This technical binary options strategy is short-term in nature, so much so that it could in some ways be compared to scalping. The method is popular with seasoned traders, but is simple enough to be used by novice traders as well. The win rate when using this strategy is solid, which of course is the most important thing. The only tool required is a price chart such as MetaTrader, or any other chart which provides settings for RSI and stochastic.
Three different time-frames are used in this strategy. These include 1-hour, 15-minutes, and 5-minutes. Each of these periods should be available for viewing within your chosen chart. Analysis will begin with the 1-hour period, after which the 15 and 5 minute periods will be studied. The goal will be to identify a price trend, as well as to ascertain areas in which price reversals may occur. By evaluating three different time-frames, it will be easier to make these determinations.
Another reason for the high success rate associated with this binary options strategy is the use of two different indicators. The RSI (relative strength index) will be used to identify the trend. If the RSI reading is higher than 50, this indicates an upward moving trend. Should it be lower than 50, this indicates a downward moving trend. The price chart should clearly show what the current reading is.
The stochastic will be used to determine just how strong the trend actually is. In general, the stochastic values should support and verify the RSI values. A strong signal to enter the market is provided when both indicator values are diverging within the hourly chart. It is important to note that the RSI readings should be moving along with the prevailing trend. If the movement is at the same level of the signal line, expect the signal to be false.
When both indicators are diverging within the 1-hour chart, the next move will be to switch your focus to the 15-minute chart. Support and resistance lines should be plotted within this chart. Once S&R lines are drawn, begin looking for any sign of a possible reversal. With reversal confirmed, move to the 5-minute chart and begin looking for an entry point. Within this chart, stochastic can be used to assess overbuying or overselling within the market.
If the value of the stochastic begins to climb or fall, this will signal an entry point (consider the direction of the trend to make the proper selection). The signal will only remain valid until the stochastic begins to diverge, or points to overbuying within the marketplace. The analysis process will need to be started over again once this happens.
This binary options strategy is excellent in that it makes it possible for the trader to analyze the trend over an extended period rather than just a small time-frame during the reversal. Additionally, the two indicators work to allow the traders to see the trend forming at an early stage, even after key levels of support or resistance has been exceeded. This will provide additional time to locate the best possible entry point.