MACD Divergence – Binary Options göstəriciləri

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MACD Binary Options Strategy

MACD Binary Option Strategies makes use of one of the most effective trading indicators out there.

The Moving Average Convergence Divergence (MACD) is an indicator that incorporates trends and momentum.

The MACD has been proven its worth in the Forex and stock markets for a number of years and has been the staple tool for any technical analyst.

Yet the question remains, how effective is it when trading binary options?

We will take a look over some of the most effective MACD Binary Option Strategies.

What is the MACD Indicator?

The MACD was first developed in the 1970s by a man named Gerald Appel. It is a lagging indicator that is used to follow trends. The MACD consists of two exponential moving averages and a histogram. The MACD is calculated as the difference in the assets 26 day (slow) and 12 day (fast) Exponential moving averages (EMA). These indicators will use the closing price of the asset in their calculation.

Apart from the standard MACD indicator, there is also a 9 day EMA of the MACD that is plotted as well. This helps for the trader to decide whether they should be buying / selling. The general rule of thumb when it comes to the MACD indictor is that it is a bullish indicator when the MACD is above its 9 day moving average.

There is another indicator that is added to the MACD representation and that is the histogram. It is helpful as it is able to identify when the difference between the moving average and the MACD itself is positive / negative. It is easy to tell when looking at the histogram whether there is a bullish indicator or bearish indicator.

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Interpretation of the MACD

The name says everything, the MACD is all about spotting periods when trends are either converging or diverging. Converging is when the price is going in the same direction of the underlying trends. Diverging is when the price is going in the opposite direction.

When looking at the MACD, when the short term EMA is above the long term indicator this is considered a divergence. It is a convergence when they are moving together.

Given that the MACD line is an oscillator, when the MACD line is above zero, this means that the short term EMA is moving away from the long term MA in a positive direction and this should be a bullish sign.

Similarly, when the MACD is below zero it means that the short term EMA is diverging away from the long term EMA but on the downside. This is a bearish indicator.

When the Signal line and MACD histogram are included, the binary options trader is able to get a lot more colour and is able to determine whether the MACD indicator itself is converging or diverging.

For example, if the MACD histogram is positive it means that the 9 period moving average of the MACD is above the MACD and could mean the MACD is still heading in a positive direction. The opposite can be said for a Moving Average that is below the MACD.

Taking a look at an example, in the image to the right, we have the EURCHF currency pair with the MACD lines plotted below. We have also plotted the price charts using candlestick indicators and moving averages above which are for indicative purposes. AS you can see, the MACD is calculated as the difference between the two moving average lines in the main price chart.

Looking more specifically at the indicator chart, the light blue line is the MACD indicator, the red line is the moving average of the MACD and the histogram is the difference between the two. In the cases when the MACD was positive and the Moving average of the MACD was increasing, this was a bullish sign for the trader.

Binary Option MACD Strategies

MACDs are a great indicator to use when trading binary options as they help to identify when momentum is strong and when it is tapering off.

When the trader sets the MACD periods to the option expiry periods, an even more accurate reading is presented. It will help the trader assess whether they should indeed enter the option up or down.

The MACD indicators can also be used when the trader wants to employ more exotic binary options such as one touch and no touch options.

Below we will run through some examples of binary option trades that you can embark on once reading the MACD indicator.

MACD 0 Line Crossover

A 0 line crossover, or “center line” crossover occurs when the MACD line goes from positive to negative. This is an indication that the asset may be moving from a situation of positive momentum to negative momentum and vice versa.

When the MACD crosses from negative to positive then this is seen as a bullish sign and is called a bullish crossover. On the other end, when the MACD crosses from positive to negative this can be a bearish indicator and is called a bearish crossover.

Indeed, a 0 line crossover may not be an indication that momentum has switched. For example, there may be a situation where the MACD will remain close to the 0 line for some time going forward. These are indeed hard to read and just show that momentum is currently quite limited.

Taking a look at an example of a binary options MACD crossover trade, below we have the price of Ether (USD) with the time period set to five minute candles. This was a Bullish crossover and was an indication that there was a move to positive momentum in the price of Ether.

In this case, the trader should consider entering a 5 minute binary option CALL on the price of Ether. As we can see, the next candle ended up closing considerably up from its open. This means that the CALL option would have ended up in the money and paid the trader off.

