The strategy “4 averages”
The most popular indicator, which is used by traders all over the world, is moving average. In general, the biggest part of indicators, which we have today, is the modification of averages. Technical analysis of the market started with them more then century and a half ago, but they remain actual even today.
All this can prove you that for successful trading you don’t need to “invent a bicycle” and think some difficult strategies, you can always use classic. The strategy, we are going to consider, was added ideally to the binary options market with its deals in time and shows good results in in-day trading. In-day traders will like it most of all, because it generates the signals every day, but novices, who want to have not so difficult trading strategy, this strategy will suit perfectly. So, let’s come to the strategy.
To work with the strategy we need an hour chart of any currency pair with dollar. It is not recommended to use this strategy with cross-courses, because strong trend moving is noticed in the pairs with American currency and here the strategy shows good profitability. As an example of cloaing a deal we will take currency pair GBP/USD, but we’ll say once again that you can use any dollar currency pair or even several ones. For analysis of market situation you can use an hour or half an hour chart. We will use timeframe H1.
We put the only indicator on our chart - Simple Moving Average, but with four different periods. With period 5 – on our chart it will be of black color, with period 21 – green, with period 55 – red and with period 89 – blue color. We have already told you how to put moving averages on the chart of terminal, that’s why today we won’t stop at these details again. So, after putting 4 averages on our chart, we will have such picture.
Now let’s come to signals. As there will be many signals, intensive in-day trading will be guaranteed to you. The first strategy’s signal is the crossing of the fastest moving average with period 5, remember, it is a black color and average with period 21 (green color). We open the deal on Put, if the fast average crosses a slower one from up to down and open the option Call, if it crosses from down to up. When we see this signal we open the option with the expiration time of half an hour to an hour. Let’s consider this signal on chart pattern.
As you see on our chart, 9 deals were closed for 10 days. The correlation of profitable deals to loss one was 7 to 2.
The second signal for entering the market happens in crossing the average with period 55 with average with period 21. If to speak about colors, red average green. The option choice is the same as in the previous signal.
The only difference is the expiration time of the option. As this signal is more exact, we make an option with the expiration time not less than 4 hours. The best expiration time, in authors’ of this strategy opinion, is 4-6 hours. To analyze these trading strategies comfortably, we will take the same time interval for three types of signals. As you can see, three deals are closed according to signals of the strategy and all of them are profitable.
And finally, the last third type of signal, which happens in crossing red and blue moving averages with periods 55 and 89. The rules of closing deals are the same, without taking into account expiration time of the terminal. In this case it is 24 hours.
This time we closed 4 deals with this signal, 3 of them were profitable and 1 was loss. For 10 days we closed 16 deals with signals of this strategy.
Our estimation of the strategy
We start, as usual, with positive moments, which we noticed. Firstly, the strategy is easy to understand and it demonstrates high visualization of signals. You can’t make a mistake with them. That’s why it is suitable for a novice, who could get to know only with one indicator – Moving Average.
The second positive moment is the profitability of the strategy. Using it with several currency pairs you can get good results. There will be losses, of course, but 30-40 % of earning a month from the sum of the deposit is very good result in financial market. This strategy can give it to you.
Neutral moment of this strategy, which we can refer neither to positive nor negative, is the big number of closed deals. Everything depends on the style of trading. Someone likes in-days in-day trading with its constant “to be ready”, someone likes to analyze without a hurry and make tested deals, minimizing losses. Everything depends on free time during a day and desire to risk.
Despite our positive epithets, the strategy has disadvantages. For example, in side moving the strategy will give you a lot of false signals, especially in crossing of heavy moving averages. If you work with several currency pairs, connected with dollar, you can meet with considerable losses, especially if you don’t think about money management.
To reduce losses with this strategy, you must make filters for signals. We would recommend you not to enter the signals of heavy averages in side moving, using only the first type of signal on not big time intervals of expiration time for options.
In trading with the strategy, taking into account not good clearness of getting signals, we can’t use options with difficult conditions. The only decision are classical binary options, for them it is not important how many points the price will go from the moment of closing a deal.
If we consider signals for trading on the chart H1, expiration time must be 6 hours. But nothing and nobody can limit us in trading and in using another time intervals for trading. To make this strategy a long-term one, we can put a pattern of the strategy on the chart H4. In this case expiration time will increase 23 hours.
Profitability in this system is reached with number of deals, where the number of profitable deals dominates the number of loss ones. In general, if you take for analysis long-term periods of using this approach to trading, the strategy will show the correlation 3:1. That is, 3 profitable deals and 1 loss.
The bigger is the number of suggested deals the less must be a lot. In our case, a big number of deals makes us put the most minimal lot, not more than 1-2% from the deposit size. Only in this case, you can save your deposit from loss deals which in flat market can be 4-5 one by one.
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