Although indicators are often viewed as complex, a basic momentum indicator can certainly help a novice binary options trader so long as it is paired with a simple strategy. The only tool needed to put this strategy to use is the MT4 technical chart. This strategy will be used to trade along with a trend, and is not particularly suitable for other types of market conditions. Once plotted into the desired technical chart, the 100 line will be used to decide whether to select between a Put or Call contract.
The signal to trade is very basic. When momentum crosses over the 100 line moving upward, market conditions are bullish. When the 100 line is crossed with momentum moving downward, market conditions are bearish. For bullish movement, the selection would be Call, which is a forecast of a price increase. The opposite will apply with bearish movement, and the selection here would be Put, or a forecast of a price decrease. The Put/Call trade is the simplest of all, and is an excellent starting point for those who are trading binary options for the first time.
A simple as this strategy is, it is not without some drawbacks. The primary problem is that it will be tough to determine just how accurate each entry signal actually is. The general movement will be easy enough to identify, but it helps to know just how strong the movement actually is. Some level of risk can be reduced by referring to a candlestick chart to verify that the same movement is in place, and for how long it has continued generally in the same direction. There will always be some bounces, but there should be no sign of an impending upcoming reversal when the trend is strong.
Keep in mind that these types of oscillators do have a tendency to lag. By the time signal to trade is noted, the asset price many have already passed the optimal point of entry. This does not mean that the trade will not finish in the money, but it can mean that the overall level of risk is higher. Additionally, you’ll need to consider whether or not a retracement is, or is likely to take place at some point. If a major retracement occurs, the asset price could easily move out of the money and continue to stay there until the trade has expired.
Patience is required when using this strategy and it tends to not work well with short-term trades. False signals are possible, so it may be wise to see just how far past the 100 line momentum moves over the short-term before entering into a trade. It is possible to use this binary options strategy along with instruments such as No Touch, Boundary, and Range. These can be used when the indicator is hovering near the 100 line and no trend is detectable. There are other strategies with higher win rates, but this one is certainly an excellent starting point for traders who are just starting out.