You don’t need to be a seasoned binary options trader to realize the relevance of trading indicators. While many individuals emphasize the importance of such indicators, they don’t really offer much more information. If you are just getting started with binary options, you may not even be aware that there are different types of trading indicators.
It is important that you understand what each of them are. This way, you will better equipped to decide which one you should use and when. Depending on the type of trader that you choose to be, you will use some of these options more than most. Here is what you need to be aware of:
1) Trend Indicators
As the name suggests, trend indicators help you determine when a trend has formed with the price movements. This trend could be moving in an upwards direction, declining, or moving sideways (remaining steady). By following the trend, you are able to maximize your profit and limit your risks.
The problem, however, is that trends are not as widespread as traders might imagine. This is because the market tends towards consolidation, not forming patterns for a period of time. If you do want to take advantage of when a trend does appear, you are going to need to rely upon trend indicators. One of the more popular trend indicators that are used is the Moving Average. This allows the average price of an asset to be plotted on a chart.
Oscillator indicators are one of the most popular types of indicators among traders dealing with technical analysis. This is because it can be used on any type of asset, any timeframe, and works well with other indicators.
So, what precisely does an oscillator indicator do? An oscillator is often marked out as being in the middle of two extremes. As a result, it is a good indicator of when a certain asset has either been oversold or overbought. This means that market sentiment has caused investors to either place too much or too little value in a particular asset. It is quite helpful in determining market reversals. It can indicate when a price movement or trend is going to change.
The two most commonly used type of oscillator indicators are the Relative Strength Index and the stochastic oscillator.
3) Volatility Indicators
As you know the market can be a volatile place at times. This means that certain asset classes can hit times of both great highs and lows, depending on the situation. Volatility indicators can be used for two separate purposes. The first is that you can exit the market when you see the situation becoming too turbulent. Other traders, however, thrive on this uncertainty. These traders use the volatility indicators to take advantage of the instability and to place trades.
The Bollinger Bands, in particular, are used quite frequently to determine volatility. When there is less volatility, the bands for this indicator will move closer together. The greater the volatility, however, the wider apart the bands move.
4) Cycle Indicators
Last but not least, there are the cycle indicators. Now, these type of indicators are actually considered to be one of the most complex options. These indicators help you to determine a number of factors regarding the price. This includes the cycles, the retracement dips, the peaks, and the troughs. These indicators can help you to determine when an asset will either begin or end its retracement. The most well-known cycle indicator is the Schaff Trend cycle indicator. It is important to discern that there is often a great amount of confusion between oscillators and cycle indicators. They are, however, quite different.
So these are the different types of trading indicators that you need to know about. As you can see, they come in useful for varying reasons. Once you have determined the type of trader that you want to be, you will begin to utilize these properly.