Introduction: The trend spotting for binary options strategy uses as its primary tool the MACD (moving average convergence/divergence). We use the MACD to better find the positions where trends start and end. This strategy can isolate trends but requires a level of understanding to separate small short term trends and longer trends. Before using the trend spotting strategy we need to know the state of the market (Bullish / Bearish) and to follow the asset’s chart for the past few days to understand previous behaviors and patterns. Remember that we do not just aim to spot the trend but use the trend and we need a condition to assist us in entering a position and closing a position.
The assets: Solid assets with lower volatility.
Binary options trading method: Call / put binary option.
The overlays: We use both MACD overlay for the standard rates chart and the MACD histogram which measures the distance of the MACD from its signal line which is the 9 days moving average of the MACD. Another tool that helps us in this strategy to determine when to enter a trade and when to end the trade is the Bollinger bands.
The conditions: When the MACD histogram is below the zero line and the MACD is above the signal line we have a downtrend. When the MACD histogram is above the zero line and the MACD is above the signal line we have an uptrend. In an uptrend, when the graph touches the upper Bollinger band it is the entry point and when the graph is “leaving” the upper Bollinger band it is time to close the position. In a downtrend, when the graph touches the lower Bollinger band is the entry point for a put and when the graph is leaving the lower band it is time to close the position.
Summary: By combining the MACD and MACD histogram we know when trends appear. In order to find the right timing to enter and leave our position we use the Bollinger bands.
Trend spotting for binary options strategy is a sample from binary options strategies. For a short explanation of additional strategies for every binary options method, please read how to trade binary options article.