Stochastic is one of the top indicators used by those who trade binary options. It started out as a tool for trading Forex, but was eventually modified for various other forms of trading. The basic principle driving this indicator is relatively complex. It presumes that day-to-day price action is entirely random, but that randomness can be used to identify long-term trends over time.
Stochastic functions as an oscillator that makes use of two different lines: %k and %d. By learning the ways in which the oscillator generates peaks and troughs you can identify asset price trends, along with prime entry and exit areas. Stochastic functions effectively within any time frame and does work well with various other indicators. Stochastic can provide a wide range of signals, but the binary options strategy detailed below is only related to trend following.
This strategy makes use of two different time frames and only takes the trend into account. Supplemental analysis should include simple fundamental analysis, trend line, and support/resistance. Begin with a 5-year chart (of your choosing) with weekly candles. Sketch support and resistance lines in the areas where they seem suitable. This is usually quite subjective, so some practice is going to be necessary. Normally any band could possibly be a long-term area of support and resistance.
For trend lines, connect any two successive peaks or troughs and expand them towards the right-side. The chart will then establish your long-term asset price trend and the trade direction. You’ll only want to trade along with the long-term price trend. With an upward moving trend the long-term signal develops whenever the %k shifts higher than %d. The most powerful signal develops whenever %d is shifting upward at the same time. As soon as the first signal is taken, supplemental signals appear whenever %k drops and then starts to point upward again.
The entry signal will appear within the daily charts. The signal appears the same as the signal within the weekly charts. The only difference is going to be the time frame. The long-term signal lets you know what to purchase, while the daily signal informs you when to purchase. With an upward moving trend, whenever the %k shifts above the %d line, a Call position should be opted for. The opposite holds true in a downward moving trend. If the chosen asset, trending upward, is approaching resistance select an option containing an expiry period of 1-2 days. With no resistance, an expiry of up to several weeks may be selected.