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MACD Binary Options Strategy
MACD Binary Option Strategies makes use of one of the most effective trading indicators out there.
The Moving Average Convergence Divergence (MACD) is an indicator that incorporates trends and momentum.
The MACD has been proven its worth in the Forex and stock markets for a number of years and has been the staple tool for any technical analyst.
Yet the question remains, how effective is it when trading binary options?
We will take a look over some of the most effective MACD Binary Option Strategies.
What is the MACD Indicator?
The MACD was first developed in the 1970s by a man named Gerald Appel. It is a lagging indicator that is used to follow trends. The MACD consists of two exponential moving averages and a histogram. The MACD is calculated as the difference in the assets 26 day (slow) and 12 day (fast) Exponential moving averages (EMA). These indicators will use the closing price of the asset in their calculation.
Apart from the standard MACD indicator, there is also a 9 day EMA of the MACD that is plotted as well. This helps for the trader to decide whether they should be buying / selling. The general rule of thumb when it comes to the MACD indictor is that it is a bullish indicator when the MACD is above its 9 day moving average.
There is another indicator that is added to the MACD representation and that is the histogram. It is helpful as it is able to identify when the difference between the moving average and the MACD itself is positive / negative. It is easy to tell when looking at the histogram whether there is a bullish indicator or bearish indicator.
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Interpretation of the MACD
The name says everything, the MACD is all about spotting periods when trends are either converging or diverging. Converging is when the price is going in the same direction of the underlying trends. Diverging is when the price is going in the opposite direction.
When looking at the MACD, when the short term EMA is above the long term indicator this is considered a divergence. It is a convergence when they are moving together.
Given that the MACD line is an oscillator, when the MACD line is above zero, this means that the short term EMA is moving away from the long term MA in a positive direction and this should be a bullish sign.
Similarly, when the MACD is below zero it means that the short term EMA is diverging away from the long term EMA but on the downside. This is a bearish indicator.
When the Signal line and MACD histogram are included, the binary options trader is able to get a lot more colour and is able to determine whether the MACD indicator itself is converging or diverging.
For example, if the MACD histogram is positive it means that the 9 period moving average of the MACD is above the MACD and could mean the MACD is still heading in a positive direction. The opposite can be said for a Moving Average that is below the MACD.
Taking a look at an example, in the image to the right, we have the EURCHF currency pair with the MACD lines plotted below. We have also plotted the price charts using candlestick indicators and moving averages above which are for indicative purposes. AS you can see, the MACD is calculated as the difference between the two moving average lines in the main price chart.
Looking more specifically at the indicator chart, the light blue line is the MACD indicator, the red line is the moving average of the MACD and the histogram is the difference between the two. In the cases when the MACD was positive and the Moving average of the MACD was increasing, this was a bullish sign for the trader.
Binary Option MACD Strategies
MACDs are a great indicator to use when trading binary options as they help to identify when momentum is strong and when it is tapering off.
When the trader sets the MACD periods to the option expiry periods, an even more accurate reading is presented. It will help the trader assess whether they should indeed enter the option up or down.
The MACD indicators can also be used when the trader wants to employ more exotic binary options such as one touch and no touch options.
Below we will run through some examples of binary option trades that you can embark on once reading the MACD indicator.
MACD 0 Line Crossover
A 0 line crossover, or “center line” crossover occurs when the MACD line goes from positive to negative. This is an indication that the asset may be moving from a situation of positive momentum to negative momentum and vice versa.
When the MACD crosses from negative to positive then this is seen as a bullish sign and is called a bullish crossover. On the other end, when the MACD crosses from positive to negative this can be a bearish indicator and is called a bearish crossover.
Indeed, a 0 line crossover may not be an indication that momentum has switched. For example, there may be a situation where the MACD will remain close to the 0 line for some time going forward. These are indeed hard to read and just show that momentum is currently quite limited.
Taking a look at an example of a binary options MACD crossover trade, below we have the price of Ether (USD) with the time period set to five minute candles. This was a Bullish crossover and was an indication that there was a move to positive momentum in the price of Ether.
In this case, the trader should consider entering a 5 minute binary option CALL on the price of Ether. As we can see, the next candle ended up closing considerably up from its open. This means that the CALL option would have ended up in the money and paid the trader off.
MACD Signal Crossovers
As mentioned above, the MACD signal line is very helpful as it allows the trader to spot when the MACD indicator may itself turn. This could then be a prelude increasing / decreasing momentum in the assets price as the MACD itself may turn.
In general, when the MACD line goes over and crosses the signal line, this is a bullish (positive). On the other side, when the MACD crosses the signal line to the downside then this is considered a bearish crossover and shows that momentum could be turning the other way.
