Indicators for binary options: what are they and how to use them?

MACD indicator on IQ Option platform

Binary options – is a popular financial instrument for making profits from investing money and trading on exchange. It is often said that trading binary options is comparable to betting and that is why it is so easy. Yes, but there are many important nuances and issues to consider to make your trades profitable: 

  • choose the right type of binary option
  • the expiration date 
  • avoid the most common mistakes

A binary option is an option that has only two possible returns: either a fixed percentage profit or a loss. (GB)

Let’s find out which binary options indicators are considered to be the best

Traders use auxiliary algorithms that make certain calculations, which are called binary option indicators. They show at what point it is best to buy an option to go up or down.

Most binary options indicators are available free on most brokerage platforms, like Ayrex or Alpari, and are applicable to the MT4 trading platform.

There are also so called “60-second binary options”, also known as “Turbo binary options” and some of the following indicators can refer to the 60-second binary options indicators.

Turbo options are a type of option with a short expiration time (from 1 to 5 minutes). (GB)

Below is a register of the best indicators for binary options, which would be useful for you to learn.

Most experts intend to believe that the best indicators for binary options with a medium and long expiration time are classical instruments. On short timeframes, specialized algorithms are considered more effective, although this statement is far from categorical.

The following groups of indicators are considered:

  • Trend indicators. Using these binary options indicators, it is possible to determine the presence of a trend and its vector. Algorithms based on moving averages make up a considerable part of this category. It should be noted that trend binary options indicators are usually used as an additional instrument in binary options strategies.
  • Oscillators. The main task of these binary options indicators is to determine the levels, upon reaching which the price will stop its forward movement and turn in the opposite direction.
  • Volume indicators. These indicators are used for determining the activity of other traders.

Modern traders have the opportunity to choose among hundreds of algorithms of technical analysis and binary options indicators, and most of these tools are available free of charge.

We offer you a selection of the best indicators for binary options. Here are only classical indicators considered.

Bollinger Bands is one of the binary options indicators formed by three moving averages, one of which is central and the other two are equidistant from it. The higher the market volatility, the wider the channel, and vice versa.

Bollinger bands indicator on IQ Option platform

Trading signals occur when the price curve touches the Bollinger Bands, which serve as support/resistance levels. The main bet here is that in most cases the price will move away from them. Crossing any of the Bollinger Bands indicates a strong trend that will continue.

  • A signal to purchase UP option is formed when the price:
  • Touched the lower boundary and went up;
  • Broke through the upper boundary;
  • Bounced from the upper boundary and went to the lower boundary, but did not break through it.

The signal to buy DOWN option is formed when the price:

  • Touched the upper boundary and went down;
  • Broke through the lower boundary;
  • Bounced from the lower boundary and went to the upper boundary, but did not break through it.

Another free and useful oscillator is the RSI, which displays the moments of a trend reversal and at the same time determines the strength of the price movement. On the graph of this binary options indicator we see a curve line, which most of the time moves between the 30% and 70% levels. This oscillator is also applicable as 60 seconds binary options indicators.

RSI indicator on IQ Option platform

The signal to purchase UP option occurs in the following situations:

  • The RSI line is oversold, i.e. below the 30% level;
  • Another downward price movement in a downtrend is not confirmed by a corresponding movement of the binary options indicator curve (divergence);
  • The RSI line goes up, staying near the 50 mark;
  • The downward price reversal is disproved by the behavior of the oscillator line (an inverse divergence has been formed).

The signal to buy DOWN option takes place in the following situations:

  • The RSI line has risen into overbought zone (above the 70% level);
  • The next rise in price in an uptrend is not confirmed by the corresponding movement of the indicator line;
  • The RSI line goes down, staying near the 50 mark;
  • The upward price reversal is refuted by the behavior of the oscillator curve.

It is recommended to use no more than two additional binary options indicators to confirm RSI signals. Otherwise, the frequency of messages will not be enough to work effectively.

When considering the best indicators for binary options, you can’t miss such algorithm as MACD, which is absolutely free of charge and is a universal tool for determining the probability of a price reversal and the strength of the current trend. Readings are shown on a chart either as two lines (fast and signal), or as a histogram. In some cases a combination of bars and curves can be used.

MACD indicator on IQ Option platform

A linear MACD signal for the purchase of UP option is formed if the following conditions are met:

  • The fast line passes through the signal line from below (stop loss below the last low);
  • Both lines are under the zero mark, and their values are minimal and negative;
  • In case of a downtrend the price keeps going down and the MACD starts going up (divergence).

A linear MACD signal to purchase DOWN option is formed when the following conditions are met:

  • The fast line passes through the signal line above (stop loss above the last high);
  • Both lines are located above the zero mark, and their values are maximum and positive;
  • In the case of an uptrend the price continues to grow, and the MACD begins to decrease (divergence).

The histogram signal to purchase UP option can be considered as:

  • Growth of the bars after a fall (stop loss is placed under the last minimum);
  • Growth in a downtrend, when the price updates the minimum (divergence).

The MACD histogram signal to purchase DOWN option can be considered:

  • Decrease in the bars after an upward trend (stop loss above the last high);
  • Decrease in the bars in an upward trend while the price is updating the maximum (divergence).

Parabolic SAR binary option indicator is used to determine the moment of closing the current position with the subsequent opening of a deal in the opposite direction. The program readings are displayed on the price chart in the form of consecutive points forming a parabolic line.

Parabolic SAR indicator on IQ Option platform

A signal to purchase UP option is formed in the following cases:

  • The dots are located below the price, which indicates an uptrend;
  • The dots crossed the price chart from above.

A signal to purchase DOWN option is generated in the following cases: dots are above the price; dots crossed the price chart from above:

  • Dots are above the price, indicating a downtrend;
  • Points cross the price chart from below.

To open a position in a trend, we have to wait for at least three points in a row. It is better to react to reversal signals only after receiving confirmation of the previous trend. Among binary options indicators, Parabolic SAR is usually used as an auxiliary tool to check the signals of other indicators.

The last but not the least place in this review is given to the legendary Stochastic oscillator. With this binary options indicator you can determine the direction of the trend and predict its reversal for free. On the chart of the program we see two lines K and D, which most of the time move between the levels of 20% (below is the oversold area) and 80% (above is the overbought area).

Stochastic oscillator indicator on IQ Option platform

  • One of the lines falls into the oversold area and then comes back;
  • The line K line is above D line;
  • The update of the next price minimum in a downtrend is not confirmed by the oscillator (divergence).

Prerequisites for the signal to purchase DOWN option:

  • One of the lines rises into the overbought area, after which it falls back down;
  • The line K is below D;
  • The update of the next price maximum in an uptrend is not confirmed by the oscillator.

You can try the best binary options indicators by registering on the IQ Options platform and starting trading. The algorithms are available for free

 

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