An indicator is a graphic tool on a trading platform that analyzes historical data to provide specific price-related information, such as trends, momentum, and volatility, for binary trading. The charting software usually displays it either at the bottom of the chart or overlaid directly on it.
This will be an in-depth guide on the ten best indicators for binary options.
Top Ten Best Technical Indicators for Binary Options
List of The 10 Best Indicators for Binary Trading Reviews
We’ll now examine the ten best technical indicators in more detail, examining how they work and the popular strategies for using them.
1. Moving Average
| Indicator type | Trend |
| Strategies | Trend trading with multiple MAs MA crossovers, Golden/death cross |
| Platforms providing the indicator | Pocket Option, Quotex, IQ Option |
| Key fact | Most indicators use some form of moving average. |
The moving average (MA) is among the most popular indicators across traded markets. It refers to a dynamic (or ‘moving’) line calculated from the average of specific price data within a set period.
This is commonly the closing price but may also be the open, close, or high price, depending on the settings. For instance, a 100 MA (with a closing price setting) represents the closing price over the past 100 days or periods.
Moving averages are trend indicators based on a simple premise: the trend is bullish when the price is above the MA and bearish when the price is below the MA.
Since these are best for short-term trading, most binary options traders will want to consider periods from 50 and below (the most popular are 5, 10, and 25). The lower the period, the more the MA reacts to even the slightest price changes.
A popular strategy uses multiple moving averages with different periods to determine the trend.
Another well-known technique is the moving average crossover, which confirms trend changes. Using two moving averages of different days, speculators wait for one to cross the other before entering the new direction.
Finally, we have the golden/death cross strategy for long-term binary options traders using the 50-day and 200-day MA. A sell signal occurs when the 50-day MA crosses below the 200-day MA. Meanwhile, a buy signal happens when the 50-day MA exceeds the 200-day MA.
2. MACD
| Indicator type | Momentum, Trend |
| Strategies | Histogram strategy, zero crosses, divergence, 60 seconds strategy |
| Platforms providing the indicator | PocketOption, Quotex, IQ Option |
| Key fact | Gerald Appel created the MACD in the late 70s |
The MACD (moving average convergence/divergence) is a more versatile version of moving averages. It’s a tool traders use to generate entry signals into trends, gauge momentum, and trade divergence.
Opportunities are generated based on the interaction between these two lines. It’s bullish when the MACD line crosses the signal line from below. Meanwhile, a bearish signal happens when the MACD line crosses the signal line from above.
Traders use the zero line on the histogram as another way to confirm trends. Readings above zero suggest bullish conditions, while those below zero imply bearish conditions.
First Popular Strategy
The first popular strategy with MACD in binary options involves using the histogram bars to see how they interact with the moving averages on the zero level. A potential reversal occurs when the bars move away from zero (with the MAs separate from each other). On the other hand, a potential continuation occurs when the bars edge closer to zero (with the MAs coming together).
Second Popular Strategy
The second well-known MACD strategy is called the ‘zero crosses,’ similar to the one using history bars. Traders observe the zero line in relation to the MACD line to determine trend strength. A buying trigger happens when the MACD line crosses the zero level from below. Conversely, a selling trigger happens when the MACD line crosses the zero line from above.
Divergence
Finally, we have divergence on the MACD, a staple with momentum indicators and oscillators. Divergence refers to the mismatch between a price’s highs/lows and the indicator. In this case, traders will observe the direction of the histogram bars. These bars essentially trace the price direction.
However, moments happen when the market shows two consecutive highs while the MACD shows a higher high and higher low (a bearish divergence). A bullish divergence is when the price prints two consecutive lows while the MACD reveals a lower low and lower high. Divergences are one of the earliest signs of reversal.
Some binary options traders can also consider the 60-second strategy that works on the 1-minute time frame. This system is best for options that expire in two minutes. Traders need to modify the MACD settings, where the short-term MA is 9, the longer-term MA is 20, and the signal line is 3. Moreover, one should make the signal line white and the MACD line red in color.
