Today we will show you a rule-based 5 minute trading strategy for binary and digital options. The Simple Moving Average (SMA) is one of the most popular moving average tools used for technical analysis. Using a single SMA has its drawbacks. The main disadvantage is the resulting lag due to the fact that SMA doesn't take many previous price points when calculating the average. Using 2 SMA indicators on the same chart however, can give you excellent trade entry points.
This guide will teach you how to use the SMA4 and SMA30 to trade 5 minute long positions on the IQ Option platform.
- 1 Setting up SMA4 and SMA30 on IQ Option
- 2 Signals of 5 minute trading strategy on IQ Option
- 3 Learning and developing the 5 minute trading strategy
Setting up SMA4 and SMA30 on IQ Option
Once you've logged into your IQ Option trading account, set up the 1-minute Japanese candlesticks chart. Next, click on the indicators feature and select Moving Averages. On the MA window, select SMA for type and 4 for the period. Change the SMA4 line color to blue.
Repeat the same process to set up the SMA30 line. Change period to 30 and color to red.
Remember to click apply when you set up the SMA indicators. Also, your Japanese candle stick chart should have 1-minute candles. Of course, you can set the colour of the line and its thickness according to your own preferences. All the technical analysis indicators at IQ Option have the possibility of adjusting their parameters and visual characteristics.
Signals of 5 minute trading strategy on IQ Option
The traditional view often uses a pair of moving averages of different periods. With two averages, fast and slow, it is possible to assess chart situations by observing the relationship of these averages. Intersections of these averages are often used as signals to open trading positions. Our 5-minute trading strategy uses crossing averages, but the signals require one more element, namely that the price returns to the SMA(4).
Which trading strategy has highest win rate?
Strategies that rely solely on the intersection of averages do not always produce satisfactory results. Most often, additional filtering is required for such a strategy to work. One can filter using the trend of a long term average like the SMA200. Then buy positions are only opened when the market is above the SMA200 and short positions when the price is below the SMA200. You can also use a time-related filter. Numerous studies show that intersections work best during the London and New York trading sessions. You can also add 1 small element that we have introduced, which is price touching the SMA(4).
Once you've set the SMA indicators, your chart should look like the one below.
5 minute trading strategy BUY signal
The SMA4 line (blue) cuts the SMA30 (red) from below and starts moving above it. Enter a 5 minute buy position as soon as the SMA4 touches the first bullish (green) candle.
5 minute trading strategy SELL signal
The SMA4 line cuts the SMA30 from above and starts moving below it. Enter a 5 minute sell position when the SMA4 touches the first bearish (orange) candle.
Is 5-minute chart good for trading?
Remember that in this strategy we use a 1-minute chart. Therefore, taking into account the time frame of the chart, we could call it a 1 minute trading strategy. 5 minutes is the length of the trade. To trade on IQ Option you can use one of 2 instruments: binary options or digital options. You will probably use binary options more often, where option expiry times are more flexible and it is easy to choose a 5-minute expiry.
Learning and developing the 5 minute trading strategy
This trading strategy works very well when the markets are trending. The foreign exchange market is a great testing ground for this method. In instances of high volatility such as after a news release, this strategy is extremely effective. Remember that you can enrich the strategy with additional filters that will improve the effectiveness of this 5 minute tradning strategy. In addition you can test today's method by using the average EMA instead of the SMA. Check out the possible variations and adjust the strategy to your preferences.
Now that you've learned how to use the SMA4 and SMA30 to trade 5 minute trading strategy, try it out in your IQ Option practice account today. We'd love to hear your about your results in the comments section below.
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