For trading binary options, brokers offer numerous indicators on their trading platforms. Some are better, some worse. We will shed more light on why this is so in the following article.
Overview of common indicators
In technical analysis as well as in market technology, there is an almost infinite wealth of indicators and tools, to identify certain patterns or zones in the price history. A common feature of many of these indicators is that they are
- in most cases calculated from the price itself. Therefore, the majority of the indicators is nothing more than a different way of displaying the course of the price. However, indicators have a certain advantage. By showing trends and weaknesses or strengths.
- they are used by many market participants. These include private traders who trade on a daily basis or funds that only get in and out of risk above or below moving averages. As a result, technical indicators often have the property of self-fulfilling prophecy. Even if they appear unfounded in any way, they provide reliable signals. The whole thing is only valid for a limited time. Why do we explain under point 5.
- you should never take them precisely, but rather interpret them as indicator zones.
- they become more reliable the higher the time analysis basis is
- many of you lose reliability, the more and longer they are used. Put simply, this means that everything on the stock exchange is a competition for the better price. The more people use the same indicator to gain an advantage, the faster the indicator loses its advantages. The best example are the so-called pivot points, which incidentally have also been used by parquet dealers. If you are looking for more information on this topic, you can find helpful tips and explanations on Wikipedia. We believe that the pivot points have long since had their day and generate a lot of false signals, especially in short-term trading.
The Fibonacci retracements are going to the mathematician Leonardo Fibonacci de Pisa. The latter had discovered that the following number always results in the sum of the two previous numbers. If you now divide the number by the following, it almost always results in increasing values of 0.618, which represents the "golden mean", so to speak. But let's not drift too much. This arrangement is not only found in mathematics, but also in nature, art and architecture.
The use of Fibonacci retracements is controversial among market technicians. However, the fact that many traders use this indicator alone ensures high reliability. In our experience, Fibonacci retracements show better zones than the pivot points.
How to use fibonacci retracement for guaranteed profit in Binary options and Forex
Example of binary options trading
If we look at the current Gbp / Usd chart at 4 - Look at the hourly basis, then we still see the British pound selling off after the Scottish referendum. If we take a closer look, we see fairly precise support zones that correspond to the Fibonacci retracements. The 50.0 retracement is an enormously reliable support. Although this retracement is less determined by the Fibonacci series, it represents an exact 50% correction to the upward trend of the currency pair Gbp / Usd.
A trading option here would be a call option with a Buying time between 2 and 8 hours, for example from the broker BDSwiss. For this we can choose a simple binary option. With a term until 22:00, we could have reached 71% on our stake if we had traded with the Fibonacci retracements after the analysis.
However, as already briefly indicated above, it should be noted: the retracements should never be viewed as precise zones, but as zones where certain price-demand constellations arise. Therefore, the question arises whether it is even possible to trade the Fibonacci retracements on a short-term basis?
If we look at the chart for the Usd / Chf currency pair on a 15-minute basis, we can also recognize the reliability here, especially of the 50.0 retracement. The trick is the starting point for pulling the retracements. While we assume the 4-hour basis in the 4-hour chart for the British pound is based on the start of the upward trend, we do exactly the same thing in the 15-minute chart for the currency pair Usd / Chf and the short-term upward trend.
5 minute charts with binary options
The following chart on a 5 minute basis shows the currency pair Aud / Usd. We can also trade breakthroughs in Fibonacci retracements. However, as mentioned above, one should always keep in mind that the reliability of the signals decreases with short-term charts. We see that a bottom has formed and the 23.6 retracement has been broken up. We can therefore assume an upward trend. However, before the 38.2 retracement was sustainably broken, the price fell back to the 23.6 retracement. There is a simple trick to avoid doing such erroneous outbreaks, which we will only explain in more detail next time.
But what we can still see is that there is additional resistance in the area of the 61.8 retracement located. We can therefore assume that the price will fall back here at least on a short-term basis, for example in the range between 2 and 10 minutes. That would be a great way to buy a short-term put option from broker BDSwiss.
BDSwiss is one of the few brokers that offer live trading webinars for your customers. In addition, the client is supported by personal advisors with whom the client can develop an individual investment strategy. Good luck!