If you are one of those traders that go all pear shaped when asked about binary options indicators and how to use them, you have come to the right place.
Probably the reason for this is that there actually are quite a lot of binary options indicators to refer so much so that traders are liable to be overwhelmed by a lack of information and invariably end up using the wrong set of indicators. Definitely an inconvenience.
The indicators are typically used for stock markets or the Forex but they are equally applicable to binary options as well. Binary options indicators are for all intents and purposes, arithmetic values on charts.
The values in question are obtained from formulas centered on price which has four categories here: the Open (opening price), the High Low, and Close (closing price) which can be abbreviated to OHLC.
Types of binary trading indicators
As we delve deeper into binary options indicators we will find that they branch out into a number of categories and sub-categories. Here the main ones:
- Cycle indicators – These tend to be confused often with oscillators since they appear similar to each other and invariably traders pass them up as overbought or oversold. The slight complexity of this indicator lies in the fact that it tends to plot the retracement dips, rallies, peaks and troughs of the price in cycles. They are often employed to identify the beginning and end of retracements. The most famous example for this type of binary options indicators is the Schaff trend cycle indicator.
- Oscillators – As the name suggests, these indicators tend to oscillate between certain levels. Plotted in a separate window, they are used to verify retracements in price and usually to denote overbought or oversold conditions of stocks. The most common examples for oscillators include but not limited to Stochastics or MACDs.
- Volatility indicators – These indicators are plotted on the chart and are typically used to find the High and Low and sometimes the Open and Close prices too. Once plotted on the chart, they are overlaid on price. The most common examples for this kind of indicator are Bollinger bands, envelopes and other bands based indicators.
- Trend indicators – This type of binary options indicator is also plotted on a chart and overlaid on price. The norm this type when the existing price is either above or below the average price; either the existing price is a trending up or down. A typical example of a trend indicator is a moving average.
No one really knows for certain where the market will go. It is speculated that for less than a fifth of the time the markets trend while for the rest, they range or move sideways. So what does this mean for a trader trying to select the best indicator in binary options?
Of course if the markets are trending, the trend indicators are your best option. For instance an accurate idea of the existing price relative to the average price can be obtained from a moving average indicator.
Similarly, a market that is going sideways warrants an oscillator to pinpoint overbought and oversold levels so they would be the preferred choice of traders in that scenario.
Sometimes it is possible for a trader to find themselves at a loss to decide which binary options indicator to use. The most common solution here is to select an indicator that is specific to the purpose.
As mentioned earlier, these are only the main categories of binary options indicators. Afterward they branch out into various subtypes. However keeping an acute memory of them will better your chances of making accurate predictions and receiving a profit.