The Moving Average Strategy
The binary options ins and outs of the moving average strategy
The moving average strategy exist for defining the trend and identify the changes occurring in a trend. In short, the moving average line is average price of the stock over a given time period.
The Moving Average Strategy for Day Trading
There is a multiple range of the moving average strategy. The time period to be chosen depends on how the trader prefers to trade and this mainly depends on which asset and strategy the trader prefers, is the trader using the 60 second strategy or the hourly trade.
In the event where an investor decides to take on day trading it would be advisable to trade with the moving average strategy and the ten minute period is probably the best strategy to choose as it is a simple moving average.
The reason behind this is that during day trading, shorter periods for moving averages are advised as they are accurate and supply the investor with the unequaled data needed to make a profitable trade.
Day traders must track the price movement very carefully as breakouts in the moving average strategy can lead to very high trading profits.
Stopping a trade using the moving average strategy
After entering a trade in a breakout, the trader enters a trade using the 10 minute moving average strategy. This will give the trader some maneuverability in case the trader observes the asset is making a break in the desired direction.
The 10 minute moving average strategy
It is worth while mentioning, from my personal trading experience, is to totally avoid the application of the 50 period and 200 period moving average strategy on a chart with the five minutes interval.
Using larger period’s interval means that the trader can be unyielding with their active trading. The five or the ten minute moving average is best advised by the experienced day traders. The next best thing would be the 20 period moving average.
There is a disadvantage in this trading period and the problem remains as the 20 period is quite large for trade breakouts and an investor can miss out on most asset breakouts, it could be very upsetting to let go of potential trading profits. The 10 period moving average gives time for stocks to settle but an experienced investor can make the most out of this.
The 200 period moving average strategy
The 200 moving average strategy is a full blown bull territory separating the bear territory from the bulls. The research has shown that concentrating on long positions above the line as well as shorter positions underneath this line can give the trader a winning edge.
Add the moving average strategy for all charts and all time frames. This includes:
• Weekly charts
• Daily charts
• Intraday charts
The 200 moving average strategy works well for traders, however, day traders should probably steer clear of it as it tends to miss breakouts most of the time. The assets reverse in this section quite often.
The usage of filters
Filters are commonly used in technical analysis to boost the investors’ confidence in a particular trade.
For instance, most traders hold on till the pair crosses over the moving average and just is above ten percent of the moving average prior to placing the order. This ensures that crossover is appropriate and cuts down the false signals.
The main disadvantage in this strategy is that filters give up the gain and traders often miss a large piece of the profit that could have been made in that particular investment. No rules and laws govern the filtering technique as it is just an additional trading tool which makes it possible for an investor to make their trade in full confidence.
Wrong steps in the moving average strategy
Not using advised methods
Traders often make decisions based on a hunch or their gut feeling. This is precarious when your capital is involved and when a volatile market such as binary options are concerned it can easily wipe out an entire portfolio fast.
When trading binary options or using the moving average strategy, proper research and market information is required in order to make them work in your favour and make profitable investments.
Using two or more moving averages
The binary options traders are known to have multiple indicators on their front screens. This can be counterproductive for a trader. Some investors deploy a number of moving average time periods on their screens at once.
However, if you are a new comer to the binary options trading sector, you can begin with applying just one moving average (the 10 minute moving average) which would be enough to show market breakouts for successful and profitable investments.
Entering a trade with the moving average strategy crossovers
In some cases, the expert traders often cross between trades and negate the price and volume action of the given chart. This is however a strategy that should be left for a later stage of investments as it requires deeper trading knowledge.
The Moving Average Strategy can work well for new traders and experts alike. Making good use of this tool can make an investor’s portfolio grow fast.
It is also very advisable for new comers to binary options trading to educate themselves prior to making trades. This can be done by reading some of the many trading strategies available in our tutorial section.
As a new trader you should also make your first investments by using a good Demo Account that will be provided to you by one of our leading Online Brokers. A demo account will enable you to trade the real binary options market in real time using demo cash. By doing so you are able to try out the many winning trading strategies without risking your own capital in the process.