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Best binary option indicators for beginners:
Alligator is a trend indicator based on moving averages with different periods.
Moving average is a key indicator for price movements of securities.
ATR is a volatility indicator for assessing the strength of a trend.
Awesome Oscillator (AO) is a non-limiting oscillating indicator that indicates the strength or weakness of an asset.
ADX is an indicator for determining the strength and direction of a trend.
Technical indicators are crucial tools for binary options traders to analyze market trends and movements. By identifying patterns in pricing data, indicators can provide valuable signals about potential areas of support, resistance, and reversal.
This article aims to simplify your choice by highlighting 12 of the most effective indicators for new traders just starting out with binary options. Each indicator will be clearly explained in terms of what data it analyzes, how to interpret the signals it provides, and when it works best.
Mastering just a few proven indicators can help novice traders navigate the markets with more confidence as they develop their own strategies.
What types of indicators are best for binary options?
The most effective types are trend-following indicators like moving averages and oscillators that identify overbought/oversold levels like RSI and Stochastic. Pay attention to volatility indicators like ATR as well.
How many indicators should I use?
It's best to use 2-3 indicators together for confirmation of signals. Relying on a single indicator can result in false signals at times. Look for convergence of signals across indicators.
Which timeframes work best with indicators?
Higher timeframes like hourly and 4 hour charts generally work better as they filter out short-term noises. Adjust based on your preferred expiry times - shorter for shorter trades.
Is it necessary to use paid indicators?
No, there are many free indicators available that work well too. Starting with free tools is preferable while you're learning and can always upgrade later if needed.
A binary trading indicator is a technical indicator that follows market patterns and trends to generate signals for particular securities. Many different technical indicators provide key information regarding binary options related to stocks, indices, commodities, forex, etc.
In other words, technical indicators are used by technical analysts to predict future market movements. The best binary options indicators are based on formulas and charts using different metrics particular to the security in question (for example, forex currency pair).
There are two types of trading indicators used for binary options trading:
Overlays – These indicators use a price-based scale, with prices plotted over a chart of stock prices.
Oscillators – These indicators oscillate between minimum and maximum. So unlike overlays, these are charted both below and above the horizontal line in the chart.
These indicators are all about calculating the probability of price movements for a particular security. There are many different binary option indicators traders can use to place their bets on binary options platforms.
The indicators show three main things: volatility, price directions, and timeframes.
At the same time, not all market indicators may be suitable for binary options, so it's best to use suitable ones when doing your analysis and coming up with a strategy.
Following are the most commonly used binary options indicators that can be used for different securities:
The Alligator indicator was created by Bill Williams, a reputable trader of his time. It follows smoothed moving averages.
There are three averages set at five, eight, and thirteen periods (Fibonacci numbers). These averages are called the Jaw, Teeth, and Lips of the Alligator. Using convergence and divergence relations can indicate when the market movements will be the fastest and when the slowest, with the faster movements providing greater returns opportunities in the context of binary options.
The indicator is based on the premise that markets trend only 15 to 30 percent of the time while trending sideways the rest of the time. Those 15 to 30 percent of the times when markets are trending up or down provide the best opportunities to investors.
Moving average is a key indicator for price movements of securities that also serves as an important indicator for other more technical indicators. This kind of average basically smooths the price average, eliminating random fluctuations that may not be relevant to identifying trends and movements.
Even though moving averages are used in other indicators, looking at them alone can also give traders valuable insights. Normally, if the moving average is moving horizontally, even at an angle, for a long period, it indicates that the price is ranging not trending.
On the other hand, if the angle is sharply going up, the prices follow an upward trend.
The drawback of moving averages is that it does not indicate the actual price of a security, which can make it sort of limiting for binary options traders.
Another good thing about moving averages, though, is that these can be set for any time period.
ATR or Average True Range is a technical indicator that indicates volatility. It's rather simplistic as it relies only on historical price data. Normally, a 14-day period is standard for calculation, but traders can use different time periods per their trades.
Even though ATR tells when to enter or exit a trade, it also tells about the size of the trade. That information is very useful in binary options trading, as you're not just betting against price movements but very particular price thresholds.
A low ATR indicates low volatility, and a high ATR indicates high volatility.
ATR should be used in conjunction with other more definitive and stronger indicators as ATR alone may not be enough. It has its limitations as it doesn't predict the actual direction of the price movement. It only tells the probability of the movement, which, when considered alone, can be risky.
Awesome Oscillator (AO) was also created by Bill Williams. It's a non-limiting oscillating indicator that primarily indicates the strength or weakness of an asset or security. This indicator can help binary options traders choose the right security for options trading.
