (due to its overall success rate) is the Moving Average Convergence Divergence, or MACD for short!

So how does the MACD work?  Well the MACD is a trend following momentum indicator, in that as the price of an asset continuously moves up or down, the MACD adjusts itself whilst recalling the previous movements which the asset price went through.

Or to put it in layman’s terms, the MACD calculates the last movement in price which an asset undertook alongside the previous price movements the asset in question has undergone.

Fortunately to use the MACD in trading Binary Options doesn’t actually require us to know all the technical details of the MACD.

And we don’t personally need to create the MACD by hand as nowadays, most online Binary Options Platforms will have the MACD indicator built in to help you trade these options.

Yet for those of you who are interested in knowing how the MACD is created, it is essentially done by using three different exponential moving averages (EMA’s), these being a 26 day one, a 12 day one a 9 day one.

For those of you who are not aware, the reason why we have 3 different exponential average movements for the same asset is due to the fact that each EMA is not starting from the same point in time but respectively from 9 days ago, 12 days ago and 26 days ago.

When represented on the chart, the 12 day and 26 day EMA is usually plotted as a singular line, whilst the 9 day chart is shown as a dotted line which runs parallel to the main line.

The line and the dotted line generally seem to move along with each other, sometimes moving apart from one another, other times moving back towards one another.

Fortunately like operating a car, you don’t need to know everything about internal combustion in order to drive it from A to B and the same can be said for using the MACD.

For once you have brought up the MACD on whichever Binary Options platform you are using, all you need to know is how the three lines are currently interacting with each other.

And through this interaction, we are able to get an indication of how the price of said asset is going to behave in the not-too-distant future.

SO WHAT ARE WE LOOKING FOR?

When trying to interpret what the MACD is portraying, we Binary Options traders are essentially looking for three different indicators; the showing up of either one indicates to us that the price of the asset is going to behave in a particular way.

And one of the reasons for the success of the MACD is due to the fact that the price indications which the MACD gives us are more often than not correct.

So what are the three indicators which we traders look for?

crossover signal

One indicator which traders look for is what is known as Crossovers.

As can be seen from the chart above, whenever the dotted line (referred to as the signal line) crosses the main line, it means the price of the asset is about to head in a different direction.

To give you an example, if the signal line was above the line and crossed over to become below the line, this indicates to traders that the value of the asset is going to drop in price.

Likewise when the signal line crosses over the main line, taking it above the main line, then this indicates that the price of the asset is about to go back up in value again.

The other indicator that Binary Options traders look for is called Divergence; this is where the actual asset price suddenly breaks away from the MACD and starts moving in a different direction.

Although the MACD will soon adjust itself according to this new shift in price, for a brief while in time whilst the price of the asset is moving up or down in a direction, the MACD will still progress ahead as normally.

When this occurs, Binary Options traders are well aware that this is a signal that the price is about to dramatically move in a new direction and as such, we can place a trade as the price is likely to carry on in that direction for a little while.

The third indicator which the MACD can give traders is an Equilibrium, or dramatic shift between the short EMA line (represented as a dotted line) and the other longer EMAs, represented as a regular line.

When the two start to deviate apart from one another, this indicates to traders that the asset in question is either over-brought (if the signal line is way above the other line) or undervalued (if the signal line is way below the other line).

Usually when this occurs, the signal line (dotted line) will soon merge back to or near the other line.

Yet before this happens, Binary Options traders will have a glimpse into how the asset price is likely to behave and as such, can place their trades accordingly.

It is through looking at the MACD and in particular these three indicators that Binary Options traders have found the MACD to be a useful tool with regards to trading.

If you would like to know more useful patterns, than why not read the article Technical Trading by clicking here!

The Binary Options Brokers Which I Use

Now we have uncovered just what Binary Options are; how they are traded as well as the research that is required by a trader before placing such a trade, (i.e. technical analysis) it is now time that we look at some of the legitimate Binary Options brokers platforms around.

For make no mistake, whilst there are many legit online Binary Options brokers, the internet is rife with scam artists.

Like most online scams, it only takes a couple of scammers with some web design skills to create and host a genuine-looking Binary Options platform, upon which you innocently set up an account, deposit some money, only for the site to disappear a short while later.

Therefore the only way to get around this problem is to go with a platform which has been around for a number of years (for scammers know that the longer they have their scams open, the greater the chances are that they will get caught).

Yet even if you find a Binary Options broker platform which has been around for a few years, you still want to make sure that you have a platform which will display the results accurately as and when they happen.

Although I can’t be certain, it wouldn’t surprise me if some Binary Options platforms have algorithms which alter the price of an asset slightly (only on their platform of course) if they think they may have to pay out to a large enough of their users.