MACD Signal Crossovers

As mentioned above, the MACD signal line is very helpful as it allows the trader to spot when the MACD indicator may itself turn. This could then be a prelude increasing / decreasing momentum in the assets price as the MACD itself may turn.

In general, when the MACD line goes over and crosses the signal line, this is a bullish (positive). On the other side, when the MACD crosses the signal line to the downside then this is considered a bearish crossover and shows that momentum could be turning the other way.

If the trader was using a simple high / low binary option strategy, they would look to enter a PUT option in the case of a Bearish Crossover and they would enter a CALL option for a Bullish crossover.

In the below chart, we have the price of Gold with Candlesticks placed on a 2 minute horizon. Hence, the trader should consider 2 minute binary option trades as the instrument.

As you can see, there was a signal crossover and this was a Bullish crossover as the MACD has passed over the signal line. We can also see that the Histogram has reversed and is now positive.

As this is a bullish signal with momentum reversing to the upside, the trader should place a 2 minute binary CALL option on the price of gold. Indeed, the trade would have expired in the money as the closing price of the candle was above the opening price.

Although trading binary options with the MACD can indeed be profitable, the trader needs to be careful placing trades when the MACD line is at all-time highs or lows.

MACD Momentum Divergence

A MACD divergence occurs when the movement of the price is different from that which is being demonstrated by the MACD indicator itself. This is usually a sign that the momentum is indeed tapering out and should make traders weary. As we have mentioned, momentum is a key ingredient in a trend continuing its trajectory.

Hence, if the binary options trader is to observe a divergence between the MACD and the underlying price then this is an indicator that they should consider placing a trade that is contrary to the trend. A reversal from the current trend in the price is indeed possible.

There are two types of MACD divergences. There is the Bullish divergence which occurs when the price of the asset continues reaching lower lows but the MACD indicator itself records a higher low. A bearish MACD divergence occurs when the price of the security reaches a higher high but the MACD indicator is recording a lower high.

Taking a look at a MACD convergence example, on the right we have the 10 minute chart of the S&P 500 index as well as the MACD indicator below. As you can see, the index is reaching higher highs but the MACD seems to be reaching lower highs. This is an indication that some of the momentum behind the price move is indeed eking out.

The trader should therefore consider entering a 10 minute Binary PUT option on the S&P 500. Of course, it is quite difficult to ascertain when this should exactly be done as we can see that the price kept on climbing even though the MACD was falling. At this stage, it should be an indication to avoid a CALL option trade at this point.

However, there appeared to be a Bearish MACD signal line crossover. In this case it appears to be occurring at the same time that we are having a bearish divergence. At this stage, the trader should place a 10 minute Binary PUT option in expectation of a fall in the price.

Indeed, if the trader had done this, the option would have expired in the money as the candle closed down below the open. The trade would have ended profitably and paid the trader out.

Other Considerations

These MACD strategies have worked effectively for a number of years and are borrowed from traditional forex and stock trading. However, even if you think that you have a perfect opportunity to enter a trade, you have to take into account other technical factors which could also have an impact on the price at that point in time.

It is also advisable not to embark on a strategy like this if you don’t have an understanding of the basics of binary options. Similarly, when using a binary options trading strategy, you need to also make use of a money management strategy. This is because profitability is impacted by more factors than just what trade is placed.

The trader will need to be measured in the amount that they would like to stake on each trade as well as know when to stop trading if the MACD binary option strategy is going contrary to expectations. Using a combination of different trading disciplines is a surefire way to trading binary options profitably.

MACD Hidden Divergence Forex Trading Strategy

Table of Contents

One of the least discussed techniques in trading are the divergences. It might be that it seems not as sexy as other techniques like advanced patterns or price action, etc. But it is something that might be very useful in a trader’s arsenal of techniques.

So, what are divergences? Divergences are basically discrepancies between an oscillating indicator and the price action itself.

What do I mean by this? If you are to look carefully at price action in a chart, you would notice that price bobs up and down forming peaks and valleys. These are the expansions and contractions, or thrusts and retracements.

To a seasoned naked chart trader, trading based on price action alone might already be profitable. However, many other traders also prefer a secondary confirmation for their setups, so they use indicators. Some on chart indicators, while others are oscillating indicators on a different window on their platform, usually at the bottom of their main charts.

