Indicators and Oscillators (MACD, RSI, Stochastic)
There is no technical analyst who does not use for the analysis of the trading online signals coming from some indicators and oscillators such as MACD , RSI and Stochastic. These indicators are instruments able to create binary trading signals and they can also be used as filters of the signals.
MACD Strategy for Binary Options
The MACD (Moving Average Convergence Divergence ) is one of the most famous indicators. The indicator is formed by two trendline that generate the signal on the basis of their intersections and indicate an increase of the bullish or bearish strength depending on the positioning relative to the line of the zero . The first trendline comes from the difference in values between two exponential moving averages ( generally 12 and 26 periods ) , called differential line , while the other signal is given by an average of 9-period exponential moving , called trigger- line , calculated on the values of previous trendline (this one is normally indicated with a dashed line ) .
So the MACD can be used in two ways:
• you observe the crossings between the trigger and the differential line to enter the rise or the fall;
• you look at the crossroads of the differential line with the zero line.
RSI Strategy for Binary Options
The RSI indicator is among the most known and used , and then the psychological mass effect also makes it one of the most reliable. The indicator relates the current price trend with the trend of the previous period.
This indicator has the purpose to find the moments overbought or oversold by studying the fluctuations parameterized between 0 and 100.
We usually find 70 levels designed for the overbought and 30 for the oversold .
The observation period suggested by its creator, Wilder, is 14 days, and is the standard period most widely used by traders.
Stochastic Strategy for Binary Options
The stochastic oscillator was created by George Lane and is based on the following theories:
• When prices rise , closing prices tend to approach the extreme upper end of the range of prices in line with the direction of the trend.
• When prices fall , closing prices tend to approach the extreme lower end of the range of prices in line with the direction of the trend.
We can find two types of stochastic, fast and slow. The main trendline that we must analyze are: %K and %D.
The trendline % K measures, in percentage, where the current closing price is, in relation to the minimum price recorded in relation to the period of observation. All is shown on a scale of 0 to 100, where 0 represents the lowest recorded during the observation period, while 100 is the maximum.
The trendline % D is a simple moving average of % K. Since it is a moving average, this line is more homogeneous compared to % K and provides signals about situations oversold or overbought. The fast stochastic is more sensitive than the slow stochastic and is the least used as it can create false signals. Generally, the area above the level of 80 % is considered a market area in overbought, while the area below the 20 % indicates a market in oversold.
The signals arise after the following events:
• The lines % K and % D move above 80 or below 20
• The % K and % D lines intersect
• The lines % K and % D move below 80 and above 20