Trading Binary Options With Oscillators
Options platforms are distinctive individually but all of them consist of trade indicators and oscillators. Oscillators refer to indicators that are displayed below the chart with indicators, in a window that can be opened separately.
Oscillators are a great and useful referral point to traders because they encompass longer periods than the actual price list which means that they give traders more detailed information than the price list and should not be neglected by traders.
Binary options traders are often exposed to the risk of false signaling through prices, but using the oscillator traders have access to additional candle charts which will keep them on the right track. Oscillators are based on more candle charts which for sure gives a wider perspective on how to plan your options trades.
Oversold and Overbought Levels
The oscillator plays also an important role in oversold and overbought markets since with an oscillator you can always check on overbought and oversold levels. This enhances your winning chances given that you will know in advance of the particular market’s status and base your trading decisions accordingly. You will be able to place put options in overbought markets and call options in markets which are already oversold.
Still, one has to be careful with this strategy since the oscillator is not of use when trends are unfolding. The price ability might stay within the levels for a certain period before you have the opportunity to enter a range trade again. A range trade refers to a tunnel bet when traders bet on whether a price is going to stay within a predetermined range or not. In these situations, it is recommended not to rely on the oscillator.
This relates to technical analyses of the market in general whereby two approaches have to be considered. The one does include trend prediction and oscillators, but the other is associated with the use of trading techniques some of which are Market Profile (by J. Peter Steidlmayer from Chicago Board of Trade), Elliot Waves, the Fibonacci retracement (support (price stops going lower) or resistance (price stops going higher), the Gartley pattern (identify major turning points in the market), etc.
The Many Advantages of Trading With an Oscillator
The main reason the oscillator is so popular is due to its ability to display multiple periods in contrast to the fixed price which indicates only price values for specified periods. The multiple periods will give you a better display of the whole trading situation.
The oscillator is the best tool for trend trading including the strong movement of trends and small dips or spikes. If you happen to have a strong trend movement, the oscillator can indicate the ideal striking price for you when it moves closer to the oversold territory giving a hint when it is time to take action.
In order to optimize technical analyses of the oscillator, you may maximize the oscillator window over the whole monitor from the initial position of the oscillator which can be spotted at the bottom of the chart. Use the maximize option to count the waves, and the movement of higher highs and lower lows. Conducting technical analyses in this way gives you a different perspective on trading options, and you can use it to optimize your trading results.
The oscillator is strongly associated with multiple trading periods and should be used only within that context. The oscillator’s performance is not of much use when it comes to daily charts and trades with short-term expiration dates. Single time frame trades do also not fit with the oscillator strategy since the whole point of oscillators are the timeframes they are associated with. Oscillators’ main function can be reduced to analyses and comparisons of smaller and bigger timeframes which facilitate the decision-making process in options trading.
The Role of Oscillators as Continuation Patterns
The oscillators’ capability to display and indicate overbought and oversold levels makes them perfect as continuation patterns. The oversold and overbought territories indicate trade tunnels or ranges that are displayed by the oscillator whereby the secret to success would be to find the golden middle or the neutral area. This might sound hard, and it would be if it would be estimated through random picks, but there is a logical formula which facilitates the operation. You can simply take the maximum and minimum oscillator’s values and divide the sum by two to get the range middle. After you done that, right-click the oscillator window in order to edit the indicator. Add a new level or a new line in the center of the range which will represent the neutral level. according to reasearch theories, every time the market crosses that area or the neutral level indicates that there is room for the continuation pattern.
The continuation pattern is reflected for example when the market is moving downwards from the upper point and crosses the neutral level enabling the oscillator to act as a bullish continuation pattern reminding traders that it is time to call options until the market trend is still moving down but before reaching the overbought zone.
Also, if we have the middle zone or level crossed by a trend moving upwards instead of downwards in a fast and straightforward move, then traders are supposed to trade put options before the neutral level has been reached by the trend in order to define the continuation pattern properly.
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References and Further Reading:
- A test of futures market disequilibrium using twelve different technical trading systems (Louis P. Lukac , B. Wade Brorsen & Scott H. Irwin)
- How many reference patterns can improve profitability for real-time trading in futures market? (Suk Jun Leea, Kyong Joo Oh, Tae Yoon Kim)
- A guide to building a university trading room (John C. Alexander Jr., Charles C. Heck, Robert B. McElreath)
- Application of Simple Technical Trading Rules to Swiss Stock Prices: Is it Profitable? (Dušan Isakov, Marc Hollistein)
- Computer simulation of a central pattern generator via Kuramoto model (Frederico Alan O. Cruz, Célia Martins Cortez)