Simple Moving Average – Tools for Binary Options

Armed with an increase in my knowledge base, I am trying to tackle my IQOption demo account once more. In this attempt, I will be using Simple Moving Average, or SMA lines, to try to better predict market trends.

The Simple Moving Average takes each closing price for the number of values defined by the period (, adds them together and divides this sum by the number of days in the period. This gives an SMA value for the day of the last closing price creating a line co-ordinate for that horizontal point in the chart. The ‘Moving’ part refers to the fact that this value moves from day to day, so, today’s first value will no longer be part of tomorrow’s calculation and tomorrows closing price will become the last value. You can learn more about the Simple Moving Average by watching the video below.

Basically the Simple Moving Average, by its nature, gives a smooth representation based on the indicator line. The benefit, is that you now see a line that shows the general trend (either up or down) over a span of time so that you can see a better representation of where the market is heading. The length of the period defines the time span that you are seeking to view the trends for. A small period of 5, for example, will closely follow more closely the current indicator line to show short term trends. A large period of 200 will show long term trends to reveal whether a market is generally bearish or bullish. Using a combination can make stronger market trends more recognizable and increase your chance of making a wise call or put for a binary option investment.

Simple Moving Average (SMA) Lines

Seen in the above image, is the indicator line along with 3 SMA lines with respective periods of 5, 30 and 200. You can see around 17:15 in this one day representation, that the 10 and 30 day SMA lines cross the 200 day SMA line. This shows a market reversal. We can also see that there is a large gap forming between the 200 SMA line and the other two as well as a strong downward slope in the 10 and 30 lines. This all reflects a strong downward swing for this time span. The logic is, that if you recognize this shortly after it begins, you can place a binary option (a put option in this case) shortly afterwards and increase your chances of it being profitable. I also zoom in and out to get a better picture of the market volatility to see if there are consistencies for the time length of the market fluctuations. The thinking is, if the market swings are of a somewhat consistent length, then placing your option at a length of time that is in line with a minimum typical length of these swings, you would also increase your chances to keep your binary option within the downturn you are predicting.

Simple Moving Average – The Conclusion

The final results were much better than my first dabble into binary options. Using the SMA lines, I successfully made a number of investments and went from being down $700 to up $200. This is certainly not enough data to make any kind of definitive conclusion, but my confidence level has gone up and this seems to be positively affecting my trading. Now, off to learn about the other tools at my disposal. Forward ho!

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