A buy signal occurs when:
- The MACD or red line crosses the signal or white line from below to above
- A candlestick appears above the cross spot in the direction of the MACD line
Meanwhile, a sell signal happens when:
- The MACD or red line crosses the signal or white line from above to below
- A candlestick appears above the cross spot in the direction of the MACD line
For more information on technical indicators that work well, check out our video:
3. Relative Strength Index
| Indicator type | Momentum |
| Strategies | Divergence, trendline, overlay |
| Platforms providing the indicator | PocketOption, Quotex, IQ Option |
| Key fact | John Welles Wilder Jr. developed this and other indicators in the late 70s. |
The Relative Strength (RSI) is a popular oscillator and what we believe is the best of its kind. It aims to offer the current momentum of a traded market over a defined period (usually 14 days). It inputs the data on a 0-100 line graph with 30 and 70 as the extremes.
The RSI is ‘overbought’ when it goes above 70, indicating very bullish conditions. Conversely, it is ‘oversold’ when it exceeds 30, suggesting very bearish conditions. Furthermore, a short-term retracement often happens in both scenarios. Traders regard 50 as a median level. Readings above 50 are bullish, while those below 50 are bearish.
Like the MACD, divergence is a strategy that is familiar to the RSI. The second common strategy to consider incorporates trendlines with breakouts. Traders draw a trendline on the indicator which traces or mimics the price trajectory. Their entry triggers will come once the RSI line breaks the trendline.
Another charting technique worth noting with the RSI is overlaying an extra RSI line to exploit crossovers like moving averages. One RSI will have a smaller period than the other. A buy signal materializes when the short-period RSI crosses the long-period one when the crossover is below the 30 line. Oppositely, a sell trigger transpires when the short-period RSI crosses below the long-period when the crossover is above the 70 line.
4. Stochastics
| Indicator type | Momentum |
| Strategies | Divergence, crossovers, stochastic-RSI |
| Platforms providing the indicator | PocketOption, Quotex, IQ Option |
| Key fact | The indicator was created by George Lane in the late 1950s. |
Stochastics are another well-used momentum oscillator with functions similar to RSI’s. The former is more sensitive, making it more suitable for ‘choppy’ or range-bound markets.
Two lines, %K and %D, form part of the indicator, moving between 0 and 100. Readings above 80 indicate ‘overbought’ while those below 20 imply ‘oversold.’
The %K line (known as the ‘fast’ stochastic) accounts for how the most recent closing price has closed compared to the lowest and highest price over 14 days. Meanwhile, the %D line (known as the ‘slow’ stochastic) is a 3-period moving average of %K.
As with other momentum tools, binary options traders can capitalize on crossovers with stochastics by observing the crosses between the %K and %D lines. It’s a bearish signal when the %K crosses below the %D and a bullish signal when the %D crosses above the %K.
Crossover Advantage
Speaking of crossovers, traders can take advantage of them when the %D and %K lines cross while in the overbought or overbought zones, as explained in the RSI section.
Another interesting way to trade with stochastics is using a modified version combining the RSI and stochastics, the Stochastic RSI. It’s an indicator developed by Stanley Kroll and Tushar S. Chande in the early 90s, bringing the best of both worlds. Using this indicator, binary options speculators can incorporate the techniques discussed here with momentum tools.
Finally, like other oscillators, stochastics are also featured in many divergence strategies.
5. Bollinger Bands
| Indicator type | Trend, Volatility |
| Strategies | Bollinger squeeze, Bollinger bounce |
| Platforms providing the indicator | PocketOption, Quotex, IQ Option |
| Key fact | The indicator is named after John Bollinger, who developed the tool in the 80s. |
Bollinger Bands are a classic trend-based indicator that helps measure volatility and overbought/oversold conditions. They comprise a 20-day moving average (the middle band) and two standard deviations represented by the lower and upper bands.
The basic rules regarding these bands state:
- A market is in an uptrend when the price is above the middle band. It’s in overbought territory when it goes beyond the upper band.
- A market is in a downtrend when the price is below the middle. It’s in oversold conditions when it exceeds the lower band.
One simple strategy is the ‘squeeze,’ a way for binary options traders to trade breakouts by observing band contraction. The squeezing of the bollinger bands suggests low volatility. Traders anticipate it’s only a matter of time before the bands expand, where the price picks up stream considerably in one direction.
We’d suggest binary options traders only attempt this strategy when the bands are contracting. The technique is trickier when the market is trending since the bands can expand indefinitely.
