Strategies


BINARY OPTIONS STRATEGIES: GOLDEN AND DEATH CROSSES IN BINARY OPTIONS TRADING

Technical analysis as we know it today wasn’t like this all the time. It changed together with the personal computer. Nowadays, traders simply open a trading platform, choose a currency pair, and then apply whatever the technical instruments available. It’s easy, fast, and pays results.

For this reason, technical analysis is split in two. There are classic technical analysis concepts and new ones. Classic concepts come from patterns line head and shoulders, rising and falling wedges, pennants, bullish and bearish flags. But also moving averages. Modern concepts deal with trading theories that consider each market’s characteristic. For example, the Elliott Wave Theory adapted to these days characteristics, or harmonic patterns, point and figure charts, and so on.

Part of classic technical analysis concepts, a moving average is one of the most popular indicators. This is especially true among retail traders. Every trader knows how to apply a moving average on a chart. And, how to interpret it. But, in binary options trading, there’s a catch. Not only that traders must interpret the direction, but also the time for a trade. Or, the expiration date of an option.

 

 

How to Trade Binary Options with Golden and Death Crosses

The rule of thumb says that a moving average is a trend indicator. Indeed, it is. Also, that it splits the market in bullish and bearish. In a bullish environment, traders buy call options. And, in a bearish one, they buy put options.

On top of that, a moving average offers support and resistance levels. The bigger the time frame is, the stronger the support or resistance level. And, the bigger the moving average is, the stronger the support and resistance level is.

But, trading is not that easy. Or, at least not that straightforward. Some adjusting need to be made. Until then, let’s see what makes a moving average.

 

What MA’s to Use

A moving average considers various prices of past candles. And, it projects the outcome at present. The favorite way to calculate a moving average is to consider the closing price of each candle. Next, the average, which is an indicator, will consider all the closing prices for the candles in the respective period.

There are multiple types of moving averages. Simple ones (SMA), exponential ones (EMA), and so on. The EMA or the Exponential Moving Average is the one to use for the golden and death crosses.

The video that comes with this article shows how to set the needed EMA’s on a chart.

 

Golden and Death Crosses in Binary Trading

For a golden or death cross, traders use two EMA’s: EMA (50) and EMA (200). They consider the previous fifty and two hundred candles and plot the values under/above the current price.

The EMA (50), or the red line in the video analysis, shows the signal. When the EMA(50) crosses above the EMA(200), the market forms a golden cross. That’s a bullish sign. Binary options traders want to buy put options. 

On the other hand, the opposite makes a death cross. The EMA(50) moving below the EMA(200) shows a bearish environment. Traders look for places to buy put options. However, there’s a catch. How to filter between so many fake signals?

 

Rules to Trade Binary Options with Such Crosses

Binary options traders must consider a couple of things. First, the expiration date of an option. 

This one should be adjusted to the time frame use. In our examples, we use the EURUSD four-hour time frame. As such, it makes no sense to have a short-term expiration date. Look for the end of day, week or even month for it.

The last step needed is to trade only the first two touches of the EMA(200). That’s logic if you think of it.

If the price still has the ability to come to the EMA(200) after that, it shows a weak trend. It is too risky to trade again. But if you decide to take that chance, do it with a smaller risk.

 

Conclusion

Trading is the outcome of a disciplined approach to random market behavior. To put an order in financial markets, one needs to be patient and follow the plan.

While using only two moving averages, the golden and death crosses are enough for profitable trading. The only thing is, can you follow these simple steps?

Imagine the potential: how many currency pairs are there, how many time frames and how many other financial products to trade binary options with?

Risk Warning: Trading may not be suitable for everyone, so please ensure that you fully understand the risks involved. Especially trading leveraged products such as Forex and CFDs carry a high degree of risk to your capital and can result in the loss of your entire capital. Only invest with money you can afford to lose.