Of course, a bullish cross would be that the smaller EMA crosses above the bigger one, and we should buy call options on any pullback into the two averages. Moving averages has a big advantage in front of other indicators as they are being applied directly on a chart, on prices. This is not possible when trading and interpreting market with oscillators and this characteristic makes them very popular among traders.

The standard interpretation is that as long as price is staying above a moving average it is considered to be bullish and any dip lower should be seen as an opportunity to buy or to trade call options, and as long as price is staying below a moving average it is considered to be bearish and any spike higher into the moving average should be interpreted as bearish and an opportunity to sell or buy put options.

The bigger the period the moving average is taking into consideration, the stronger the resistance or support price is facing. The bigger the time frame the moving average is being applied on, the strong the support and resistance and the bigger the expiration date for the binary options that are traded should be.

A classical example that shows the big difference between the EMA and SMA Simple Moving Average is to be seen when compiling the Bollinger Bands indicator.

It is known that the Bollinger Band indicator shows the Upper Bollinger Band UBB and the Lower Bollinger Band LBB but few know that in the middle, the Middle Bollinger Band MBB is a moving average. Like any moving average, it can be simple SMA or exponential EMA. In binary options where a single pip can put the trade in the money, this is less of an issue.

Consequently, the trader should primarily be concerned about picking up trend direction. This leaves binary options traders the option of using moving averages in the following ways:. If you use the moving average crossover strategy, you are essentially aiming to find tradable points where the faster moving average crosses above or below the slower moving average you can read our article dedicated to moving average crossover strategy here.

The CALL signal would therefore occur if the faster moving average crosses above the slower moving average, and the PUT signal would be generated if the faster moving average crosses below the slower moving average in a downward direction. A good combination would be to use a 10 SMA and a 20 SMA.

Crossovers must always be traded with confirmation, either with candlestick patterns or some other indicator which would confirm the move in the direction of the crossover.

Moving averages move in the direction of the trend, but in this manner, they can also function as dynamic supports in an uptrend and dynamic resistances in a downtrend. We use the words dynamic because the supports and resistance points they form are not at the same static horizontal level, but are constantly changing. In other words, when the price takes a brief retracement, it is expected to bounce off the moving average in an uptrend and retreat from a moving average in a downtrend.

Different techniques are used to make an informed decision. Some may rely on just financial news and world market trends. Others employ more sophisticated formulas to predict the movement of the price of a specific asset.

No matter what technique is used, the risk of a binary options trader is greatly reduced when proper analysis is made. Technical analysis has been used by binary options brokers since it came to the market a few years back. Traders have seen the invention of hundreds of indicators which they factor when they purchase binary options. Some technical indicators are more popular than others. Some may be objective to some traders.

But reliable and useful analysis techniques such as the moving average is preferred over the others by newer binary options traders. Moving average is exactly what its name implies. It denotes the average of the price movement of an asset for a specific period of time.

Moving averages have different derivatives. But, their underlying purpose remains the same. The purpose of moving averages hereon referred to as MA is to help binary options traders track the trends of financial assets by smoothing out the day-to-day price fluctuations, also called noise. When the daily fluctuations are disregarded, a more direct trend results, and a general action or direction can be traced from the curve.

By identifying trends using MA, traders are able to make those trends work in their favor and increase the number of winning trades. A clear understanding of why moving averages are important is what the binary options trader needs in order to appreciate the technique.

How they are calculated is what will be discussed here. Moving averages are a common way to gauge the direction of a current trend. Every type of MA is a mathematical result that is calculated by averaging the number of past data points.

Get Your Free Demo Account Now. A moving average indicator is a main indicator that shows price movement direction. When processing moving averages the mathematical pricing average of a particular period as measured by candlestick quantity. For example, in order to calculate the value of a five candlestick period the indicator divides the sum of their closing values by five. Then the indicator moves one candlestick forward and makes the same calculations in this manner.

A trader can build up a line of resulting values that has a more smooth chart direction. It smooths price bursts by indicating the current trend. In case of an increasing period the price sensitivity lowers. But lag on the price chart increases. In the indicator settings you may choose the period of the candlesticks and from among for calculation methods. Exponential moving average EMA smoothing works by taking into account the current average value on a previous period with smoothing. The priority decreases exponentially and never equals zero.

The weighted moving average WMA assigns top priority to the current price hence the WMA chart does not depend heavily on dated prices. The priority of importance increases linearly. The smooth simple moving average SSMA takes into account a large amount of candlesticks throughout historical quotes and is much more smooth. Moving Average is a great instrument of detection for a lateral trend wherein rules of trading that differ from rules of trend trading take precedence.

Moreover when two indicators with different time intervals intersect it helps determine trend reversals. Get Your Free Demo Account Now Table of Contents.

These are:. This gives the binary options trader an idea of how an asset is priced relative to the past 10 days. Once this happens, a Call option can be used, according to the system. ONLINE TRADING COURSES. In binary options where a single pip can put the trade in the money, this is less of an issue. Once the average is determined, it is then plotted into a chart.

Categories:

• Binary Options online
• Forex Brokers
• Binary Options
• Forex Bitcoin
• Forex