(Risk warning: Your capital can be at risk)
6. Average True Range
| Indicator type | Volatility |
| Strategies | Estimating the depth of price ranges, observing volatility |
| Platforms providing the indicator | PocketOption, Quotex, IQ Option |
| Key fact | The ATR is another of John Welles Wilder Jr.’s creations in the late 70s |
The Average True Range (ATR) is a lesser-used yet useful indicator for binary options. It is different from other tools in that it provides price range information instead of predicting where the price will likely travel or the trend direction.
Traders can use the ATR to forecast profit targets for binary options like one-touch, ladder, and boundary.
One-Touch Options
Let’s look at a simple example with one-touch options. In these options, traders must predict whether the market will reach a certain price before expiration. Knowing the ATR helps forecast whether this can happen, depending on the time frame.
Like Bollinger Bands, the ATR is useful for gauging volatility using the trajectory of the ATR line.
7. Fibonacci Retracements
| Indicator type | Support and Resistance |
| Strategies | Retracements |
| Platforms providing the indicator | PocketOption, Quotex, IQ Option |
| Key fact | This tool is based on the Fibonacci sequence created by the 12th-century Italian mathematician Leonardo Fibonacci. |
Fibonacci is more of a drawing tool than a computed indicator, based on the Fibonacci series (e.g., 1,1,2,3,5,8,13,21,34, 55, 89, etc.). The purpose is to forecast support and resistance areas according to this sequence.
The retracement tool is the best Fib-based indicator and relies on these levels: 0.236 (23.6%), 0.382 (38.2%), 0.5 (50%), 0.618 (61.8%), 0.786 (78.6%) and 1 (100%).
Binary traders should use Fibonacci with other indicators like moving averages, RSI, and MACD. Traders can anticipate a shallow (23.6-38.2%), medium (50%), or deep (61.8-78.6%) pullback with Fib, choosing the best entry strategy for each preferred scenario.
8. Pivot Points
| Indicator type | Support and Resistance |
| Strategies | Breakouts, pivot bounce |
| Platforms providing the indicator | N/A |
| Key fact | Although binary options speculators generally use pivot points for the daily time frame, they can use them in other time frames. |
Pivot points are another technique for identifying support and resistance, which can help with entries and exits. Traders can use a technical indicator or calculate these points themselves. Pivots calculate the average of the previous day’s high, low, and close prices. However, any time framework is based on a trader’s individual preference.
Below are the formulas for the pivot points:
- Pivot Point = (previous day’s high high + previous day’s low + previous day close) / 3
- 1st support level/S1 = (Pivot Point X 2) – previous day’s high
- 1st resistance level/R1 = (Pivot Point X 2) – previous day’s high
- 2nd support level/S2 = Pivot Point – (1st resistance level – 1st support level)
- 2nd resistance level/R2 = Pivot Point + (1st resistance level – 1st support level)
As with Fibonacci, pivot points complement any technical indicator, providing excellent references for potential market turning points. Pivot points always consist of a central pivot, with 2-3 levels above and below it. The most well-known way to calculate these is using a five-point system.
However, the simplest strategy with pivots is trading breakouts. One should wait for the market to break below one support level, which indicates a bearish movement and triggers a sale. Conversely, a push above a resistance level indicates a bullish movement and triggers a buy.
Looking for bounces is another strategy for traders to capitalize on reversals. Traders must monitor the price action around each pivot point with other confirmation factors. A bounce off R1 or R2 indicates a bearish reversal, while a bounce off S1 or S2 implies a bullish reversal.
(Risk warning: Your capital can be at risk)
9. Average Directional Index
| Indicator type | Volatility |
| Strategies | ‘Holy Grail,’ divergence |
| Platforms providing the indicator | PocketOption, Quotex, IQ Option |
| Key fact | The ATR is another of John Welles Wilder Jr.’s original developments in the late 70s. |
The Average Directional Index, or ADX, is another non-directional yet valuable tool in a binary trader’s arsenal. Its purpose is to measure the strength of a trend. The indicator appears similar to the ATR, showing a simple line graph calculated that fluctuates between 0 and 100.
