Binary Options with Stochastic Indicator
Stochastic Indicator has been used as a predictive one since the late 1950’s. Now its application embraces a wide range of trading with binary options among. It is an oscillation type indicator based on ‘stochastic oscillator’ that is a kind of technical analysis the main thing of which involves comparing current closing price of a security asset with its historical price over some period of time set.
Stochastic oscillators are usually considered more accurate means for determining potential movement of an asset price when established with the use of time period adjustment or when they are computed with the help of a moving average.
In despite of popular belief, this indicator never follows volume or price. This analysis tool follows just the momentum of price. So, bullish and bearish divergences may be used to forecast trend reversals which are suitable for profitable trade making.
If speaking about analyzing of potential binary option trades, the stochastic indicator usually has a set value of 80 in its up side and a set value of 20 in its down side. This indicator includes two lines one of which represents the fast stochastic and the other is often called the slow stochastic. And the intersection of these two lines is a trader’s point of interest.
The intersections mentioned are then analyzed in order to see if the asset under the track is currently oversold or undersold. Based on the information got, a trader considers which option to place on the asset, a put or call one.
The time frame which the indicator is plotted for is among the core considerations to make a profitable trade. It is so because trade success greatly depends on defining an accurate expiration date. For example, it is illogical to use a 5 minute span when making a determination and after that to place your option on, say, a daily or even weekly expiration date. As you see, it is critically important to take this into consideration and always follow this general rule.
We hope you can see now that a stochastic indicator can be very helpful when it comes to making trades based on a trend reversal identification.