Monday, March 10th, 2014 by Tim Lanoue
Trading online with binary options can be one of the most beneficial life decisions that any person can make due to the ability to profit and earn a stable amount of income. Not only can binary options help you create your own form of financial freedom but it can also help you benefit by increasing your knowledge about the financial markets. The aim of today’s article is to provide new and experienced traders with the fundamental knowledge needed to understand and apply the volume weight average price indicator into a binary options trading strategy.
One of the best advantages about online trading indicators is that it allows traders to better predict the future direction that an asset may head. One of the main purposes of the volume weight average price (VWAP) indicator is to identify points in the market. This can be particularly useful when we are using a trading strategy that requires the use placing trades when a large volume of trades have been placed in the market. Moving forward we will cover the set up and how to properly apply this indicator so you can use it in a binary options trading strategy.
The setup of this indicator is rather simple and should not be overlooked. When using the VWAP indicator we want to make sure we are using a time frame consisting of no less than 15 minutes and no more than 4 hours. This indicator can be used on a number of time frames making it ideal for traders who like to be dynamic and trade with different expiry times. The last thing we need to make sure is that the targeted asset we are watching reflects a relatively low amount of volatility. Meaning that the asset is less prone to change directions in a short amount of time. Oftentimes assets that display a high level of volatility are much harder to predict and cause more losses when traded over an extended period of time. Common assets that display a low amount of volatility would be the EUR/USD, USD/CAD, USD/CHF, Apple, Exxon, Gold, and Silver.
Now that we have the proper setup implementing this strategy is a piece of cake. As you can see in the picture below we have an example of how we would use this indicator in a binary options strategy. In addition, I use an simple moving average indicator line set at a period of three to help identify a good trading signal. One thing I should make note of is that when I use this strategy I only use it for put trades, I have noticed over time that put trades that often break support levels after large volume sales more often than not in your favor so that is why I only place put trades with this strategy. The signal process is rather simple when using this strategy, all we need to do is wait for our orange VWAP line to break our blue simple moving average line. Once a break has been established then we go ahead a place a put trade.
Using the volume weighted average price indicator is rather simple and can be useful when trading assets that have high volume. Making sure you have the proper set up is key to success and being patient also helps. If you have any questions or comments please feel free to leave them below. As always, stay tuned for more articles to come!