Wednesday, March 26th, 2014 by Tim Lanoue
There are a wide variety of technical indicators that are being applied into binary option strategies. Many of them being moving averages, momentum indicators, lagging indicators and oscillator indicators. Knowing the difference between oscillator oriented indicators can help you out in the long run when deciding what oscillator indicator to use in a binary options trading strategy.
Basics of Oscillator Indicators
It is important to understand that all indicators that exhibit oscillator type characteristics fluctuate either above or below a centerline and between values that dictate the current market conditions of the asset. There are two types of oscillators, the first would be centerline oscillators and the second would be banded oscillators.
Centerline oscillators are the most commonly used oscillators when trading binary options. Common indicators that are centerline oscillators would be the MACD (moving average convergence divergence) indicator and the ROC (rate of change) indicator. The MACD indicator is known as a trend following type of indicator which makes it extremely useful when you are using trend trading strategies. The main function of the ROC indicator is to measure the percentage of price change over a given period of time. If the percentage represented is above the centerline then the asset is displaying a bullish change however if the percentage is below the centerline then the asset is displaying bearish characteristics. Another function of centerline oscillators is that they can determine and show the relative strength of direction that is shown during the assets price action, this is why these type of indicators are particularly useful when trend trading.
These type of oscillators are becoming more and more popular due to the fact that they can help traders predict whether or not the assets that they are watching are displaying extremes or not. The main function of this type of oscillator is to predict whether or not the asset you are watching is overbought or oversold. Knowing the market conditions of our targeted asset is a great advantage in determining whether or not a trade should be place or not. A couple common type of banded oscillators would be the stochastic oscillator and the RSI (relative strength index) indicator. Both of these indicators will show you whether or not the market conditions of the asset that you are watching are overbought, oversold, or neutral. However, there is a band oscillator that does not reflect an assets market conditions and that would be the Commodity Channel Index (CCI) indicator. This oscillator is unbounded meaning that it doesn’t reflect values that would show the current market condition of the asset but rather provide signals that there will be a continuation in the direction that the asset is heading.
Learn more about Binary Options Indicators
Technical oscillating indicators are a great tool to use when trading binary options. Knowing the basics of these indicators is key to determining which oscillator indicator is right for you in your trading strategy. If you have any questions please feel free to leave them below and thank you for your time.