Trading Binary Options with Moving Averages

Trading Binary Options with Moving AveragesOne of the most underused and least talked about analysis tools when it comes to binary options trading is that of moving averages. Sure, these are mentioned in many types of analysis tools, but they are rarely talked about in depth. What makes this all the more peculiar is that binary option trading is all about directional movement. Let’s take the opportunity to look at moving averages more closely.

In a lot of strategy scenarios it is very difficult at best to determine the correct movement trend of an asset every single time because of price fluctuations and other short term trends. That is where moving averages come into play; they are a great way of minimizing the effect of these short term trends that often keep you from seeing the correct trending direction. Moving averages are simply calculating the average price of an asset over a set period of time.
One of the nice characteristics about moving averages is that they can be determined using different time frames. The basic thinking behind them is the longer the time frame they are based on, the stronger their indication signal is. The time frames represented within moving averages are called bars. Some of the more popular numbers of bars used to plot moving averages are 9, 15, 30, 150 and 200 bar ranges.

There are three key things that moving averages help you spot that are critical to making successful binary option trades:

1) Trends – in order to trade successfully you have to know which way an asset is trending.

2) Wave Analysis – wave analysis can be a very effective tool in spotting potential entry points in which to make a trade. Several moving averages calculated by using different time frames and then plotted together on the same chart form the basis for wave analysis to take place.

3) Coincident Indicator – If you are not sure of anidentifying signal from other technical indicators, it is often a good idea to overlay them with moving averages for comparison.

As you can see, moving averages are extremely useful tools to keep statistical analysis in balance and to keep trends from looking too skewed. This helps you to be able to see the data more accurately and clearly, in turn, you should be able to make more successful binary option trades which are based on that data. So even though moving averages are often not talked about that much, they play a very large role in successful binary options trading.

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References and Further Reading:

1. Centre for International Capital Markets (M Cerrato, N Sarantis, A Saunders – 2007)

2. Forecasting exchange rates with robust models (M Pekalski – 2008)

3. Forex Analysis and Money Management (K Maciejczyk – 2012)

4. Over the hedge: exchange rate volatility, commodity price correlations, and the structure of trade (CE Raddatz – 2011)

5. Automated trading (A Glodjo, ND Bronson, SE Harrington – 2011)

John Miller
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John Miller

John has worked in investment banking for 10 years and is the main author at 7 Binary Options. He holds a Master's degree in Economics.
John Miller
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