Oscillating indicators are mostly used to determine overbought and oversold market conditions, indicators such as the Relative Strength Indicator (RSI), Stochastics, etc. However, oscillating indicators could also be used for identifying possible reversals, without considering overbought and oversold conditions. This is because as price bobs up and down, not only does the price chart form peak and valleys, oscillating indicators also form peaks and valleys corresponding to the price chart movements.

If you’d look closely at the chart below, you would notice how the oscillating indicator bobs up and down corresponding to price movements.

However, if you’d also look closely, you would also notice instances wherein the peaks and valleys height and depth would differ from that of the price chart. These are what we call divergences. It is basically a discrepancy in the height or depth of the price chart’s and oscillating indicator’s peaks and valleys.

So, what now if they diverge? What this is telling me is that even though the price chart has already formed a low that might not be that deep, mathematically, the oscillating indicators are showing that the retracement is already deep enough. This indicates that price is ready for a sharp reversal. This type of divergence is called a hidden divergence, which usually signifies a reversal of a short retracement.

The use of oscillating indicators is usually related mean reversion strategies, however, with the use of hidden divergences we are effectively trading with the trend. This is because hidden divergences usually correspond with short term retracements.

For this particular strategy, we will be using the Moving Average Convergence Divergence (MACD). This oscillating indicator is derived from a set of moving averages – a fast, slow, and signal moving average. The advantage of using the MACD is that it has a histogram that weaves across the signal line. These crosses could be used as our entry signal.

Let’s test how effective the MACD is for use with hidden divergences.

The Setup: MACD Hidden Divergence Setup

Buy Entry:

  • Identify potential valleys on the MACD indicator.
  • Identify the corresponding valleys on the price chart.
  • Try to assess if the next valley on the MACD indicator would be lower than the previous valley.
  • Try to assess if the next valley on the price chart would be higher than the previous valley.
  • If so, a hidden bullish divergence might be formed.
  • Enter a buy market order on the candle close corresponding to the histogram that closes above the signal line.

Stop Loss: A few pips below the fractal formed by the up thrust.

Exit: Close the trade on the candle corresponding the first histogram to close above the zero line.

Sell Entry:

  • Identify potential peaks on the MACD indicator.
  • Identify the corresponding peaks on the price chart.
  • Try to assess if the next peak on the MACD indicator would be higher than the previous peak.
  • Try to assess if the next peak on the price chart would be lower than the previous peak.
  • If so, a hidden bearish divergence might be formed.
  • Enter a sell market order on the candle close corresponding to the histogram that closes below the signal line.

Stop Loss: A few pips above the fractal formed by the down thrust.

Exit: Close the trade on the candle corresponding the first histogram to close below the zero line.

Conclusion

Divergences, although not perfect, are very powerful techniques to use. For one, an oscillating indicator is a powerful tool to use for mean reversion setups. However, combined with hidden divergences, it becomes even more powerful. Since hidden divergences usually occur on minor retracements, the probability of a successful trade is higher, since chances are you are still trading with the trend, not against it.

However, though divergences are probable indicators of reversals, there are still some signals that fail to succeed. One reason could be that the histogram crosses just for one candle and returns back to the other side of the signal line. This often results to a setup that doesn’t correspond to the actual peak or valley of the oscillating indicator. We cannot eliminate these occurrences completely. What we can do however is to minimize it by avoiding trading prior to the actual close of the candle. There will be times when in the middle of a candle, the histogram would cross the signal line, but just before the candle closes, the histogram reprints. This is because most indicators are computed real time on tick, instead of per bar. This is the reason why our rules specifically state that we enter the trade on the close of the candle.

Another reason could be that even if the histogram crosses the signal line, the trajectory of the MACD signal line might still be pointed towards the direction it was going. This signifies either that price might still continue further before turning, or that the MACD histogram would soon cross the signal line before crossing the zero line.

There are many possible reasons why a trade could fail. Ultimately, price is king. The MACD oscillating indicator follows price movement, not the other way around.

Also, if you’d try to observe the charts, you would notice that there would really be some failed trades. There is no other way to go around this but to have a sound conservative money management strategy to go along with your strategy.


Forex Trading Systems Installation Instructions

MACD Hidden Divergence Forex Trading Strategy is a combination of Metatrader 4 (MT4) indicator(s) and template.

The essence of this forex system is to transform the accumulated history data and trading signals.

MACD Hidden Divergence Forex Trading Strategy provides an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.

Based on this information, traders can assume further price movement and adjust this system accordingly.

