MACD indicator is a tool which can be effectively used in a binary options investment strategy, the short- and long-term ones. It’s used to set the current trend and its changes. The following strategy is used for short-term binary options and its greatest strength is trading according to the trend and using more than one indicator.
The strategy is about using two simple moving averages and two MACD indicators. It should be used in a candlestick 5-minute chart and it’s the best solution for options expiring in less than an hour (10, 15 or 30 minutes).
- 50-bar SMA (green)
- 100-bar SMA (red)
- MACD (standard setting – 12/26/9) – oscillator
- MACD (standard setting – 12/26/9) – histogram
When using this strategy in a 5-minute chart, the signals appear quite often. Moving averages are used to set the current trend, so we observe their mutual position. If a short-term chart (50-bar SMA) is higher than the long-term one (100 bar SMA), then we have an upward trend. If the opposite is true and the short-term chart (50-bar SMA) is lower than the long-term one (100 bar SMA), then it’s a downward trend. If we want a high/call binary option, then we can do it only when an upward trend can be seen. If we want a low/put option, then we can do it only when a downward trend can be seen.
We observe the MACD chart to notice a buy/sell signal: the blue MACD line upwardly crossing the white signal line means the trend is going upward and buying the asset is advisable. When the blue MACD line crosses the white signal line downwardly it means that the asset should be sold and the trend is downward.
If the market is upward and the MACD line crosses the signal line upwardly, it’s a strong signal that high/call options should be bought. If the market is downward and the MACD line crosses the signal line downwardly, it’s a strong signal that low/put option should be bought.
The MACD histogram is used to forecast the moment when the lines cross.
The strategy can be further reinforced by Bollinder Bands (100 period) and observing the candles.
A low/put signal strategy:
An upward trend example:
Trading according to the signal (click to enlarge):