Binary Options Trading Strategies: trade binary options with EMAs and MACD
Find the Trend and Trade on Retracements
This strategy, called by DailyFX as “Easy MAC”, is a simple but effective strategy which follows the trend and the entry point is determined on a retracement: the first step is to identify the trend and the second step is to wait for the retracement.
In order to identify the market trend and its pullbacks this strategy uses four exponential moving averages (EMA’s), 200, 30, 25 and 3 and the Moving Average Convergence Divergence indicator (MACD).
First step: how to determine the trend
The key factor here is where the price chart is located compared to the Ema 200: the trend is to be considered up if the price chart is above the 200 EMA, and viceversa it is down if the price is below the 200 EMA.
In our example here, the trend is down because price is below the 200 EMA.
Second step: how to spot the price retracement
Let's look now at the EMA 3 and the EMA 30: the retracement (or pullback) in a downtrend chart takes place when the EMA 3 moves above the EMA 30, like in our example below.
After determing the trend of the chart and the retracement point, which are the entry and exit rules? The idea here is that we want to enter into the market after the retracement has concluded and the price chart resumes in the direction of the trend; also remember that the price is in a downtrend, so we will only look to place sell orders when the trend resumes.
Entry rule: the entry point is when the 3 period Exponential Moving Average goes back below the 30 period EMA, and at that point we place a market order for two lots (for Forex trading) or for a binary option.
Exit rule (for Forex trading): as the final step, traders must know where to exit the market and how to manage risk. At this point we have to introduce the MACD indicator and we add it to our chart with settings 12-26-9. The first lot of this strategy should be exited on the next MACD crossover, which occurs when MACD moves back above the signal line in a downtrend.
As far as the second exit point, we will utilize a trailing stop; this stop should be attached to the 25 EMA: as soon as price reaches the EMA 25, the second lot should be closed immediately.
The exit rule can be applied also to binary trading in those cases where the binary position can be closed before expiry.
This strategy is quite simple and can be applied to Forex, stocks and binary options trading.
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