Simple strategy with moving average for binary options
Moving average, as an indicator, appeared in the market long time ago and successfully took the popularity among traders all over the world. The reason of this popularity is in simplicity of using this indicator. That’s why they help to prognose the price for an asset for more than a century.
Of course, moving average found their place in binary options market. More than that, on their basis there are many trading strategies, which are used by not only novices but professional traders of this market. However today we want to speak about the simplest strategy for binary options, based on using sliding average. Its simplicity will be suitable for traders, who hasn’t got the experience in trading yet, but who have the desire to earn. So, let’s discuss everything in details.
Moving Average is graphic depiction of average price of closing on certain number of bars. So, ÌÀ5 identifies the average price for five last time intervals. If it is an hour chart, 5 hours, if it is minutes chart – 5 minutes and so on. To add moving average to the chart in terminal Meta Trader 4 it’s necessary to press the inset “Insert” in terminal, choose “Indicators”, the list “Trend” and the indicator Moving Average.
After it you need to set the indicators settings in this window.
For our strategy we need two simple moving average without shifts and with period 5 or 20. Of course they must differ in color to let you distinguish them. After you have put them on the chart, you will have approximately such picture in terminal.
In our case fast SMA5 of red color, and slow SMA20 – green one. Now let’s go to signals of this trading system. Everything is very simple.
Working timeframe of this strategy will be 30 minutes or an hour chart. For in-day trading it is the most optimal variant in many professional traders’ opinion. The signal for purchase or sale of the order happens in crossing of SMA5 up or down SMA20. If the crossing happens up-it is signal for Call, down – Put. Expiration time of the option is 1-3 hours. On our chart there several signals.
As you can see there were minimum 5 signals on the chart for 5 days, which could give profit. The main thing is that it is rather simple and doesn’t demand a lt of knowledge. But we won’t hurry and consider advantages and disadvantages of this strategy.
Advantages and disadvantages of this strategy
Advantages of simple strategy, based on crossing two moving average are evident. Firstly, it is the simplicity of its using, which will be suitable even for a novice without experience in binary options. Secondly, watching the signal appearance doesn’t take much time, it is enough one time in 15-20 minutes to look at the terminal window, doing your work or other important things. And thirdly, this trading strategy appeared not yesterday, but many years ago, but is still very demanded, that can prove that it is profitable. If the strategy couldn’t’t bring profit, no one would remember about it.
Now let’s speak about its disadvantages, to let you understand what unexpected things you can meet, using it. This strategy has recommended itself nice in trend, but when it flat in the market, big number of false signals can make your deposit smaller. But flat in the market happens rather often. And novices very often start contriving signals, as a result they lose money. If for example, we take the history for three months and count possible result, it won’t be always positive. But don’t hurry to refuse from this strategy, it can really show the result. How? Let’s discuss it right now.
Practical advices in using this strategy
To reduce maximally the number of false signals in any strategy, based only on one indicator, it is necessary to check the confirmation of the signals by other indicators For this strategy we can advise the indicator RSI with lines 30-50-70. Confirming the signal of crossing the average line, you can consider the signal confirmed and open the deal. Yes, there will be less signals, but the number of true signals will increase.
Some traders use fundamental analysis to confirm signals of this strategy, to be more precise – news. For example, the signal confirmation is crossing average during an hour after the important news edition. If there is no crossing, a trader waits for news, at this time he doesn’t react on strategies signals. The important thing in this tactic is not to react on signals of the strategy, especially if there not more than two hours for news edition about currency pair of your asset.
It is possible that having tested the strategy on demo-account, you will find your own way to improve the strategy and confirmation the signals, which are given by it. Running the strategy on demo during at least two weeks is necessary to let you feel comfortable while trading in real. For these two weeks, having analyzed loss and profitable deals, you can understand how to work with it to minimize the number of loss deals.
Nowadays, the strategy, based on crossing averages, is one of the oldest, but still it is very popular strategy for binary options, especially for novices in binary options. As any strategy, based on one indicator, it has big percent of false signals. However you can struggle with it, having added offered tools or your won groundwork. If to sum up – the strategy has the right to be, but it will be wiser to use it not as signals generator, but for confirmation the signals of more difficult trading strategies.
For trading with this simple strategy, we use simple binary options, which are called also classical. Beside it, we can use ONE-TOUCH options.
Did you want to trade with system with stable profitability? This system is referred to those ones, which can constantly fill your deposit with money. As, usual moving averages are used in the system.
The simplicity of this system lets us put it on any timeframe of terminal MT4 for identification of trading signals. For example, we considered deals on timeframe Ì30. Expiration time for options, which we will trade after we got the signal must be 3 hours. If we put strategy’s pattern on timeframe Í1, expiration time must be not less than 6 hours. Looking through the signals on the chart H4, the expiration time automatically becomes minimum 12 hours. Also, we don’t forget that the bigger is timeframe the bigger is the profit of binary options. With expiration 12 hours, we will get the percent of paying out about 200%, and it is better from 75%, which we get from options with expiration time 15 minutes.
And the last advice. But it is the last on the list but not according to its importance. Don’t forget about money management. It is worth remembering that not the best strategy can give the profit with correct money management, and the perfect strategy with incorrect money management can make your deposit zero, Thus, the size of a deal for trading with this system needs to be chosen, according to the size of your deposit. But our limit is just 3% of the volume of deposit.
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