Cost is the ultimate indicator. Regardless of what indicator you use, information technology won’t tell yous more than the actual price movement itself, considering all indicators are derived from price. I prefer to trade without binary options indicators, since the price itself is what I trade. With that said, indicators practice present price information in a different style, which tin assistance u.s.a. isolate moves or underlying strength or weakness we not see on the toll chart. While I generally merchandise indicator free, just hither are my two favorite indicators which I do use on occasion to analyze moves, strop in on high probability trades and aid filter out the bad ones.
Boilerplate True Range (ATR)
Past far the indicator I use the most. Just put, ATR is the amount an asset moves in the day.
The indicator takes an average over a number of days (or bars), such equally 10 or 20, to give you a representation of daily price move of the asset. The average is based on the largest post-obit number: Electric current Loftier minus Current Low, Current High minus Previous Close or Electric current Low minus Previous Close. Luckily the indicator tool inside your trading platform will summate this all for y’all, so all y’all have to is look at the electric current indicator reading.
Figure 1. EUR/USD Daily with ATR
Source: Oanda – MetaTrader
Effigy 1 shows the ATR over x days–shown equally “ATR (10)”– for the EUR/USD on Daily bars. Therefore, the current reading of 0.0099 means the EUR/USD is moving on average 99 pips per twenty-four hours. If you used a five minute nautical chart, the reading you go would be a 10 period boilerplate of how much the EUR/USD moves in a 5 infinitesimal menstruum.
And then how does this reading help you make better trades? Assume information technology is near the end of the day, and the EUR/USD has already moved up 140 pips on the mean solar day and you want to have a long trade. Practise you lot take it?
Maybe, but simply if you believe something important is going on. Since the average daily movement is near 99 pips, it is quite likely that the EUR/USD is chip overextended (at 140 pips), having already moved well beyond average. That is not too say that if you become long/buy calls you won’t make money, simply it does brand y’all sit back and examine the trade to make sure it is worth taking.
I by and large use this indicator as a filter. While broad ranging days happen (much larger than average), I similar to merchandise based on statistics. If I get a bespeak to go long or short on an intra-twenty-four hours trade, and the asset has already moved well beyond the average, I volition usually skip it and look for another trade which has more than room to run.
Relative Strength Index (RSI)
Known as an oscillator, this indicator fluctuates between 0 and 100 and measures the speed and alter of toll. If you have watched business news or read some technical comments from traders, you will oft hear the words “Overbought” or “Oversold.” While the speaker may exist addressing something else, often technical analysts are referring to the current RSI reading when they utilize these words. A reading above 70 is typically overbought, while below 30 is oversold. Once an nugget enters these area, a reversal is usually not far off.
Simply to me, timing is important and therefore standard overbought/oversold RSI readings are pretty much useless. For i, in a strong uptrend, the reading will be frequently to a higher place 70, just notwithstanding you want to be long most of the fourth dimension. Same goes for a downtrend; the RSI will frequent the area below 30 and yet you desire to exist short/ownership puts during downtrends.
I prefer to use the RSI in a “relative” mode; comparing current RSI readings in uptrends to past uptrends, and current RSI readings in downtrends to past downtrends. This concept comes from Constance Brownish’s volume
Technical Analysis for the Trading Professional. What the author finds is that in downtrends the RSI more often than not stays below 60, and that in uptrends it generally stays above 40.
Figure 2. EUR/USD 4 60 minutes Chart
Source: Oanda – MetaTrader
In figure ii, discover how the RSI shifts; during the downtrend it often touches beneath 40 and rarely gets above lx (red line). But when the trend moves college toward the right hand side of the chart, the RSI doesn’t move below 40 (green line) and spends much of the time above 60.
This is an excellent method for confirming trends, although some tolerance is frequently required. The RSI may squeak only beyond the levels mentioned, or the levels used may vary slightly by nugget.
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Final Word
Indicators are derivatives of price. Generally I do not use indicators very much, as I adopt only to look at the actual price chart. Indicators tin merely provide this same price data, but may present information technology visually in a way that is preferable, or summarize the data for easier employ. ATR is ane such summarizing tool. It apace gives y’all a number–the daily average range–you can work with. If an nugget has moved well across its daily boilerplate range, it’south possible something important is happening, but mostly I detect the trade should simple be skipped if it requires the asset move
even further.
The RSI presents cost information in a different way, which can exist quite useful for confirming trends or communicable tendency reversals. The RSI has different tendencies during downtrends than it does during uptrends. Typically in a downtrend the RSI stays below 60, and in uptrend stays higher up 40. When you notice the RSI shift from 1 tendency to another, the tendency has likely reversed.
Source: https://www.binaryoptions.net/two-powerful-trading-indicators-and-how-i-use-them/
