Binary Options Exponential Moving Average Strategy

What is a ‘moving average’? It is the unproblematic average over a certain number of periods. This technical indicator aids you in trading with the trend. Being lagging indicators, they exercise not predict future trends but instead give confirmation of trend continuation. Upward trending moving averages indicates an uptrend and vice versa.

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Many traders look at the l-, 100- and 200-mean solar day Moving Averages of nugget prices but we tin also use Fibonacci numbers such every bit 13, 21, 34 and and then on to capture herd behaviour in the market. Exponential moving averages can likewise exist used, placing more weight on the most recent periods.

Whatever the variant of moving averages, notice the best one that generates reliable signals for the trading musical instrument. Moving averages are piece of cake to interpret; if the price is higher up the moving average bullish momentum is dominating, if it is trading below the moving average then surly momentum is dominant.

What is the Relative Strength Index (RSI)?

The strategy blueprint

The moving average & RSI strategy utilises both of these indicators to work together every bit a system. To follow the system, nosotros need to examine the weather condition for entry, stop loss and take profit of trades.

Entry: There are 2 types of crossovers with respect to moving averages that form the foundation of this strategy.

• Firstly, when the price activity closes higher up or below the moving average, information technology indicates that resistance or support has been broken and in that location is a shift in momentum. This can exist used to make up one’s mind entries into long or brusk positions, for instance, when the cost closes below a moving boilerplate, it indicates support has been broken and a shift to bearish momentum so nosotros should look to sell.
• The second type of crossover is when the short-term moving average crosses over the longer-term moving boilerplate. You can use this to identify strengthening momentum in one direction. For instance, when the brusk-term moving average crosses above the longer-term moving average, this generates a purchase betoken.

Too, the RSI is used to ostend the moving boilerplate signals. The equilibrium level for the RSI is fifty, where if the index is above l this suggests bullish momentum. When it is beneath l, this indicates bearish momentum. And then when the moving averages generate a indicate, y’all can use the RSI to cheque if momentum is stiff enough to justify taking your merchandise.

End Loss:
The moving averages tin can be used to exit a merchandise when it turns out to be unsuccessful to limit your adventure. You would place stops just above or below the moving averages since these are important resistance or support levels. For example, if the toll action closes above the moving averages, and then we would place the cease loss just below the moving averages as they volition now provide support.

Take Profit:
This is where the RSI comes in. This index indicates overbought and oversold regions and suggests a reversal is more probable when the alphabetize is within these regions. Therefore, you should hold your position until the RSI enters the overbought region for purchase positions or the oversold region for sell positions.

Illustrative examples

The chart below illustrates how to use this strategy. The showtime white arrow indicates that the cost activity airtight above both of the moving averages giving a bullish indicate. EUR-USD closed above both moving averages at i.08919, which is illustrated by the yellow ray, and this provided an indication that an upward trend was starting. Too, the RSI was college than l at this bespeak confirming bullish momentum.

Long positions or call options would then exist entered into at this price and once that candle closed on the hour. So we should look at the xiii-period moving average (orange line) to provide support and go out the trade if the price closes beneath this moving average.

The long position is held until the RSI indicates overbought weather in the market, that is when the RSI is larger than 70. This also signals that the uptrend may shortly reverse. Overbought conditions are indicated by the RSI and with the white arrow on the nautical chart. This occurs on the hourly shut at 1.09535 and this would exist your exit cost, indicated by the xanthous ray. Notice that a few hours after this, EUR-USD started to motility lower and bankrupt back below the moving averages.

Some other purchase signal was provided by the crossover of the moving averages indicated on the chart past the second white arrow. When the xiii-menses moving boilerplate crossed higher up the 21-menses moving average, the price airtight at one.0924. Bullish momentum is confirmed every bit at this entry the RSI is larger than 50. The exit is still the aforementioned at 1.09535.

Now let’s wait at another example but for a short position. The chart below shows GBP-USD on the daily timeframe. The slower moving average is trending above the faster moving boilerplate indicating a downward trend. The all-time strategy in this case is to wait for the price to test the resistance provided past the moving averages and then enter a brusque position when the price action closes dorsum below the moving averages.

For case, in the chart above the price activeness briefly trades higher up the moving averages for a few days in December. So we obtained a sell signal when the daily shut was beneath both of the moving averages at 1.50348 indicated past the white pointer. Besides, using the RSI we encounter that the index indicates bearish momentum since it is below 50.

And so a brusque position or put choice would be entered into at this level i.50348. The stop loss would be either of the moving averages and an go out point is reached in one case the marketplace is indicated to be oversold which occurred when the price activeness closed around i.4400.

Advantages and limitations

Using shorter time periods for moving averages is more likely to lead to false signals whereas longer period moving averages are likely to requite more successful signals. Similarly, using technical indicators on longer-term timeframes provides more reliable signals than those on lower timeframes. The strategy is best used on the 4-hour, daily or weekly timeframe.

Purely technical analysis most likewise lookout out for any fundamentals and the economic agenda. Traders just focusing on technical aspects will get a shock when an unexpected information reading is released. Therefore it is important to be aware of whatever important data releases that may affect your merchandise plan based on this strategy.

In summary, this strategy is piece of cake to use, effective and can exist used to trade a range of instruments. By using Fibonacci numbers for the moving average period captures herd behaviour in the market. Ii types of crossovers generate entry signals which should be confirmed with the RSI. Exits are determined by both the moving boilerplate and RSI depending on whether the trade is successful or not. When making a trade, you lot merely await for the RSI to indicate overbought or oversold conditions and and so get out with your turn a profit.