Binary Options Indicators

Binary options indicators help identify price patterns in underlying markets. Investors essentially use indicators to inform trading decisions. This guide looks at the best binary options indicators available to download on popular trading platforms, such as MetaTrader 4 (MT4). Find out how to overlay technical indicators on charts to improve your binary options trading strategies.

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Binary Options Indicators Explained

Binary options are a derivative product used to speculate on popular financial markets, including forex, stocks, commodities and cryptocurrencies. Each contract is formed of a pre-determined strike price, an expiry time and a premium. Fixed payouts are offered by online brokers and typically range from 70% to 90%.

To trade binary options successfully, investors need to be able to predict whether the value of an asset, such as a FTSE-listed stock, will rise or fall. Technical traders turn to historical market data, mainly price and volume, to help identify future patterns. As a result, indicators are essentially tools that are overlayed onto charts to measure market action. Findings are known as signals, which alert traders to potentially profitable opportunities.

Binary options indicators can be broken down into several categories:

• Trend – Illustrates market direction
• Momentum – Implies how strong a trend is
• Volatility – Determines the extent of price movement in the respective market
• Volume – Shows the number of trades being made in the underlying asset

Importantly, access to binary options indicators varies by brokerage. Brands offer different platforms: some are developed in-house while some are third-party solutions like MetaTrader 4 (MT4). Terminals tend to support different indicators, though the best platforms offer a selection of the most popular tools.

List Of Best Binary Options Indicators

Relative Strength Index

This indicator is used to signal whether a market is oversold or overbought. The relative strength index (RSI) ranks an underlying security on a scale between 0 and 100. A figure above 70 indicates heavy purchasing. A figure below 30 suggests the security is being oversold.

The momentum indicator dates back to 1978 and was developed by J.Wells Wilder Jr. It is calculated using the average gain and loss over a period, typically 14 days. With that said, the timeframe can be adjusted to align with the length of your binary options contract, for example, an hour.

Relative Strength Index

Stochastic

Similar to the relative strength index, a stochastic indicator can demonstrate whether a market is in overbought or oversold territory. Initially developed in the 1950s by George Lane, the indicator measures the relationship between an underlying asset’s closing price and its price range over a set period.

It is set out slightly differently from the RSI, with two lines marking out trends. When stochastic lines sit above 80, it is likely that a market is overbought and may shortly experience a downtrend. When it reaches below 20, the reverse is true – the market is oversold and an uptrend could follow.

Stochastics

Moving Averages

This indicator is used to confirm a trend based on historical price data. There is a Simple Moving Average (SMA) indicator and an Exponential Moving Average (EMA) indicator. The SMA will provide the mean average of previous closing market prices. The EMA also relies on past data but a stronger weighting is applied to the most recent prices, lending it to short-term binary options contracts.

Importantly, a rising moving average suggests an upward trend, whereas a falling average implies a downtrend. Moving averages are typically utilised alongside other indicators to give a complete picture of what is happening within a market.

The most common time frames used for moving averages are between 10 and 200 days. Their straightforward nature also makes them popular with binary options beginners.

Moving Average

Moving Average Convergence Divergence

A step up from the standard moving average binary options indicator. The MACD can be used to monitor the relationship between two moving averages. The main feature to look for is where the lines converge as this can indicate that a new trend is forming. If the shorter average is above the longer one, this points to a rising trend. The longer one being higher suggests a falling trend. A move above zero is a signal to buy, while a shift below zero is a signal to sell.

The MACD indicator can be used in a binary options trading strategy to evaluate the extent that markets may shift, and in which direction, so you can ultimately choose the best strike price available.

Moving Average Convergence Divergence

Average True Range

This indicator is used to indicate price volatility. It works by analysing an underlying asset’s price range over a set period, often 14 days. Be wary though, this indicator cannot predict the direction of the volatility. Prices could swiftly shift in an upwards or downwards trend. With this in mind, it could be worth pairing this tool with another indicator, such as the RSI.

Average True Range

The Money Flow Index

The Money Flow Index (MFI) is used to evaluate the strength of a trend. It forecasts both overbought and oversold conditions, plus examines convergence and divergence signals. Unlike standard oscillators such as the RSI, the MFI combines both price and volume data, as opposed to just price.

An MFI reading above 80 is considered overbought and an MFI reading below 20 is considered oversold. You can use the Money Flow Index in your binary options strategy when there is a divergence. This essentially means that the oscillator is moving in a contrasting direction vs the price. This implies a potential reversal in the prevailing trend.

Setting Up Indicators

Follow these straightforward steps to overlay technical indicators on your binary options trading chart:

1. Login to your trading account
2. Choose an asset. This will populate a price chart and bring up order tickets
3. Customise your chart. Select a date range and expand/condense the pricing view to find an intuitive display
4. Populate the chart, for example on the MT4 platform, with pre-built or customised indicators via the in-app menu
5. Based on your analysis, open a position. The top binary options brokers offer one-click trading via their online platforms

Pros Of Binary Options Indicators

• Validation – Detailed technical analysis can help validate investment theories
• Confidence – Using multiple binary options indicators, such as sentiment, trend and momentum, can give a clearer picture of market conditions. For example, MACD and RSI compliment each other, looking at how overbought or oversold an asset is
• Simplification – Binary options trading indicators can condense complex market data into a user-friendly and intuitive view. Indicators essentially filter the most relevant information to aid trading decisions

Cons Of Binary Options Indicators

• Customisation – Some binary options brokers do not allow customisable indicators to be applied to graphs and charts. In-house terminals often provide limited functionality versus popular platforms like MetaTrader 4. MT4 offers 30 built-in indicators and provides access to a marketplace with thousands of custom-built options
• Suitability – Indicators can give false trading alerts and signals which could result in losses. This is particularly true in extremely volatile markets like cryptos
• Cost – Some advanced technical trading tools and binary options indicators come at a cost. Fortunately, the best brokers offer a selection of free, downloadable indicators
• Application – Beginners may struggle to effectively integrate binary options indicators into their trading strategies. With this in mind, novice traders may benefit from trialling tools on a demo account before risking real funds

Note, that historical trends cannot guarantee future price activity. For example, Elon Musk’s Twitter announcements linking Bitcoin and Dogecoin to Tesla in 2021 led to a 20% fall in the firm’s share price, after surging almost 740% the prior year. Events like these are why savvy investors use more than just indicators to inform their trading decisions.

Final Thoughts On Binary Options Indicators

Technical indicators can help make sense of large data sets. They can confirm assumptions and validate trading theories. They can also reveal trends hidden in complex historical data. Our top tip for beginners is to practise binary options trading with indicators on a demo account first. Here is a list of our recommended brands.

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