Binary options signals can alert you whenever there is any news that will affect the asset’s price. If you keep using binary options signals, you will slowly become familiar with the pattern of the price movement of a particular asset. These signals are not completely accurate and do not guarantee that you will win in the trade if you follow them. Before trading software exist, traders used to subscribe to binary options signals service. There are both free and paid signals and you can choose to receive the signals through email, or text messaging. Nowadays, there are binary options signals software that can automate the trading process by placing the trade on your behalf after analyzing the market.
The signals are created based on two types of analysis including technical analysis and fundamental analysis. Many different types of financial indicators are used in forming the binary signals including relative strength index (RSI), stochastic oscillator and MACD (Moving Average Convergence Divergence).
Relative Strength Index (RSI)
There are two regions in the RSI scales, with the first region starting from 0 – 30 and the second region starting from 70 – 100. If the trading signal is located in the region of 0 – 30, it means that the currency pair is oversold so the market trend will reverse. You should place a call if you see bullish reversal candlestick formation such as evening doji star or chart pattern such as falling wedge.
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If the RSI value is located in the 70 – 100 region, it means that the currency pair is overbought and so the rate is falling. You should place a put if you see bearish reversal candlestick such as morning doji star and chart pattern such as rising wedge. You can also use the RSI as a trend indicator to determine the trend of the price of the asset. For example, the trend will go downward if the RSI is under 50 so this is a good opportunity to choose Touch in the Touch/No Touch option. The price will move in upward direction if the RSI is above 50, which means you should choose No Touch.
Stochastic Oscillator
Stochastic oscillator, also called K%D, allows you to make accurate prediction on the price movement by making comparison between the asset’s price and trading range. There are two lines in the stochastic oscillator including %K line and %D line. If the %K line has a zero value, the trading range is at the lowest point. If the %D line has a value of 100, the trading range is at the highest point. The value of the stochastic oscillator will drop when the price arrive at the double top. This is the best time to place a put for options with longer expiry time the downward trend of the price movement. If you want to wait for the D% line to cross the %K line, you should choose options with shorter expiry time.
MACD (Moving Average Convergence Divergence)
MACD is suitable to be used for call/put options as well as touch/no touch options. If you want to use the MACD strategy, you must make sure the asset is trending. You can use the MACD histogram to find out if there is any changes on the trend. You should place a call if the red 50 period line is situated higher than the blue 110 period line. In this scenario, the prices of the asset has bounce off from the line of the 50 period EMA.
On the other hand, you should place a put if the red 50 period EMA line is located under the blue 110 period line. There is a pullback on the price of the asset at the 50 period EMA line. The time frame you should choose depend on the time frame of the chart you are using. The timeframe should be set about 4 candlestick apart so if you are using a chart with 30 minutes time frame, you should select an expiry time that last for 2 hours. It is recommended that you don’t trade more than 5% of your investment if you are using MACD indicator.
Learning how to read the trading signals allow traders to easily analyze opportunities and implement a trading strategy. This enables you to place more trades and maximize your returns in binary options trading.