If you are new to trading, then binary options should be the ones you should learn to trade with. They help you grow as a trader, as you can afford to take calculated risks and practice trading to understand the market.
Binary Options provides traders to make time-bound bets subjected to various conditions. For example, the trader can place bets on the predefined values of Forex, commodities, stock indices, and events.
The trader gets ample amounts of guidance through trading platforms like Quotex and various indicators that help in decoding the market. In this article, we will discuss various MetaTrader 4 indicators for binary options for effective trading.
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The best 6 MetaTrader 4 indicators for Binary Options
Here is the list of the best MetaTrader 4 indicators for binary options:
#1 Calculating the probability
Binary options are always time-bound and are bound to certain conditions; thus, calculating the probability is one of the crucial MetaTrader 4 indicators.
The probability calculations give you an idea about whether the price of a certain stock or cryptocurrency will rise or fall. Here is the list of some factors that can be determined by calculating the probability:
- The direction in which the price will move
Any type of MetaTrader indicator you plan to use must function based on the factors mentioned above. For example, you can take a position on binary options by analyzing trend reversal patterns or spotting continued momentum.
Calculating the probability is not a technical indicator. Thus, it is not used much by the traders. However, this parameter is included by the technical indicators for a better prediction of the market.
#2 Wilder’s DMI (ADX)
Wilder’s DMI (ADX) has a composition of three lines, namely ADX, DI+, DI-. The position of these lines indicates the strength of the captured trend. The ADX is represented by a black line, DI+ with a green line, and the DI- is represented by a red line.
The ADX (Average Directional Index) highlights the strength of the trend. The higher the ADX value, the stronger the trend. Both DI+ and DI- are the indicators of the momentum; if the DI+ line is above DI- that means the current momentum is up 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 the future price moves.
- The indicator lags in highlighting the indications. You might get a bit late in taking action towards the trade signals.
- Wilder’s DMI (ADX) cannot predict how long a trend will last.
#3 Pivot Point
Pivot Point is a MetaTrader 4 indicator that determines the market trends in the given time frame. It provides a certain flexibility in terms of the time frame. Thus, 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 closing price from the previous day. Pivot points are calculated to decode the market’s sentiment, and they determine whether the market will go bullish or bearish.
The day traders make their trading decision by analyzing 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 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 the 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 trading strategy.
#4 Commodity Channel Index
The Commodity Channel Index is a Metatrader 4 indicator highlighting the gap between the current and historic average prices. If the CCI is positive, the price is above the historic average, but if the value is negative, the price has gone lower than the historic average.
The value of CCI keeps on changing, and it keeps on going higher or lower. Thus, overbought and oversold levels for each asset are determined by the historic average values.
The formula for calculating the Commodity Channel Index is as follow:
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 for generating oversold and overbought signals. It was developed in the 1950s and is one of the most popular momentum indicators. The stochastic oscillator usually varies around the mean price level of the asset since the value usually relies upon the asset’s price history.
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 video guide that will help you interpret the stochastic oscillator in a better manner.
#6 Bollinger Bands
Bollinger Bands is a MetaTrader 4 indicator created by John Bollinger that helps in technical analysis through overbought and oversold signals. It consists of three major lines, namely, a moving average, an upper and 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.
Frequently Asked Questions
Does Forex do Binary Options?
Yes, Forex does binary options. The binary options in Forex are usually available for exchange. The most popular pairs of currency for exchange are as follows: USD-CAD, EUR-USD, USD-JPY.
How to spot trends in Binary Options?
To spot trends in binary options, you need to follow a few pointers:
Never forget to look for breakouts, but do not be fooled by fakeouts at the same time.
Make good use of retracements and trend signals, plot the trend lines, support, and resistance.
Learn to recognize the market and do not forget to practice.
Which asset is the best for Binary trading?
Commodities are the best asset for binary trading, especially for traders who are new to the market. This is because they do not involve any high investment. Thus, they can help you in practice to trade.
Is Binary trading better than Forex trading?
If you are new to trading, then the binary is better than Forex, as there is a fixed amount of risk and gains. However, Forex involves a comparatively higher risk and is more complex as compared to binary. The returns in Forex are quite high, but the risk involved is high too.
Trading does not have the best reputation out in the real world, but you can gain some huge profits if it is done right. If you want to pursue trading, combine the data of the indicators mentioned above. Do not forget to monitor the data continually and analyze it to make your trading decisions.
The major disadvantage with these indicators is that the signals are generated according to past data and usually produce false signals. Therefore, the traders should be really careful with the binary options and practice caution while trading. Quotex is one of the platforms that helps you practice trading without any investment.