Many binary options traders focus their strategies on medium-term periods, trying to find strong one-directional trends. Such a trading approach is useful in medium-term hedging as well as benefitting on large binary options payouts even with a comparatively small price change. Swing traders can afford themselves to ignore short-term insignificant price fluctuations, which allows them to save time for the process of seeking opportunities. Professional traders spend 90% of their time precisely to analyse markets and assess chances for lucrative entry levels.
As long as the strategy is keen on strong trends, charts shorter than four-hours are not considered for technical analysis. Fast oscillators are also useless in this case as they have too many signals, some of which are entirely fake. The swing trading strategy is akin to sniper hunting but not shooting with a machine gun. Therefore, the probability of hitting the target and getting the profit must be much higher than for frequent intraday trading. An average trade duration is usually in the range of 5-10 working days, so it’s not suitable for inpatient traders with small accounts.
Technical indicators have to be reliable in this case, even though the frequency of the signals will be lower. The lagging nature of slow indicators is usually compensated by higher efficiency and better chances for a positive outcome. This is why a combination of MACD and ADX is used here. Both tools are relatively complicated as they combine several mathematical formulas and algorithms. Both indicators have more than three factors to analyse. However, this combination allows traders to double-check the price direction, trend’s momentum and find reversal patterns.
Entry conditions have two stages. First, MACD lines have to cross each other, while the histogram has to point to a strong trend. One more option is a divergence when price action goes against the indicators’ performance. For example, if an asset price charted a sequence of higher highs during an uptrend, but the MACD lines have a series of lower highs, that points to a significant likelihood of imminent reversal. The final moment to pull the trigger is the cross of two lines though. For bearish divergences, the opposite pattern is applicable. Prices show consecutive lower lows, while MACD lines have a sequence of higher lows. Once the cross occurred, we start looking at the second technical indicator which is the ADX and DI.
ADX main line has to be above the threshold of 25 for both call and put options. However, the position of -DI and +DI lines matters for the direction. If the -DI line is below the +DI line, then we consider buying call options on MACD entry signal. We buy put options if -DI line is above the +DI line on ADX indicator window. An example of both outcomes is shown below.
