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MACD Strategy For Corrections and Price Reversals

MACD (moving average convergence/divergence) is a popular indicator which is widely used by binary options traders. This indicator can be used to perform analysis for any asset and any desired time-frame. The strategy outlined here involves conventional divergence signals, and will need to be used along with a 15-minute period within your chosen technical chart. This strategy is relatively simple to use and is an excellent application of conventional MACD entry signals.

The primary function of MACD is that of showing market traction. The indicators gauges both convergence and divergence for moving averages. MACD happens to be an oscillator which can be viewed in both standard and histogram formats. The standard version is quite similar to various other popular oscillators like Stochastic and RSI (Relative Strength Index). A pair of lines will be displayed, and these can move over, under, or between each other. Histogram will provide a view of convergence and divergence for these lines. Both views will provide plenty of information in regard to the momentum of price movement.

What this binary options strategy aims to do is allow traders to spot the short-term price movements which are associated with corrections and reversals. It does so via the use of only one indicator, and will produce only one entry signal at a time. Experienced traders may feel that this is cause for concern. However, the MACD can be used in conjunction with other analysis tools and indicators such as Fibonacci and EMA in order to receive further validation that each signal is correct.

Divergence shows an upcoming modification in price movement, possibly a price rally. When divergence is noted, the message to the trader is that the momentum of movement is starting to grow weaker and that an upcoming pullback is likely. This type of movement can occur within any time-frame, any asset, and can take place within both bullish and bearish markets. A setting of 12-26-9 will be used within the price chart, and although the recommendation here is for 15-minutes, periods of up to 4-hours can be analyzed.

As with all binary options strategies, there are a few drawbacks to consider. One would be the fact that signal delivery is not always consistent. The entry points can even be a bit obscure. These issues are actually quite common when only a single indicator is being utilized. These drawbacks can be restricted by using additional indicators to provide extra validation. This may prove a tough task for novice traders, but should be no problem for those who have been trading for a while.

This strategy can be quite challenging, but has performed well when testing. Testing is highly recommended before using this strategy, not only to verify its effectiveness, but also to practice proper use. Again, consider the use of additional indicators which show that divergence is clear. There are very few stand-alone binary options strategies that are going to be extremely effective. Although time may be an issue in some cases, backup analysis should be completed as often as possible before entering into trades.