Top bitcoin trading platforms48 comments
Trade options like a market maker dealer
Volatility indicators and binary options are a great combination. They can create simple but highly profitable trading strategies. What is even better: With this information, you will be able to create your own profitable binary options strategy based on volatility indicators. Volatility indicators are technical indicators. That means they aggregate the data of past market movements, apply a formula, and display the result in a way that allows traders to quickly and simply understand what is going and what will happen next.
Technical indicators focus solely on price action. That means they ignore all fundamental information about the underlying asset, for examples the earning of a company or the economic prospect of a country.
Instead, they analyze what has happened to an assets price in the past and create predictions based on this analysis. Volatility indicators are a special form of technical indicators. They measure how far an asset strays from its mean directional value. This might sound complicated but it simple:. There are many volatility oscillators. The ATR wants to find out how far an average period of an asset has moved in the past, but it uses a more accurate method of calculation than other indicators.
While this method is accurate, it ignores gaps. Sometimes, the market jumps from one price to another, which creates a gap in the market. Momentum indicators that ignore these gaps paint a distorted picture. The result tells you the average true range of the last periods. For example, when the ATR has a value of 0. You can use this value to predict the range of future market movements. Both trends are likely to continue. They create different situations that require different trading strategies, and the ATR helps you to identify which one is right for now.
Bollinger Bands create a price channel around the current market price. Bollinger Bands predict that the market will stay within the upper and the lower line. The middle line works a barrier that can be a support or a resistance. This means, when the market approaches a line, it is likely to turn around.
While it can eventually break the middle line, it is highly unlikely to move past the outer lines. For traders, Bollinger Bands allow simple predictions. Binary options traders can profit from volatility indicators more than traders of conventional assets.
There are two main reasons for this statement:. Traders of conventional assets are unable to win a trade on volatility alone. Volatility indicators are one of the few types of indicators that can provide clear predictions, but they are insufficient to win stock traders a trade, robbing them of the possibility to create a simple, mathematical strategy.
For binary options traders, however, knowing that the market will go somewhere can be enough to win a trade. Binary options offer a tool called boundary options. A boundary option defines two target prices in the equal distance of the current market price, one above the current market price and one below it.
When the market reaches one of these target prices, you immediately win your binary option. Boundary options are ideal for momentum indicators. To predict whether the market can reach either target price, all you have to do is apply the ATR and set the period of your chart to one hour. Now two things can happen:. Depending on your tolerance for risk, you can adapt your strategy.
You could wait to invest until the ATR reads twice or three times as much as the distance to both target prices. The longer you wait, the less trading opportunities you find. But you will win a higher percentage of your trades, which can be worth the tradeoff for risk-averse traders. There are many types of binary options. Often, there are two or more similar types that only differ in the strength of the required movement.
The type that requires a stronger movement compensates traders by providing a higher payout. Simply put, predicting a stronger movement will get you a higher payout. The problem is, when you predict a too strong movement, you will lose your trade and get no payout at all. Momentum indicators such as the ATR are the ideal tool to predict how a strong a movement you should predict. If the ATR reads 0.
If you correctly predicted an upwards movement, you will likely win your option. If the ATR would read only 0. In this simple way, momentum indicators can help you to increase your average payout without having to change your basic trading strategy. For serious traders, this gift is impossible to pass up. Binary options traders can also use volatility indicators to create trading signals. When the market is moving towards a Bollinger Band, for example, you know that it will likely turn around.
This is a prediction that you can trade. Similarly, when the market has broken through the middle Bollinger Band, you know that it is likely to continue its movement until it reaches the outer Bollinger Band. This knowledge provides a clear indication for how far the market will move, which is a prediction you can trade, too.
We have already touched on three ways in which you can trade volatility indicators. Now we have to define concrete strategies that you can trade. This strategy is so interesting for this article because it combines the advantages of the two momentum indicators on which we have focused. Combined, both indicators provide you with enough information to trade a binary option with a high payout. When the market has broken through the middle Bollinger Band, it will likely move to the outer Bollinger Band.
The ATR can help you to make more money with the same strategy. The ATR has a value of 0. With this knowledge, you could predict that a perfectly straight movement will take the market to the next Bollinger Band in about 4 hours. There is only one problem: When only one period points in the opposite direction, it will already take longer for the market to reach the Bollinger Band.
To check your prediction, you can switch to a chart with a period of 4 hours. That means an average 4-hour period would be insufficient to take the market to next Bollinger Band. You should expect it to take a little more time, probably around five to six hours. This strategy is simple and profitable. Bollinger Bands help you to create signals easily, the ATR makes picking the right option type as simple as comparing a few numbers.
You know which movements are within reach, and all you have to do is pick the options type with the highest payout to profit from this movement. The entire process is simple and easy — that is the power of momentum indicators. We have already touched on this strategy.
For traders that want to execute it, we will now explain it in full detail. The process is simple and only requires you to compare a few numbers. This strategy is simple. Try a few discount values, and you will soon find the right strategy for you. This strategy is simple and easy, but there is a catch. Because it creates secure predictions, these predictions get you a very low payout.
When you predict that the market will trade below the highest payout when your ladder option expires, you might only get a payout of 10 or 20 percent. Low payouts require you to win a high percentage of your trades to make money. Just a few losing trades might already be enough to lose you money at the end of the week.
Therefore, you need a tool that can help you to avoid the rare situation in which you would lose even a safe prediction. Bollinger Bands are the ideal technical indicator for this job. When a target price lies outside of the outer lines of the Bollinger Bands, the market is highly unlikely to reach it. To check your prediction, you can always invest in the target price with the highest payout that is outside the Bollinger Bands. Of course, Bollinger Bands change with each new period.
To use them for your trading strategy, you have to match the period of your chart to the expiry of your binary option. When you think about trading a ladder option with an expiry of one hour, you have to use a one hour chart and invest right when a new period starts. If 30 minutes have passed in the current period, you have to adjust your chart to leave enough time in the current period for your option to expire.
You can use a period of two hours, for example. The beauty of this strategy is that it works without predicting the direction of the market. When a price is outside the reach of the upper Bollinger band, you win your option if the market falls. You are also highly likely to win your option if the market falls. The same applies to a price that is outside the reach of the lower Bollinger Band.