Tunneling binary option trading strategy

Tunneling binary option trading strategyWe are going to discuss another binary options trading strategy that deals with the ability to be able to get information from lines on a chart. You are starting to become aware of how important trend lines, such as resistance and support, are when it comes to determining the best indicator to place a put or call option on a trade. Without the knowledge of how you use them, it is kind of like being in a boat with no oars with which to row it. Another popular binary options trend line strategy is called Tunneling.

This is a simple, but highly effective binary options trading strategy. Tunneling is based on the predictions that are derived from the intersections of moving averages. This type of strategy is normally able to be done on all types of binary options; more specifically it usually involves currency pairs. It is also normally based on one hour time intervals as far as the signal for purchasing.

Tunneling uses a lot of separate instruments to help you see and determine buy and sell signals. It does this by using exponential moving averages that are based on two EMA’s with a time frequency of eighteen and twenty eight (both are indicated by a red line on most technical analysis charts), two WMA’s with a frequency of 12 and 5(both are indicated by a yellow line on most technical analysis charts) and a yellow line which uses an RSI indicator with a time frequency of 21.

The two exponential moving averages will form the tunnel and which is now indicated by the two red lines. They will also help you to determine both the beginning and the end of the current trend.

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You will next used weighted averages with time frequencies of both 5 and 12 to indicate the point where you need to place your trade and which direction the asset will trend.

This is not as simple as it may seem, first there is a rule to apply here. You should only place your binary options trades at a point where the red lines cross and run so close that they are almost like just one single line.

You should place a call option trade when the 5 and 12 weighted averages cross the now formed tunnel that the red lines indicate in. The ideal place to make this trade is at that particular time.

You should place put options trades at the point where the weighted moving averages are trending in the opposite direction and cross the 12 and 5 Exponential moving average channel as once again indicated by the red lines. You will get the signal of where to place the trade when the weighted moving average with time frequency of 5 again crosses the weighted moving average with a time frequency of 12 from top to bottom.

The RSI with a frequency of 21 must also be paid attention to because it will indicate whether you should buy or sell an option. You should sell when the RSI under 50 and by when the RSI is 50 or over.

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References and Further Reading:

1. Volume-Volatility Interactions between Exchange Traded Derivatives and OTC Derivatives (LN Switzer, H Fan – 2007)

2. The Complete Guide to Day Trading: A Practical Manual from a Professional Day Trading Coach (M Heitkoetter – 2008)

3. Informative Trading or Just Noise? An Analysis of Currency Returns, Market Analysis of Currency Returns, Market Proximity of Central Bank Interventions (P Pasquariello – 2002)

4. Leverage Constraints, Profitability, and Risk-Shifting: Evidence from the Introduction of Dodd-Frank (R Heimer – 2012)

5. Automated fulfilling of currency exchange requests over a computer network (MA Ruccolo – 2012)

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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