Combined Indicators
This line combines two other indicators created by Wilder (the positive and negative directional indicators) and a smoothed 14-day moving average. Readings above 25 indicate a strong trend, while those below 25 imply a weak trend. Some traders consider readings below 25 to be a period of a range-bound market.
Besides general observations, traders can use the ADX to confirm breakouts. This is based on the theory that a non-trending market will eventually move into trending territory, where the price often breaks out. It can also be a confirmation factor to identify if a market will continue in its current trend.
Let’s consider a few specific ADX strategies binary options participants can utilize. The first is the ‘Holy Grail,’ which relies on a 20-day exponential moving average (EMA) with the ADX.
Here are the basic rules of the strategy:
- A bullish signal happens when the ADX increases above 30 while the traded market is below the SMA.
- A bearish signal occurs when the ADX surges above 30 while the price exceeds the SMA.
Another interesting strategy is divergence. While the latter is mainly used with momentum indicators, it also works with the ADX.
10. Accumulation/Distribution
| Indicator type | Volume |
| Strategies | Confirming trends, divergence |
| Platforms providing the indicator | PocketOption, Quotex, IQ Option |
| Key fact | This indicator is one of the most popular tools for volume traders. |
The Accumulation/Distribution (A/D) indicator, invented by Marc Chaikin, reflects whether traders are buying (accumulating) or selling (distributing) a specific market. The A/D shows the running total of money flows derived from the open and closing prices without being too technical.
This tool serves two purposes. The first is to confirm the direction of a trend. A rising or declining slope in the A/D, along with the same trajectory in price, suggests an uptrend or downtrend, respectively. The indicator also presents divergent opportunities. A reversal may be on the cards when the A/D rises while the market drops, and vice versa.
Types of Indicators for Binary Options:
Not all indicators are created equally. Each serves a different purpose depending on the trader’s wishes to measure or observe.
Trend
The trend is the cornerstone of technical analysis. After all, the trend is your friend. A trend refers to a market’s predominant direction over a specific time period. It can be bullish, bearish, or sideways. The simplest way to determine a trend is using a trend line, a line drawn over pivot highs or under pivot lows of the price’s direction.
Momentum
Momentum describes the price velocity that signifies the trend strength over a certain period in binary options. Most momentum indicators rely on an oscillator. This tool consists of high and low extreme bands with a line fluctuating or ‘oscillating’ between these to conclude whether a market is overbought or oversold.
The most well-known momentum tools include the Relative Strength Index (RSI) and the stochastics.
Volatility
Volatility is a calculation of the magnitude of price fluctuations over a defined period when trading binary options. Each traded market has an average range of movement depending on liquidity and volume. Lower volatility is when the range is lower than the average, while higher volatility is the opposite.
Popular volatility-based tools include the Average True and Bollinger Bands.
Volume
Volume tools attempt to gauge the quantity of a specific asset traded in a given period. An uptrend in volume suggests more buyers than sellers, while a downtrend suggests more selling than buying activity.
Familiar tools for trading volume in binary options include the Accumulation/Distribution and Money Flow Index.
Pros and Cons of Indicators When Binary Trading
- Trading success with binary options stems from likelihood and technical indicators, each point in their specific manner to the likelihood of an outcome.
- Technical indicators also give you the big picture of losing trades, i.e., when to stay out of a trade (which is a big part of overall net profit).
- For a myriad of strategies trading price movements, false breakouts, failed breakouts, price reversals, fake reversals－the list is endless－there is no substitute for technical indicators to aid traders in making more informed predictions about markets.
- Indicators will identify patterns and trends invisible to a casual observer.
- For binary options traders, indicators aid in identifying overbought and oversold conditions, often critical signals for a host of trading strategies.
- Indicators are not guaranteed always to be accurate and can and do give false signals.
- Indicators demand experience to become truly useful tools can appear complex and be difficult for beginner traders to interpret.
- Indicators might not factor in all considerations that will affect the market.
Leading Indicators vs. Lagging Indicators
Analysts categorize indicators as leading or lagging. A lagging indicator generates a signal after the move has begun, while a leading one does the opposite. We believe virtually all technical indicators lag since they use historical information.
Leading indicators require considering factors beyond the chart, typically with long-term fundamental analysis. Most binary options are designed for short-term gains, meaning that fundamentals play far less of a role.
