In this guide, we will explore and compare five of the best indicators available in Binomo. We will explain how each of these indicators works, how to use them effectively, the pros and cons of each indicator, and some trading strategies that utilize a combination of these indicators that you can adopt.
The 5 Best Indicators: on Binomo:
- Relative Strength Index (RSI)
- Bollinger Bands
- Moving Average Divergence Convergence (MACD)
- Alligator Indicator
- Commodity Channel Index (CCI)
The 5 Binomo Best Indicators – A Detailed Look
The following are five of the best indicators available on Binomo, together with how to enable them on your Binomo charts and the pros and cons of using each indicator:
1. Relative Strength Index (RSI)
First, RSI serves as a momentum oscillator that measures the speed and change of an asset’s price movement. RSI’s values ranges from 0 to 100, where a reading of 70 and above is considered “overbought” or “overvalued” and may be prime for a potential reversal. On the other hand, a reading of 30 and below is considered “oversold” or “undervalued.”
How to Apply
On Binomo’s charting platform, click the “Trading Tools” symbol and choose “RSI.” You will then be prompted to RSI’s settings where you can modify the default values and change the overbought and oversold levels, the number of period, and the corresponding colors.
The indicator will then appear with your preferred settings at the bottom portion of your chart.
- Easy to interpret: RSI’s main concept is easy to understand, even for beginner and inexperienced traders. Hence making it a popular option.
- Can be used as a divergence tool: RSI can be used to signal potential price reversals. This happens when RSI starts to deviate from the price direction (e.g., when the price is going up but RSI starts to point downwards)
- Less useful on trending assets: RSI is generally not useful when the market is trending (during uptrends or downtrends). This is because, during this period, the asset can remain in the overbought or oversold category for an extended period.
- Divergence misinterpretation: This is a common issue, particularly for inexperienced traders who rely solely on RSI to provide this signal. Incorporating other technical tools, such as other indicators and even a price action analysis, is essential.
(Risk warning: Trading involves risks)
2. Bollinger Bands
Second, Bollinger Bands also measure market volatility and identify overbought or oversold conditions. When the band expands (become larger), it may indicate that the market is becoming more volatile, making trading riskier. Meanwhile, when the band contracts (becomes smaller), it suggests that the market is stabilizing, which might be a good time for trading as price changes are more predictable using standard technical analysis tools.
How to Apply
On Binomo’s charting platform, click the “Trading Tools” symbol and choose “Bollinger Bands.” You will then be prompted to its settings, where you can modify the default values and change the type of price (close, open, high, low), the moving average type (Simple, Exponential, Weighted, and Triangular), the moving average period, the standard deviation, and the corresponding colors for the lower, middle, and upper bands.
The indicator will then appear on the price chart of your selected asset.
- Clear volatility identification: Bollinger Bands provide a clear visual representation of the market’s volatility. Wide bands signal high volatility, while narrow bands signal low volatility.
- Helps identify pivot/reversal points: The bands can serve as dynamic support and resistance areas where potential reversals may occur. Hence, some traders use these levels to help them identify these pivot points.
- Less useful in non-trending markets: In contrast to RSI, Bollinger Bands are useful with trending assets but not when the market or asset is trending sideways.
- False signal: Bollinger bands often give false signals when there is an extremely high level of volatility. This is because, during this period, the bands can continuously break and expand over an extended period.
3. Moving Average Divergence Convergence (MACD)
Third, MACD is a trend-following momentum indicator that displays the relationship between two moving averages of an asset’s price. The basic rule is to consider selling when the MACD falls below its signal line. Similarly, a buy signal occurs when the MACD line exceeds its signal line.
- MACD Line = Fastest Moving Average
- Signal Line = Slowest Moving Average
- Histogram: Swings above (bullish momentum) and below (bearish momentum) a zero line
How to apply
On Binomo’s charting platform, click the “Trading Tools” symbol and choose “MACD.” You will then be prompted to its settings, where you can modify the default values and change the fast EMA period, the signal line period, the slow EMA period, and the colors of its histogram, MACD line, and signal line.
The indicator will then appear with your preferred settings at the bottom portion of your chart.
- Divergence Signal: MACD can be used as a divergence tool. For example, if the price of an asset continues to go up but the MACD does not, it can indicate a weakening trend and likely reversal soon.
- Easy to interpret: MACD’s concept is relatively easy and straightforward to understand, even for beginners.
- Unreliable in non-trending markets: Similar to Bollinger Bands, if the market is moving sideways or without a clear trend, the MACD is undependable.
- Requires additional confirmation: MACD is rarely used as a standalone indicator because its signals must be confirmed before being considered reliable.
