We have already written many times on our blog about moving averages. This is probably the most popular indicator when it comes to technical analysis. Many strategies are based on it. Today, we are going to describe a method that works well with one-minute binary options.
- 1 The classic interpretation of moving averages
- 2 Strategy for 1-minute binary options using SMA(8) and SMA(21)
- 3 Summary notes
The classic interpretation of moving averages
You probably already know that there are several types of moving averages. Among them, you will find the most popular ones, like the simple moving average (SMA), weighted moving average (WMA), exponential moving average (EMA). Their classical interpretations are the same.
The closing price crosses the moving average
A situation where the closing price is above the moving average is read as a buy signal. Conversely, if the candle crosses the moving average downwards, it is a sell signal. This strategy in its simplest form gives many false signals. Just look at the chart below and you will see what I am talking about.
Using 2 moving averages to generate trading signals
Another common technique is to use 2 moving averages with different periods. Popular pairs of averages are 9 and 13, 8 and 21, 10 and 30. In the chart below you will find SMA(8) and SMA(21). The SMA(8) follows the price faster than the SMA(21). The signal to buy is when the fast average crosses the slow average upwards. The signal to sell is when the fast average crosses the slow average down.
Both of these techniques work. However, it is better to use them in combination with a set stop loss and take profit. Binary options, however, are an instrument that does not offer such possibilities. Here we are only assessing whether the market will go up or down. Our assessment is verified by the actual direction of the market.
Strategy for 1-minute binary options using SMA(8) and SMA(21)
As I mentioned, binary options require a slightly different approach to trading. We will use the same averages, SMA(8) and SMA(21). First of all, they will be used to determine the existing trend. If the average is more than slow, then we are dealing with an uptrend. If the fast average is below the slow average we say that the market is in a downtrend.
The trend is one thing and the moment the position is opened is another. Our strategy is about being clever. If the trend is downward, we will try to open the option for price falls. The place where we will trade is to be clearly expensive in the market. If we have an uptrend, we want to open an option for the price increase, but in a place where it is extremely cheap. In this way, we have a chance to reach 60-70% efficiency of our trades. But what does this mean in practical terms?
Opening positions for price decreases
Practical examples best show the idea of this method. If there is a downward trend we wait for the price to exceed the fast average (SMA8) upwards. If this happens, we wait for the price to clearly break through the SMA8. Some traders will read it as a buy signal, but in such situations, the price usually returns. This is our signal to open a 1-minute option for a price drop. In the chart below I present one of the transactions. The red rectangle indicates where it is relatively expensive, which is good for opening positions for price drops.
Opening positions for price increases
If we have an uptrend we wait until the price breaks downwards successively SMA8 and then SMA21. Afterwards, we quickly open the option for the price increase. Look at the chart below.
Remember that this strategy, like any other, does not work every time. In addition, it requires some practice. It is good to practice it on your demo account.
Using this method, prepare several charts for different currency pairs and try to monitor the situation in several markets simultaneously. Remember to set an appropriate expiry time of one minute. Remember also that the method works best when the trend is also visible without the use of indicators. This method may turn out to be very effective after a few weeks of training and observations. The key to success is a transaction in line with the trend catching the ends of the corrective move in the existing trend. We hope that you will enjoy today's strategy. Please share your thoughts in the comments section below.
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