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How to install MACD Hidden Divergence Forex Trading Strategy?

  • Download MACD Hidden Divergence Forex Trading Strategy.zip
  • Copy mq4 and ex4 files to your Metatrader Directory / experts / indicators /
  • Copy tpl file (Template) to your Metatrader Directory / templates /
  • Start or restart your Metatrader Client
  • Select Chart and Timeframe where you want to test your forex system
  • Right click on your trading chart and hover on “Template”
  • Move right to select MACD Hidden Divergence Forex Trading Strategy
  • You will see MACD Hidden Divergence Forex Trading Strategy is available on your Chart

*Note: Not all forex strategies come with mq4/ex4 files. Some templates are already integrated with the MT4 Indicators from the MetaTrader Platform.

Divergences And Binary Options Trading

Divergences are an important tool for binary options trading and one employed by many intermediate and advanced traders. This tool can form in several ways and on several different indicators but the basic theory is the same for all. In fact, divergence theory is so well though of in the trading community that there is an indicator built entirely upon it, the MACD or Moving Average Convergence Divergence Indicator.

So, what is a divergence. According to the Webster’s online dictionary a divergence is defined as a drawing or moving apart and is described by two lines extending out from a common center. According to Investopedia it means when an assets prices and a given indicator move in opposite directions. Taking an oscillator such as the MACD for example we can see on the chart below a classic divergence between the series of peaks in prices and the series in peaks in the indicator.

What does a divergence mean and why is it important for trading you ask? Because it is a sign of weakness in a market and an indicator of potential reversal. Looking again at the MACD above. The first peak in the series is strong and makes a new high along with the new high in asset prices. The next high in asset prices is met with another peak in the MACD, only this time it is a smaller peak. The next one is smaller and etc. This means that each time the market makes a new high it is not as strong as the last time. If momentum is declining with each peak it will eventually lead to an exhausted market and potential correction.

Divergences Are A Tool And Not A Signal

One thing you must keep in mind is that a divergence is not a signal by itself. It is a good measure of a market but should only be used along with other indicators to provide signals. When applied correctly to your analysis it can predict market reversals with a high measure of success. What it does not do by itself is provide a clear signal of when that reversal will come. A strongly trending market can wind down for months or even years. It will continue to make new highs or lows all the while the indicators diverge from the trend. Look again at the chart above. Each peak in the MACD coincides with a peak in the price of the asset. Since July there have been two divergences and yet there is no reversal shown on this chart. Do not discount the divergence though, it is still a powerful tool and gains strength when used along side other tools.

Divergences In Time Frames

Time frame analysis is one area where divergences are quite useful for predicting entries. Analyzing divergences between time frames can help to time entries for binary options trading. A time frame divergence may be when prices are moving higher in the longer term yet lower in the shorter term. It may also be when indicators in the longer time frame are pointing up when the same indicators are pointing down in a shorter time frame. For example, if the long term trend is up and the short term trend is down a divergence is occurring that could provide a good entry for a long term position.

Look again at the chart above. There are an obvious series of peaks and troughs. It would be safe to assume that the most recent trough will result in another peak thereby making this a good time to enter a bullish trade. You could simply enter a trade with a week or a month of expiry to be sure you have enough time or you could move down to a shorter time frame and look for a bullish signal there. The bullish signal in the shorter term would be divergent to the bearish indicators displayed on the longer term. First look at the chart above, in early to mid October there is a bearish peak of MACD. Then look down below at the shorter term chart of hourly prices. The strong bullish MACD peak in mid October indicates the near term trend is reversing and could be the first waves of the next long term rally. This bullish signal would in effect be the initial waves of buying and could result in numerous entry points for savvy traders.

Divergences And Reversals For Binary Options

Divergences can and do indicate reversals as well. The nature of divergences does make it hard to pin point reversals but it can be done. In some cases the divergence will wind slowly down until the last peak is nearly zero but this is not always so. Usually there is a target of some kind that can be identified as a potential turning point. When the asset price reaches the target, along with divergent indicators, a reversal is more likely than at other times. Look at the chart below. This is a 6 month chart of the EUR/USD showing Fibonacci Retracements of an earlier move. The 0% retracement level provided a potential target level for a reversal predicted by the divergent MACD indicator. Savvy traders could have entered positions when prices fell back below the retracement level with expiries of one day up to a week and then again once prices broke the moving average.

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