When traders learn using indicators the right way, it can prove to be a valuable tool to make money in the binary options market. There are many types of indicators available in the market and the parameters they measure are momentum, volatility, trend and volume. You can use one or more indicators to measure a single parameter.
Trend indicators and oscillators
Trend indicators can be used to spot reversals of the trend or can be used to spot support and resistance. Oscillator indicators move around a specific level or move between upper and lower level. Traders make use of these technical indicators to determine whether the market is overbought or oversold. This can enable the trader to get a good signal when the divergence is drawn between the price action and the oscillator.
The popular trend indicators include:
- Bollinger bands,
- Ichimoku Kinko Hyo,
- moving average and
- parabolic SAR.
Popular oscillator indicators include:
- MACD (moving average convergence divergence),
- RSI (relative strength index),
- RVI (relative vigor index) and
- stochastic oscillator.
Mistakes to avoid in using technical indicators
One of the biggest mistakes that traders make when they are using technical indicators to trade is that they use too many of them and this can be confusing. Each technical indicator gives specific trading signal.
If for example the trader uses four trading indicators they can get four different trading signals. If these different signals do not appear at the same time it can lead to a lot of confusion and the trader many make wrong entry points. This can result in loss making trades.
The other big mistake that traders need to avoid is using many indicators from the same category. If you have 3 - 4 trend indicators giving the same trading signal it does not mean that the trade will definitely be profitable. It is important to learn about the specifications of each indicator to be able to trade successfully with them.
Most successful traders tend to combine technical indicators with fundamental, sentimental and news indicators to get a broader picture of the market. This enables them to enhance the results and increases the potential to make profits.
One the downside if you use more indicators you may become confused with the large volume of information. It can also become difficult to monitor the signals in an effective manner.
When you learn using indicators the right way, you may be able to save a lot of time and effort in understanding the price momentum of the underlying asset.
Most traders tend to get overwhelmed with too much of information and clever use of indicators can help avoid this scenario. It is best to make use of them to measure various aspects of the trade so that you are able to make profits consistently.