4. Alligator Indicator
Fourth, the alligator indicator consists of three moving averages named after the body parts of an alligator. When these lines are tangled, the alligator is said to be ‘sleeping.’ Thus, the market is considered non-trending (moving sideways). Conversely, when the lines begin to separate, the alligator is said to be “awakened,” indicating a potential start of a trend. An uptrend is observed when the lips (short-term trend) are above the teeth (medium-term trend) and the teeth are above the jaw (long-term trend), while a downtrend is the opposite.
- The Jaw (Blue Line) = represents the longer-term trend
- The Teeth (Red Line) = represents the medium-term trend
- The Lips (Green Line) = represents the short-term trend
How to Apply
On Binomo’s charting platform, click the “Trading Tools” symbol and choose “Alligator.” You will then be prompted to its settings, where you can modify the default values and change the Jaws Offset and Period, Lips Offset and Period, Teeth Offset and Period, and the respective colors of the three body parts.
The indicator will then appear on the price chart of your selected asset.
- Easy to interpret: The visually intuitive nature of the indicator makes it simple and straightforward to interpret and apply to your trade analysis.
- Dynamic support and resistance points: The three moving averages in the indicator can also serve as dynamic support and resistance levels.
- Less useful in non-trending assets: Similar to Bollinger Bands and MACD, the alligator indicator is unreliable in markets with no explicit trend (sideways movement).
- Mainly used as a confirmation: This indicator is mainly used as a confirmation tool and is not typically used as a “leading” indicator.
(Risk warning: Trading involves risks)
5. Commodity Channel Index (CCI)
Lastly, CCI serves both as a lagging and leading indicator. As a lagging indicator, it is used as “confirmation” of a price trend, showing the strength or weakness of a price movement within a certain time period. As a leading indicator, CCI can identify divergences when it starts to move against the price direction.
How to Apply
CCI is not available on Binomo’s new charting platform. Hence, if you want to use it, you must switch back to the old charting platform by scrolling to the end of the “Trading Tools” options and clicking the “Switch back to the old chart” button. Afterward, you will now be able to select CCI and edit its settings, where you can modify the default values of the overbought level, oversold level, and period and change the colors of these three parameters.
The indicator will then appear with your preferred settings at the bottom portion of your chart.
- Dynamic boundaries: Unlike RSI and MACD, CCI has no fixed upper and lower boundaries, allowing it to reflect volatile assets or market environments better. Wild price and volume swings can be seen more easily, especially if CCI nears the +200/-200 region.
- Confirmation + Reversal tool: CCI can readily confirm the trend’s ongoing trend while simultaneously serving as a divergence tool to identify possible reversals.
- Sensitivity to short-term fluctuations: It can be extremely sensitive to short-term market movements, particularly when set to a lower timeframe, such as a few minutes (more relevant for binary options trading), causing overreaction to minor price changes.
- More experience needed for interpretation: Unlike other indicators, CCI requires more experience due to its sensitivity to market fluctuations (insufficient experience can lead to misinterpretation).
Key Trading Strategies that Combine These Indicators
RSI + CCI
First, you can combine RSI and CCI in one chart to increase the reliability of a potential divergence reading. This will prevent many false signals from either RSI or CCI. In contrast, if both indicators show a divergence versus price, this signals that a reversal is likely to happen.
MACD + RSI
Second, MACD and RSI also complement each other as both can be used as leading indicators. MACD can serve as the primary indicator and source of trend confirmation, while RSI can be used solely as a divergence tool. Then, when RSI gives a divergence signal, you can confirm if MACD supports this. For example, if the price continues to rise while the RSI begins to point downward, check the MACD’s movement. If MACD stops going up, this can then signal a possible reversal.
CCI + MACD
Third, you may also use CCI and MACD together. This is especially beneficial for trending assets and markets because, unlike RSI, CCI does not have a lower and upper border. Hence, if the momentum is strong towards a particular direction, CCI will continue to go up (in case of an Uptrend) or will continue to go down (in case of a Downtrend).
If, for example, CCI suddenly stops going up or points downward while the price is still going up, this can indicate a loss in momentum. However, to determine whether this is just a “pause” or a valid reversal, you can then check MACD’s direction. If MACD remains elevated, then it may likely be just a pause. However, if MACD starts to point downward, then this can be interpreted as a confirmation.
Conclusion
Overall, the five available indicators on Binomo each present unique use cases, strengths, and weaknesses. Nevertheless, the limitations of these indicators can be mitigated, and their strengths enhanced by integrating complementary indicators. Furthermore, receiving a similar signal from two independent indicators not only improves overall reliability but also helps in reducing the incidence of false signals.
(Risk warning: Trading involves risks)