Yet, some events like news announcements can be leading indicators when the market anticipates how their outcome will affect the price. For instance, you may binary-trade forex during the release of employment figures for the United States, where a lower number is predicted. This would be a leading indicator of selling USD.
(Risk warning: Your capital can be at risk)
Which Binary Trading Indicator Is The Most Accurate?
As mentioned, all technical indicators lag, meaning their accuracy is inherently limited. That’s why it is crucial to use other confirmation factors such as price action and chart patterns during your analysis.
Mistakes to Avoid With Binary Trading Indicators
The first biggest trap is depending only on indicators for your trading decisions. A trading strategy’s accuracy increases with more rules, confirmations, and triggers. So, an indicator shouldn’t be used as one reason to buy or sell.
Another common mistake is using too many indicators. There isn’t a hard and fast rule for the optimal amount. However, our experience says a maximum of two (although one is also effective). The reason to use fewer indicators is to prevent analysis paralysis. It makes your charts look messier and gives many conflicting signals.
Brokers With The Most Technical Indicators
Let’s briefly review our recommended brokers with the most technical indicators available.
- Welcomes international clients
- Offers high payouts: 90% – 97%+
- Professional-grade trading platform
- Swift deposit process
- Enables Social Trading
- Provides free bonus incentives
- Min. deposit $10
- $10,000 demo
- Professional platform
- High profit up to 95%
- Fast withdrawals
- Signals
- Welcomes international clients
- Offers high payouts: 90% – 97%+
- Professional-grade trading platform
- Swift deposit process
- Enables Social Trading
- Provides free bonus incentives
- Min. deposit $10
- $10,000 demo
- Professional platform
- High profit up to 95%
- Fast withdrawals
- Signals
Pocket Option
Pocket Option is one of the most well-known binary options brokers, serving millions of customers in over 95 nations. It was established in 2017 and is regulated by the Mwali International Authority.
The company offers access to over 100 markets in forex, indices, stocks, crypto, and commodities with a low minimum deposit of $5. Moreover, no fees apply for deposits and withdrawals, which can be facilitated with numerous electronic, bank, and crypto-based methods.
Pocket Option provides a payout rate of up to 281% per binary option. It also appeals to passive traders or investors through a social trading platform for anyone to copy other profitable binary options analysts.
Quotex
Quotex is a Seychelles-based binary options broker that went live in 2019. It offers a decent maximum payout of 98% on over 400 traded assets, including equities, forex, crypto, commodities, and indices. Clients need only $10 to begin trading on Quotex, and many available funding and withdrawal options exist.
Like other binary brokers, Quotex offers a demo account that showcases its wide range of technical indicators and charting proficiency. Finally, integrated signals are available with Quotex for those wishing to create effective strategies.
Conclusion
The sheer range of technical indicators reflects the diversity of binary options traders. We’ve only scratched the surface. Hence, feel free to explore other indicators not covered here, use modified versions of the ones discussed here, or combine these tools to the best of your charting abilities.
Ultimately, no ‘best’ indicator exists due to their lagging nature and each trader’s uniqueness. One should also remember that they shouldn’t use these tools as a crutch. Deciding whether to go long or short in any market requires more thought, considering different factors in the same context.
(Risk warning: Your capital can be at risk)
Most asked questions about Binary Options technical indicators:
Can you trade binary options without technical indicators?
Yes, many traders rely only on price action signals or chart patterns.
How many technical indicators should I use in binary trading?
Traders should be at most two to keep their charts clean and prevent overanalyzing.
Do technical indicators work in binary trading?
A technical indicator isn’t supposed to offer buy and sell signals. It’s only a tool that relays certain information about the price, like the trend, momentum, volatility, and volume. The trader must use that information and other factors to determine the best time and place to execute a trade.
What are the main types of indicators used in binary trading?
Trend Indicators: These show the market’s predominant direction over a specific time, such as moving averages.
Momentum Indicators: These measure the speed of price movements and the trend’s strength, like the Relative Strength Index (RSI) and stochastics.
Volatility Indicators: These calculate the magnitude of price fluctuations over a period, such as Bollinger Bands and the Average True Range (ATR).
Volume Indicators: These assess the quantity of an asset being traded, like the Accumulation/Distribution and Money Flow Index.
