How to use the MACD Indicator in Binary Options
Technical analysis is an objective approach of appraising financial instruments by analyzing the price data and trading volume generated by the activities in the market. For a technical analyst, the intrinsic value of an asset is of no consequence to him. What he is more concerned about are the patterns that he can discern from his analysis of the data that he have on hand. To help the technical analysts with his task, he has at his disposal charts and various technical indicators.
In this article, we are going to explore how to use the MACD Indicator can be used for trading binary options. The MACD indicator is a momentum indicator that illustrates the relationship between two moving averages. It can be used to interpret the following situations:
MACD Indicator Based Trading Strategy
This strategy is good for the normal Call/Put binary options as well as the Touch/No Touch options. The objective of the MACD indicator based trading strategy is to establish at what point in time an asset’s trend changes.
Trading Conditions for the Strategy
In order for the strategy to work, the following trading conditions must be satisfied:
The asset must be trending
There is a mild pullback by the asset to a temporary resistance or support level
A 50 period EMA (Red Line) as the short term moving average indicator. This EMA will act as the signal indicator.
A 110 period EMA (Blue Line) as the long term indicator. This indicator will double as the support and resistance level.
A MACD histogram to indicate changes in the trend.
Trading Setup
To obtain the appropriate signals, look for indication in the MACD histogram for changes in the trend. At the same time, ensure that the asset’s prices are bouncing off the EMAs in the same direction of the trend.
Place a Call trade if the:
50 period EMA (Red) is above the 110 period EMA (Blue)
Asset’s prices are bouncing off the 50 period EMA
MACD is showing a change in the trend
Place a Put Trade if the:
50 period EMA (Red) is below the 110 period EMA (Blue)
Asset’s prices are pulling back from the 50 period EMA
MACD is showing a change in the trend
Trade Expiry Times
As for the expiry time for the trades, this is dependent on the chart’s time frame. Normally, the expiry time for the trade should be set 4 candlesticks apart. For example, if the chart that you are using is a 30 minutes chart, set the expiry time to at least 2 hours. As a precaution, do not trade more than 5% of your total investment capital. So if the minimum trade amount is $5, than you must have at least $100 in your trading account.