part0010

In this chapter, I’ll explain to you the different indicators I use and how I set them up. Again, this is really important, without doing this bit, the strategy part is useless. So make sure you read through this chapter carefully and follow all the steps properly !

There are so many different indicators you can use these days. They're all useful in different ways when used with particular strategies.

Unfortunately, most binary options platforms don't come with indicators so make sure you use one that does or a third party app like I mentioned previously.

If you're not using indicators to help you analyse the market then you're trading blind. If you don't know how to use the indicators, you're still trading blind. So this is a very important chapter!

If you don't know what an indicator is … it's simply an analysis in the form of a line graph, or some dots, bars or something that is trying to tell you something about the market .

OK, that's a bit vague and I said I wouldn’t be vague didn’t I?

Well they all do something a bit different, so I'm going to only tell you about the ones I'm still using right now.

This way you don't have to worry about learning about every single indicator available. So here are the indicators I use for my strategy and I’ll tell you how I set them up…

Let's start with Bollinger Bands. Bollinger Bands are volatility indicators. You've essentially got an average line in the middle, an upper band above and a lower band below.

The further apart the upper and lower bands are, the more volatility there is in the market .

The way I use Bollinger Bands is to look for an unusual movement that causes the price of the asset to go outside the bands.

Say the current candlestick is around the middle band, the average band. It suddenly moves up and goes past the upper band. I use this as an indication that the price will fall afterwards.

This is not a silver bullet though so keep reading. The real stuff comes in the next chapter .

To set up my Bollinger Bands, I use a period of 14 and colour the upper band red to indicate PUT (you might not have the option to change the colour but don’t worry about it) and I have the lower band green to indicate CALL.

This isn’t good enough on its own though. If you want a second opinion on whether the Bollinger Bands are giving you the right signal, you'll need to use them in conjunction with other indicators.

I use two other indicators I mentioned before that basically do exactly the same thing, RSI and Stochastic Oscillator.

RSI stands for relative strength index and it's trying to tell you how inflated the price is. It will tell you if an asset is likely oversold or overbought .

If it’s overbought, it’s probably overvalued and due a correction in the form of a price decrease. If it’s oversold, it’s probably undervalued, indicating the price is likely to go back up.

I use a period of 14 and set the oversold line to be at 20, coloured green (if possible) for CALL and the overbought line to be at 80, coloured red for PUT.

On my trading platform I now have a separate graph under my main one, with a line indicating whether the asset is oversold or overbought.

This is how I validate the indication of the Bollinger Bands. If the candlestick shoots up over the upper band but the RSI hasn't shot up over 80 then I'm not going to accept it as a valid indication .

I won’t be confident enough that the price will fall in under 60 seconds or whichever expiry period I'm trading on.

I want it to shoot up, not creep up, I don't trust the RSI unless it's spikey. If it's not, I'll change to a different asset until I find one that's going up and down the way I'd expect it to.

I then validate the RSI as well with the Stochastic Oscillator. A bit of a mouthful but it's doing the same job as the RSI, just in a slightly different way.

I set it up with period %K at 14, smoothing 1 and period %D 2. Again, overbought 80 red and oversold 20 green.

I want to make sure it’s doing the same thing as the RSI and I’ll go into more detail about this in the next chapter. There will also be a diagram so you can see what it’s supposed to look like.