This binary options strategy can is suitable for any trader who currently uses or has access to a charting package that includes EMA’s. Although it is a bit complex, the steps are relatively straightforward and not difficult to follow. Since this is a technical analysis strategy, there will be no mention of fundamental analysis. However, this does not mean that this secondary form of analysis is not needed.
Before laying out the steps of this strategy, let’s spend a moment focusing on the basics of moving averages. This indicator is helpful to traders because it delivers a visual representation of the price movement of any selected asset. The EMA is of the lagging variety, with the data being worked out by averaging the asset price for specific time-frames. The good news is that the data will always be calculated for you by your chart of choice.
For this strategy, you’ll need to select the EMA within your chart and then select periods of 10, 25, and 50. These selections will need to be made separately. One of the benefits of the use of EMA is that its formula does account for the final candlesticks in the price pattern. In doing so, the exponential moving average becomes more in-tune with the current price action and can thus provide a clearer overall picture of the upcoming price movement.
The signal to enter into a binary options trade will come when the 10-EMA passes through both the 25 and the 50. When this movement occurs with the asset price moving upward, this indicates that a “Call” position should be purchased. The “Put” trade signals is revealed when the 10-EMA again passes through both the 25 and 50, except this time the price movement will be downward. If you’ve made the correct selections within your chart, you only need to wait for these conditions to be met before trading.
Multiple trades can be entered into if a price trend is taking place. Open a new set of EMA’s in order to make sure that the conditions continue to be met. False signals can be produced from time to time, especially during times when the market is slow, so be prepared to sell your open position should the price reverse. Selling in this instance would produce some financial loss, but the total loss that would be experienced should the contract finish out of the money can be avoided by selling.
The only real drawback associated with this strategy is that is relies on a single indicator. This negative can be negated by adding one or more indicators to the analysis process so as to receive additional verification. As mentioned above, false signals can be a problem. However, if you are using the EMA together with another indicator the problem can be reduced. Overall, this is an excellent binary options strategy that has withstood the test of time and is simple enough to be used by all traders.