This indicator essentially compared recent momentum with general momentum. Since general momentum indicators are usually weak, this indicator adjusts its calculations to remove those weaknesses.
This is also one of the most frequently used free binary options indicators, available on different websites and platforms. As an oscillator, its values fluctuate over and under a zero centerline.
The principles are similar to that of other oscillating indicators based on histograms. In other words, AO above zero indicates an upward trend, and below zero, it indicates a downward trend.
ADX or average directional index is a technical indicator that signals strong market trends with fewer risks and more profit potential. It predicts when the price of a security will trend strongly. As binary options are often based on trends, this is one of the free binary options indicators even newbies can use.
ADX is based on the moving average of prices in a given timeframe. As in some situations, price movements alone are not indicative enough, ADX comes in handy. More importantly, ADX can be applied to virtually any security, including stocks, futures, forex, and commodities.
The best part is that ADX is relatively easier to comprehend for someone just entering into binary options trading. It's plotted on a single line, starting at 0 and ending at 100.
Stochastic Oscillator is a useful indicator for identifying overbuying and overselling periods. It follows momentum changes of price rather than the actual price of a security, which often changes before the price.
For this indicator, a 14-day period is normally used, but that's not mandatory. Shorter or longer timeframes can be used according to the binary options trade expiry timelines.
The two main metrics to look for are %K and %D. A crossover of the two usually signals that a trader can enter a trade. As for identifying overbuying and overselling, levels above 80 indicate overbuying, whereas levels below 20 indicate overselling on a 0-100 range of values.
MACD or Moving Average Convergence Divergence is an oscillating indicator that combines price momentum and market trends, making it a strong indicator choice for binary options traders.
MACD follows a band over a centerline serving as zero. The MACD band fluctuates above this centerline. If the MACD band is above zero for an extended time, then the security it is following is trending upward. In contrast, if the band is below zero for an extended time, then the security is trending downward.
Usually, the above zero MACD bands signal trade entry. While the crossovers usually give buy and sell signals, MACD can also be used to bet on binary options.
RSI or Relative Strength Indicator is an oscillating indicator like MACD, except it follows the range of zero to 100, making it rather easier to work with. However, it indicates overbought and oversold conditions.
It was developed by J. Welles Wilder Jr. in the late 70s and has been used in stock and other securities trading ever since. It's a good indicator to identify bullish and bearish price movements.
If the levels are above 70 in a timeframe, the security can be considered overbought. On the other hand, if it's below 30, the security is oversold.
It's calculated based on average gain and average loss as percentages in a given time. Normally, a 14-day period is used to calculate these percentages.
Investors often use the RSI indicator with other trade signals, as some experts say that RSI levels are not that accurate.
Parabolic SAR is a finance indicator that indicates not only the price direction but also when the direction may change.
The indicator is presented in a chart with dots that are either above or below the price bars. These dots are basically signals of price movements. When the dot is above the price bar, it indicates a bearish trend. When the dot is below the price bar, it indicates a bullish trend. However, when it flips, it indicates chances of changes in price direction.
This is one of those binary options indicators that can also help predict profits during upward or downward trends.
Like many other indicators, the Parabolic SAR also has a few drawbacks. It can generate false signals when prices are moving sideways. In such a scenario, binary options traders run a higher risk.
For a more holistic signal, it's best to use this indicator with oscillating indicators like the stochastic oscillator or ADX.
Momentum, as an indicator, is defined as the acceleration of the movement of security prices. In simpler words, it indicates the speed of price changes in a given timeframe.
Momentum basically helps traders identify when is the best time to enter a trade, usually when the prices are increasing quickly. This is highly relevant to binary options because of the time limits of this kind of trading instrument.
Momentum is calculated through an oscillator and serves as a critical metric for several other technical indicators that base their analysis on the speed of price movement.
A momentum-based strategy allows traders to enter the trade when the prices are speedily increasing and close out when they are at their peak. This is very useful for stock and forex trading but can also be used for binary options trading.
CCI or Commodity Channel Index is used to calculate the current price of a security relative to its average price in a timeframe. The average price is a moving average. As for the timeframe, it can be set according to the expiry time of the trade.
The CCI indicator is very useful in active trading, where traders want to maximize profits quickly. This indicator is often used with oscillators like the Stochastic Oscillator indicator.
The formula is fairly simple, which allows easy calculation and charting. Once charted, the value over +100 indicates an upward trend, whereas values below -100 indicate a downward trend.
