Today we will present you a binary options trading strategy based on an indicator that may be used with all kind of different time frames. The only additional requirement is the existence of a MetaTrader 4 terminal.
For this strategy you have to professionally manage both: binary option broker and MetaTrader 4 terminal.
By using the popular stochastic oscillator the statistics show that the majority of transactions (83%) are closed in the money. Stochastic Oscillator helps us find out when asset’s price is going to change direction.
Stochastic Oscillator Signals
Signals are produced due to asset’s overbuying or overselling. This may occur due to a reversal in the fall, and oversold - because of a turn in the rise. Traders use the stochastic oscillator to find out those situations when it is necessary to leave the market before the trend changes.
They also use it to enter the market, together with the start of a new trend.
By using such an indicator the steady growth of the market closing price endeavors to new highs. If the market moves in an upwards or sideways direction and closing prices are low - it indicates a weakening trend and the beginning of a market reversal.
In a bearish market the closing price on the contrary comes closer to the lowest price, but if they start to grow by the end of the trading session we can expect a reversal trend. Thus we receive information about the impending turn of the market.
How to trade binary options with Stochastic Oscillator?
Oversold – is a situation in which a significant preponderance of selling powershifts asset’s price irrationally low. The appearance of oversold asset indicates the impending change in an upwards direction. At this point traders have to buy Call options.
Overbought – is the opposite situation. Thus, the line moving average asset, which crosses an area of 80, will signal a downtrend and situations for Put options buying. The principle of operation of Stochastic is quite simple:
- buy Call in an oversold market
- buy Put in an overbought market
It is important to remember that, as any oscillator indicator for binary options, this one has also some serious drawbacks. It is in the fact that the indicator shows a good signal only when the price is trading in the range.
Consequently, if the trend occurs in a market, which leaves the corridor when turning, the indicator starts to provide false signals. Unfortunately, this is inherent in all oscillators and it is therefore recommended to carefully check their signals.