If the trader was using a simple high / low binary option strategy, they would look to enter a PUT option in the case of a Bearish Crossover and they would enter a CALL option for a Bullish crossover.
In the below chart, we have the price of Gold with Candlesticks placed on a 2 minute horizon. Hence, the trader should consider 2 minute binary option trades as the instrument.
As you can see, there was a signal crossover and this was a Bullish crossover as the MACD has passed over the signal line. We can also see that the Histogram has reversed and is now positive.
As this is a bullish signal with momentum reversing to the upside, the trader should place a 2 minute binary CALL option on the price of gold. Indeed, the trade would have expired in the money as the closing price of the candle was above the opening price.
Although trading binary options with the MACD can indeed be profitable, the trader needs to be careful placing trades when the MACD line is at all-time highs or lows.
MACD Momentum Divergence
A MACD divergence occurs when the movement of the price is different from that which is being demonstrated by the MACD indicator itself. This is usually a sign that the momentum is indeed tapering out and should make traders weary. As we have mentioned, momentum is a key ingredient in a trend continuing its trajectory.
Hence, if the binary options trader is to observe a divergence between the MACD and the underlying price then this is an indicator that they should consider placing a trade that is contrary to the trend. A reversal from the current trend in the price is indeed possible.
There are two types of MACD divergences. There is the Bullish divergence which occurs when the price of the asset continues reaching lower lows but the MACD indicator itself records a higher low. A bearish MACD divergence occurs when the price of the security reaches a higher high but the MACD indicator is recording a lower high.
Taking a look at a MACD convergence example, on the right we have the 10 minute chart of the S&P 500 index as well as the MACD indicator below. As you can see, the index is reaching higher highs but the MACD seems to be reaching lower highs. This is an indication that some of the momentum behind the price move is indeed eking out.
The trader should therefore consider entering a 10 minute Binary PUT option on the S&P 500. Of course, it is quite difficult to ascertain when this should exactly be done as we can see that the price kept on climbing even though the MACD was falling. At this stage, it should be an indication to avoid a CALL option trade at this point.
However, there appeared to be a Bearish MACD signal line crossover. In this case it appears to be occurring at the same time that we are having a bearish divergence. At this stage, the trader should place a 10 minute Binary PUT option in expectation of a fall in the price.
Indeed, if the trader had done this, the option would have expired in the money as the candle closed down below the open. The trade would have ended profitably and paid the trader out.
These MACD strategies have worked effectively for a number of years and are borrowed from traditional forex and stock trading. However, even if you think that you have a perfect opportunity to enter a trade, you have to take into account other technical factors which could also have an impact on the price at that point in time.
It is also advisable not to embark on a strategy like this if you don’t have an understanding of the basics of binary options. Similarly, when using a binary options trading strategy, you need to also make use of a money management strategy. This is because profitability is impacted by more factors than just what trade is placed.
The trader will need to be measured in the amount that they would like to stake on each trade as well as know when to stop trading if the MACD binary option strategy is going contrary to expectations. Using a combination of different trading disciplines is a surefire way to trading binary options profitably.
Best MACD Entries Strategy – YES WE CAN!
MACD is one of my favorite indicators no matter if I’m trading Forex, CFDs, Crypto or BO. It can be used in a variety of ways to determine trends, reversals, and trigger trading signals. It can also be used in any time frame, making it a very useful tool for trading long term, weekly charts or a 15 minute time frame, or anything in between. This article is one I found discussing the best MACD Entries, let’s take a look. One last thing, this article is a great jumping-off point for those using MACD or any kind of oscillator. There are links at the bottom taking you to other relevant articles that will help enhance the success of this strategy.
“The Best Of MACD Entries” – What am I Talking About?
This is an article written by James Ayetemimowa and posted on Forex Strategies Revealed. It is a simple strategy for short term traders and utilizes MACD in a way that I can fully approve. Some of the good points about this strategy is that it is trend following, and uses more than one indicator, which allows better filtering of the signals. Not only that, because of the way MACD works and its applicability to multiple time frames, this technique can be used in longer time frames.
What Is “The Best Of MACD Entries”
This would be a hard question for me to answer since there are so many ways to use MACD to generate good signals. For James it was not so tough, he has been able to quantify neatly just what he believes is the best entry signal. James uses the 5 min charts, two moving averages, and two MACDs. For the charts I suggest candles because that’s the best way in my opinion. The two moving averages specified are 50 bar Simple Moving Average and 100 bar Simple Moving Average. The two MACDs are both standard 12/26/9 but one is histogram and the other is oscillator style. Together these indicators join to create signals with movements that last anywhere from 20 minutes to several hours.
