As we have already discussed, candlestick formations and trend analysis are invaluable ingredients to successful trading. If these techniques are difficult for you to get a grasp on, or if you are looking for another component to enrich you trading strategy with, there is, however, another option for you: Technical indicators.
Nowadays, technical indicators are mostly computer calculated data sets a trader can use to understand the market and make predictions about its future direction. Types of technical indicators vary as widely as types of trading strategies.
This article can only give a first overview. We will dedicate separate articles to all relevant technical indicators, and give you examples how to incorporate them into your trading.
Technical indicators are an element of technical analysis. That means they work on the assumption that all relevant information about an asset is reflected by its price. By analyzing past price movements a technical indicator can therefore make predictions about the future direction of the price. You, as a trader, can trade these predictions with binary options.
One of the most popular technical indicators is the Moving Average. This indicator simply calculates the average price for the last candlesticks, and draws them into the price chart, creating a line. By varying how many candlesticks the indicator uses for this calculation you can create different lines. The more candlesticks you use, the slower the Moving Average will react to a change in price direction.
By using a Moving Average of the last 50 candlesticks and a Moving Average of the last 14 candlesticks, for example, the faster Moving Average will cross the slower Moving Average when price direction changes. You can use this simple method to create a long signal every time the faster Moving Average crosses the slower Moving Average upwards, and a short signal every time it crosses it downwards.
As you can see, a trading strategy based on technical indicators like this can be simple, and you do not have to understand trend analysis or candlestick formations. Therefore, it is especially interesting for newcomers to binary options.
With technical indicators trading becomes a simple matter of knowing how to create a valid signal and what to do once the signal occurs. Of course, you can combine multiple technical indicators to improve the quality of your signal, and reduce the number of losing trades.
Generally, there are two ways to get technical indicators for your binary options trading. First of all, there is special software you can buy or sometimes even get for free that will calculate these indicators for you. Sometimes brokers offer software able to calculate the most used technical indicators. This way, you will only get the indicators. Reading them, drawing conclusion, and translating these conclusions to trading decisions will still be your task. This might be an advantage for experiences traders, as they can make their own decisions, but might be too complicated for newcomers to the trading scene.
Therefore, there is another way to use technical indicators that is better suited for newcomers. Signal providers can not only set up indicators on their own, they will also read and interpret them for you. In the end, they will provide you with simple, direct trading advice that you can follow.
In further texts, such as Average True Range, Relative Strength Index, Moving averages, Money Flow Index, Momentum, Commodity Channel Index, Stochastic Oscillator ect., we will take a closer look at the different kinds of technical indicators, and provide you with more examples on how they work and how you can incorporate them into your trading.