MetaTrader 4 provides binary options traders with a unique platform to grow and understand market dynamics. This article takes a deep dive into the world of MetaTrader 4 indicators specifically designed for binary options trading. From understanding the meaning of each indicator to their formulas and limitations, this comprehensive guide provides a roadmap for both novice and experienced traders.
Most important facts:
- MetaTrader 4 indicators are essential tools for binary options traders, aiding in market analysis and decision-making.
- Indicators such as the Stochastic Oscillator, Bollinger Bands, and Commodity Channel Index provide insight into market conditions and help identify potential trading opportunities.
- Using a combination of indicators can enhance trading strategies by providing a more comprehensive view of the market.
- While these indicators are powerful tools, it’s important to be aware of their limitations and the potential for false signals, emphasizing the importance of continuous monitoring and analysis.
The best 7 MetaTrader 4 indicators for Binary Options
Here is the list of the best binary options indicators for the MetaTrader 4:
- Calculating the probability
- Wilder’s DMI (ADX)
- Pivot Point
- Commodity Channel Index
- Stochastic Oscillator
- Bollinger Bands
- Relative Strength Index
#1 Calculating the probability
While binary options are inherently time-bound and subject to certain conditions, understanding the probability of certain outcomes becomes paramount. “Probability Calculation” is not a traditional MetaTrader 4 indicator, but a fundamental approach that underpins many trading decisions.
This method provides insight into potential market movements and helps traders gauge:
- Volatility: The expected fluctuation in the price of an asset.
- Direction: The expected direction of an asset’s price.
- Timing: The best time to open or close a position.
Although each MetaTrader indicator has its own unique function, many implicitly rely on these probability-based factors. For example, traders may determine their stance on binary options by observing trend reversal patterns or identifying sustained momentum.
It’s important to note that while “calculating probability” is an integral part of trading strategies, it doesn’t fit the mould of conventional technical indicators. Its importance lies in its conceptual value, guiding traders in making informed predictions, even if it’s not often used in isolation.
#2 Wilder’s DMI (ADX)
Wilder’s DMI (ADX) chart is composed of three lines, namely ADX, DI+, DI-. The position of these lines indicates the strength of the trend being tracked. The ADX is represented by a black line, the DI+ by a green line and the DI- by a red line.
The ADX indicator (Average Directional Index) indicates the strength of the trend. The higher the ADX indicator, the stronger the trend. Both DI+ and DI- are momentum indicators; if the DI+ line is above the DI- it means that the current momentum is upward and vice versa.
The formula to calculate Wilder’s DMI (ADX) is as follows:
+DI= (Smoothed+ DM/ ATR) X 100
-DI= (Smoothed- DM/ ATR) X 100
DX= (|+DI- -DI|/|+DI+ -DI|) X 100
ADX= (Prior ADX X 13) + Current ADX/ 14
- +DM= Directional Movement= Current High -PH
- PH= Previous High
- -DM= Current Low- Previous Low
- Smoothed+/ -DM= ∑DM-(∑ DM/14) + CDM
- CDM= Current DM
- ATR= Average True Range
- Here is the list of some limitations with Wilder’s DMI (ADX)
- The indicator is not that great with indicating future price moves.
- The indicator lags in highlighting the indications. You might get a bit late in taking action toward the trade signals.
- Wilder’s DMI (ADX) cannot predict how long a trend will last.
#3 Pivot Point
Using Pivot Points in your binary options strategy is a helpful way to get in-depth insights into your MetaTrader 4 setup. This indicator determines market trends in a given time frame. It offers a certain flexibility in terms of time frame. Therefore, it can be used for trading the major currencies that are highly liquid.
The indicator calculates the average of the intraday high and low and the previous day’s closing price. Pivot points are calculated to decipher the sentiment of the market and determine whether the market is bullish or bearish.
Day traders make their trading decisions by analysing the pivot points. Then, depending on the position of the pivot points, the traders decide to enter, stop or take profit.
Here is the formula to calculate the pivot point:
- P=Pivot point
- R1=Resistance 1
- R2=Resistance 2
- S1=Support 1
- S2=Support 2
- High= Highest price on the previous trading day
- Low: Lowest price on the previous trading day
- Close: Closing price from the previous trading day.
- They are based on simple calculations. Thus, it may not be beneficial for all traders.
- There is no surety that the predictions made will happen.
- The prices usually move back and forth. Thus, it can play a small role in your binary trading strategy.
#4 Commodity Channel Index
The Commodity Channel Index is a Metatrader 4 indicator that shows the gap between the current price and the historical average price. If the CCI is positive, the price is above the historical average, but if the value is negative, the price has fallen below the historical average.
The value of the CCI is constantly changing, going higher or lower. Thus, the overbought and oversold levels for each asset are determined by the historical averages.
The formula for calculating the Commodity Channel Index is as follows:
CCI= Typical Price-MA/ 0.15 X Mean Deviation
- Typical Price=∑((High+Low+Close) ÷3)
- P=Number of periods
- MA=Moving Average
- Moving Average= (∑Typical Price) ÷P
- Mean Deviation= (∑∣Typical Price−MA∣) ÷P
The limitations of using CCI are as follows:
- CCI is more of a subjective indicator.