Detrended Price Oscillator or DPO focuses on the length of price trends, represented as peaks and troughs. DPO works differently than other oscillating indicators as it does not rely on momentum.
This is useful for identifying buying and selling points based on historical price cycles. This can be useful in relation to the expiry period of binary options when measuring the distance between a peak and trough on the chart. Normally, it is set over 20 to 30 periods.
By projecting the peaks of prices, traders can bet accordingly for increasing or decreasing prices of securities. This is one of the most popular forex indicators for relatively stable currency pairs.
What is the best indicator for binary?Tips on how to use technical indicators
Understand the basics. Before using any technical indicator, ensure you have a solid understanding of its underlying concept, calculation, and interpretation.
Combine multiple indicators. Combining different types of indicators can provide more comprehensive insights into market trends and potential reversals.
Adjust indicator parameters. Customize indicator parameters to fit the specific characteristics of the asset or timeframe you are analyzing. Experiment with different settings to find the most effective configuration.
Consider indicator mimeframes. Match the timeframe of your technical analysis with your trading or investment horizon. Short-term traders may use shorter timeframes, while long-term investors might prefer longer periods.
Practice risk management. Use technical indicators as part of a comprehensive risk management strategy. Set stop-loss orders, define position sizes, and be mindful of overall portfolio risk.
Backtest your strategy. Test your chosen indicators and trading strategy using historical data. Backtesting helps you evaluate the effectiveness of your approach and refine it before applying it to real-time trading.
Binary options indicators can be useful for binary options traders, but the reality is that they can also do more harm than good in certain situations. In relatively stable market conditions, some indicators can give false signals that can result in losses for traders.
For markets that are fundamentally volatile, there's no surefire indicator. So a strategy completely relying on indicators may not always work. For short timeframes, they are more likely to give false signals.
That all said, trading without considering any sort of indicators is also a recipe for loss because without any sound analysis, your chances of making poor bets are higher.
Another reason why some traders avoid relying on binary options indicators is that these indicators are often abused by traders. Also, the sheer number of indicators available in today's trading world can further add to a new trader's confusion.
The best approach would be to use several indicators before making any bets. More importantly, go with indicators that have historically worked best for the securities you're betting on. For instance, moving averages, ATR, and RSI are some of the best forex indicators.
When choosing a platform for binary options trading, there are a number of things to consider, including indicators. First of all, keep in mind that most binary options trading platforms do not allow custom indicators. Therefore, you can't really customize indicators to do your own analysis.
Nevertheless, pay attention to the indicators they do offer and how well they work at helping identify trends and price movements.
Other than indicators, main considerations should include the variety of securities for which binary options are available (stocks, forex, commodities, etc.), minimum deposit, trading conditions, and commissions/fees.
Generally speaking, the more assets a platform offers, the more diverse trading options you have.
Also, make sure that you go for a platform that's regulated by some financial authority. Regulated brokers typically offer protections and are open to resolving issues. As they have to comply with regulations, they offer better services as well.
Lastly, a demo account is a great feature that most brokers offer. Consider a broker that offers a demo account, especially if you're a beginner. That way, you can learn binary options trading before devising a strategy and going big.
Using the right combination of binary options indicators can greatly improve a beginner's chances of success in this fast-paced market. Based on my experience, I recommend focusing on trend-following indicators like moving averages to identify the overall market direction, while using an oscillator like RSI or Stochastic to pinpoint optimal entry and exit points.
The Alligator indicator mentioned in the article is an excellent tool that utilizes multiple moving averages to clearly visualize trending and ranging market conditions. Pairing this with the Awesome Oscillator or MACD can provide high-probability trade setups.
However, it's crucial for beginners to understand that no single indicator is perfect. False signals can occur in choppy market conditions. That's why I advise using 2-3 indicators in conjunction and looking for convergence between them before placing a trade.
Additionally, risk management is vital. Always use proper position sizing and never risk more than 1-2% of your account on a single trade. Successful binary options trading is more about consistent small wins than hitting home runs.
As you progress, don't be afraid to experiment with different indicators and timeframes to find an approach that fits your trading style. The key is to stay disciplined, keep learning, and view losses as tuition paid to the market.
Mikhail Vnuchkov joined Traders Union as an author in 2020. He began his professional career as a journalist-observer at a small online financial publication, where he covered global economic events and discussed their impact on the segment of financial investment, including investor income. With five years of experience in finance, Mikhail joined Traders Union team, where he is in charge of forming the pool of latest news for traders, who trade stocks, cryptocurrencies, Forex instruments and fixed income.
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Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
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