How “Best Of MACD Entries” Works
The set up is pretty simple and since it is on the 5 minute charts, signals come pretty regularly. The two moving averages are used to determine trend, trade type and as part of the signal. Trend is determined by the positions of the two SMA’s. When the short term 50 bar SMA is above the long term 100 bar SMA the trend is bullish. When the short term SMA is below the long term SMA the trend is bearish. With that in mind, traders are instructed to only trade according to this trend. Bullish trades in an uptrend and bearish trades in a downtrend.
A signal is generated when MACD is overbought or oversold and makes a crossover at the same time that prices have retreated past the SMAs. What this means is that in a downtrend you will wait for prices to correct above the moving averages. When that happens a signal will be generated when the MACD oscillator is in the overbought side and makes a bearish crossover. This crossover and signal can be predicted with the MACD histogram. If you look in the example provided, the MACD histogram is making a nice divergence and foreshadowing the lower high and subsequent sell signal generated by this system.
How To Use This Strategy For CFD, Crypto, BO and FX
Entry Rules For Bullish Trades
- 50 bar moving average above 100 bar moving average
- Price has moved below the 2 moving averages
- MACD Oscillator Is Oversold
- MACD Histogram Shows Bullish Crossover
- If you are trading Forex, CFD or Crypto, open a Buy trade
- If you are trading BO, open a Call
Entry Rules For Bearish Trades
For trades opened under FX/CFD rules you will have to use some kind of protection, in the form of Stop Loss and Take Profit. Given that this is a trend following system, the Stop Loss can be fairly tight and placed just behind the peak or bottom that was created before the MACD crossover. For Take Profit, you can use at least a 1:2 RR (Risk to Reward ratio – meaning that for 10 pips risked, you can possibly gain 20) or use a Trailing Stop after reaching the breakeven point.
For trades opened under BO rules, you will have to decide expiry – In the example above 5-minute candlestick charts are being used and targeting a 20 to 30 minute expiry. This equates to 4 or 5 candles so can be applied to any time frame. For example; Daily charts will be 4 days, one week or end of week expiry, 30 minutes charts would be 2 – 3 hours expiry.
Why This System Does Not Suck
Where to begin…. This system does not suck because it is an outstanding example and application of one of my favorite indicators. I won’t be shy in saying that I put a lot of stock in the ol’ 12/26/9. This strategy not only uses my favorite indicators but also incorporates many of the features of a good strategy we here at ThatSucks have come to love. This strategy, as laid out, does not incorporate multiple time frame analysis but I think it would only benefit from it. What it does have is a combination of well worn, trusted and often overlooked indicators that incorporate trend and momentum to generate handy signals for traders of short duration and long duration charts.
Why This Strategy Sucks
This strategy sucks because I didn’t write it and I can’t take credit for it. My hat’s off to you sir James Ayetemimowa and your outstanding MACD system.
My Last Words on the Best of MACD Entries
I don’t know if this is the best MACD entry or not but I can say that is a damned good one. I recommend this strategy to newbies, oldies, experienced, inexperienced, forex, commodity, stock, index and any other kind of traders there are. I don’t know how else to say but that way. I, and we here, don’t just hand out praise. There are a lot of things that totally suck in the trading world but this is not one of them. Take hold of this strategy, love it, nurture it and I think in the end you will be net positive.
MACD i – Binary Options göstəriciləri
Today I want to explain to you a strategy to work with binary options to 60 seconds that we are successfully testing which is based on the analysis of Japanese candles chart in which we have added the indicator MACD 12-26 with mobile media to 9 periods to which we have applied Bollinger bands. The strategy is revealed extremely effective both for inputs in Put that in Call. Now what we are going to analyze are the inputs in Put.
The image above speaks for itself. In the upper part you find the candles chart of the Pound (GBP) compared to the american dollar (USD) and below the indicators of the MACD (continuous blue line) with the relative mobile media (dashed blue line) and the Bollinger bands that draw a sort of channel. Our strategy is that to enter with an option PUT (that is in short) when the MACD crosses the middle line from top to bottom in the proximity of the upper part of the Bollinger band.
Just to let you observe the power of this signal I want to show to you an image of a continuous sequence of this type of signal that provided us with continuous successes.
- Register you to 24option hence to open your DEMO account.
- Made the minimum payment to open the account.
- Ask immediately a demo account on which you can make all your tests.
- Once you learn the right strategy – you begin to operate with real money.
From this strategy is born an observation which led us to another strategy on the binary options to 60 seconds: strategy of the cusps of the MACD.
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