- It usually lags because of poor signals.
#5 Stochastic Oscillator
A stochastic oscillator is used to generate oversold and overbought signals. It was developed in the 1950s and is one of the most popular momentum indicators. The stochastic oscillator usually fluctuates around the average price level of the asset, as the value is usually based on the price history of the asset.
The formula to calculate the stochastic oscillator is as follows:
%K= (C-L14/ H14-L14) ×100
- C = The most recent closing price
- L14 = The lowest price traded of the 14 previous
- trading sessions
- H14 = The highest price traded during the same
- 14-day period
- %K = The current value of the stochastic indicator
The limitations of the Stochastic Oscillator are as follows:
- The biggest limitation of this indicator is that it is seen to show false signals.
Here is a free video guide that will help you interpret the stochastic oscillator in a better manner:
#6 Bollinger Bands
Using the Bollinger Bands strategy for binary options trading is very helpful if you are looking for a reliable MetaTrader 4 indicator to guide your decisions. It was created by John Bollinger and helps in technical analysis through overbought and oversold signals. It consists of three main lines, namely a moving average, an upper band, and a lower band. The two bands are standard deviations from a 20-day moving average.
The formula to calculate the Bollinger Bands is as follows:
BOLU=MA (TP, n) +m∗σ [TP, n]
BOLD=MA (TP, n) −m∗σ [TP, n]
- BOLU=Upper Bollinger Band
- BOLD=Lower Bollinger Band
- MA=Moving average
- TP (typical price) =(High+Low+Close) ÷3
- n=Number of days in smoothing period (typically 20)
- m=Number of standard deviations (typically 2)
- σ [TP, n] =Standard Deviation over last n periods of TP
Here are the limitations of the Bollinger Bands:
- First, the grading system cannot be defined with this indicator; only a part seems to work according to its predictions.
Note: It is suggested to combine the analysis from different indicators with the Bollinger Bands and start your trading journey for better results.
#7 Relative Strength Index
The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between zero and 100 and is typically used to identify overbought or oversold conditions in a traded security. The indicator was developed by J. Welles Wilder and introduced in his 1978 book, “New Concepts in Technical Trading Systems.”
The RSI is calculated using the following formula:
RSI = 100 – (100 / (1 + RS))
where RS (Relative Strength) is the average of ‘n’ days’ up closes divided by the average of ‘n’ days’ down closes.
Traders generally use a period of 14 days to calculate the RSI, but this time frame can be adjusted to increase sensitivity (with a shorter period) or decrease sensitivity (with a longer period).
The RSI provides trading signals when it moves into overbought or oversold territory. An RSI above 70 indicates that the asset may be overbought, suggesting a potential sell signal, while an RSI below 30 indicates that the asset may be oversold, suggesting a potential buy signal.
Like all technical indicators, the RSI has its limitations. It can remain in overbought or oversold territory for extended periods during strong trends, potentially leading to false signals. Traders often use the RSI in conjunction with other technical indicators to mitigate these issues and enhance the reliability of trading signals.
Conclusion – Choose one of the best indicators for MT4
In conclusion, trading does not have the best reputation in the real world, but you can make some huge profits if you do it right. If you want to profit and continue trading, combine the data from the above indicators. Remember to constantly monitor and analyse the data to make your trading decisions.
The main disadvantage of these indicators for the MetaTrader 4 is that the signals they generate are extracted from past data and usually give false signals. Therefore, traders should be really careful when performing activities on the binary option and practice caution while trading. Pocket Option is one of the platforms that helps you to practice trading binary without any investment.
Frequently Asked Questions (FAQs) about Binary Options MT4 Indicators:
What are the key Binary Options MT4 Indicators to consider for effective trading?
The most important Binary Options MT4 Indicators to consider for effective trading include the Calculation of Probability, Wilder’s DMI (ADX), Pivot Point, Commodity Channel Index, Stochastic Oscillator and Bollinger Bands. Each of these Binary Options MT4 indicators offers unique insights to help traders make informed decisions.
How do Binary Options MT4 Indicators help in predicting market movements?
Binary Options MT4 indicators provide traders with tools to analyse various factors such as volatility, price direction and timing. By using these indicators, traders can gauge the likelihood of certain market movements, making them essential for effective binary options trading.
Are all Binary Options MT4 Indicators based on historical data?
Yes, many Binary Options MT4 indicators are based on historical data. While they provide valuable insights, please note that past performance is no guarantee of future results. Therefore, traders should exercise caution and continuously monitor and analyze current data alongside the Binary Options MT4 Indicators.
Can Binary Options MT4 Indicators produce false signals?
Yes, some Binary Options indicators and MT4 Indicators can produce false signals as they often rely on historical data. It’s essential for traders to combine insights from multiple indicators and continually monitor the market to make accurate trading decisions.
How can one ensure effective use of Binary Options MT4 Indicators?
To ensure effective use of Binary Options MT4 Indicators, traders should understand each binary option and indicator’s formula, purpose, and limitations. Combining data from different binary options indicators and practicing on platforms like Quotex can enhance the accuracy of trading decisions based on Binary Options MT4 Indicators.