While this accusation is hard to prove (and I am not naming any such Binary Option brokers), what I can say with certainty though is that there are legitimate platforms around.

Technical Trading

In the previous post ‘The Differences…Fundamental & Technical Analysis’ we uncovered the basics of what these two forms of analysis are and why they are used by traders.

We also learnt why Binary Options traders preferred using technical analysis tools and indicators when trading.

And as you may recall, technical analysis is essentially the study of an assets price and if it has gone up or down in value in the past.

And as we also learnt, proponents of technical analysis believe that the rising and falling in price of an asset doesn’t just happen randomly but due to the supply and demand of the asset in question.

Fortunately as Binary Option traders we don’t have to worry too much about the how and why of technical analysis, rather we just need to be aware of the patterns which an asset price can exhibit over time.

As such, we can therefore spot if the price is going through another pattern and by doing so, we can build a probable hypothesis on how the price will go in the future!

So let us now look at a few of the main price-movement patterns which Binary Option traders look out for.

To read the rest of this article, please click here

Psychology Of Trading

Having gone through the basics of what Binary Options are and the differences between technical & fundamental analysis, it is important that we now take a look at the mind-set required to trade Binary Options.

For make no mistake, when undertaking any form of financial trading (especially Binary Options) if you are not in the right frame of mind, the chances are you will end up losing money.

Though this ‘trading mind-set’ may come more naturally to some than it does to others, trust me when I say that with a bit of discipline, any wannabe trader can develop this mentality when trading.

So if you are about to place your first Binary Option trade online, than STOP and take the time to read the rest of this article as it may well save you from losing a lot of money at the start of your time trading Binary Options!

To carry on reading this article, please click here

The Difference Between Fundamental & Technical Analysis

Would you ever consider driving a car over 100mph down the fast lane of a motorway when you have only just received your permit license?

If you are like most sane people, your answer should be a resounding no.

Unfortunately, when it comes to trading Binary Options, many people upon getting a grasp of the basics of Binary Options (which we covered in the previous post) will go straight out and try put some large trades on various financial markets.

In the world of Binary Options, this is the equivalent of driving that car 100mph with very little knowledge of what you are going.

And yes, whilst it is true that you can learn from your mistakes, this would be a very costly mistake to make.

Fortunately, unlike driving a car, the knowledge required to successfully trade Binary Options doesn’t take anywhere near as long to learn.

Now that you hopefully have an understanding of what Binary Options are and how to trade them, the next step is to learn how to research how a particular financial asset (be it a currency or a commodity) has been behaving and if there is any news coming out which could affect the asset in the near future.

For it is only by knowing how something has behaved in the past and if there is an expected event which can change it in the future can we build up a probable hypothesis of what will happen; subsequently making more accurate predictions.

Fortunately, when it comes to analysing whether a financial asset is going to increase or decrease in price, there are two different schools of thoughts; and professional traders in both still make very good money from their respective investigative school of thought.

The first one type which we’d be looking at is:

To continue reading this article, please click here 

What Exactly Are Binary Options?

Everyone knows the vast fortunes that can be made when trading financial instruments (Stocks, Currencies, etc.)

Stories and living testimonies abound of traders who started their careers penniless and within a few short years, took early retirement having amassed a multimillion-dollar fortune.

And until the last few decades, nearly all these traders were employees of various Banks or Private Corporations, who were given a fund containing thousands to trade with.

Fortunately, all that has now changed.

Thanks to the internet, the barriers of entry with regards to trading financial instruments has now become readily accessible to the average Joe.

Now everybody in theory has the potential to create their own rags-to-riches stories, all thanks to the ability to now do online trading.

Unfortunately for most people, buying and selling shares is as far as their knowledge extends with regards to trading.

I say unfortunately, for the process of buying a share in your name, only to sell it back later in the hope that it has increased in value, is one of the slowest ways to amass a fortune.

Whilst there are very rare exceptions, where the price of a share increases 10-50 times what you paid for it by the time you come to sell, such opportunities literally come about once in a life time (besides which the fees you pay your broker for doing this transaction can eat into your profit).

Whilst there are other types of trading which could bring you far greater returns than mere online trading (such as trading Forex, Futures or Options) these are generally far more complicated forms of trading.

And as such, anybody wishing to trade these financial instruments will need in-depth understanding of how the financial world works.

Yet in recent years a new type of trading has begun to emerge: Binary Options!

In many ways, Binary Options are a sort of a hybrid, in that not only are they very simple to understand, but one can make far higher returns compared to if one were to just try online stock trading!

How much higher I hear you ask?

Well with some trades regularly returning 190% of what you put in only a few minutes/hours ago, Binary Options are taking the financial world by storm!

 

To carry on reading this post, than click here!