Financial markets move like waves. Experienced traders use that fact, implementing a rule ‘buy cheap and sell expensive’. However, the main question is when to start a trading cycle? How to determine a moment when assets reverse and go in the opposite direction? Before choosing an accurate technical indicator for trading signals, we should determine the best trading period. Some traders prefer waiting for active trading hours, especially during fundamental events, as volatility edges up, trading volume increases and quotes tick exceptionally often. However, the main problem of such a trading approach is that those moments do not happen so often as most of the time markets are comparatively quiet. Others use 80% of the time when financial instruments are more predictable from the technical point of view.
The intraday trading strategy is popular among binary options traders because it gives a chance to trade with several active hours. Moreover, intraday cycles are less vulnerable to major fundamental shifts, and technical indicators work better, even though potential profits are less in the scope of distance in pips. Binary options type of trading does not depend on pips as the payout is stable yet if the prediction was made for one pip only. Therefore, it’s better to find cycles when assets move in one direction.
Stochastic oscillator might help traders to find a perfect moment to pull the trigger as it shows oversold and overbought levels when chances for a reversal become higher. Besides, Stochastic oscillator has two lines, and if they cross each other, that would be a strong signal to start trading cycle. Coming back to the main rule, we’d look at crossovers in the overbought territory to start buying put options, and we’d consider buying call options when Stochastic is oversold.
Double Stochastic Binary Options Trading System is based on two indicators with different periods and settings, which allows traders not to pull the trigger too early and avoid false signals. The first Stochastic’s settings are 8,5,3, and that’s a fast one. The slow indicator’s period has to be modified to 14.7.3. The main advantage of this trading system is that both indicators work in a combination, which gives more reliable information to traders.
Entry conditions are simple and easy to understand. We need both oscillators to decline to oversold territory, find a crossover in the fast one, and wait until the slow Stochastic will perform the same signal. After that, we start buying call options. For put options cycle, a double crossover in the overbought zone would help us to find the perfect moment and to start trading.
Best timeframes for Double Stochastic and 15M, 30M and 1H charts. Any assets are suitable, but the System works best for cross-rates. Currency pairs like EUR/GBP, GBP/CHF, EUR/AUD and CHF/JPY are vulnerable to two-way price action, and Double Stochastic’s frequency of effective signals is higher. Exit conditions depend on individual strategy and risk management rules. One of the best ways to keep profits at senior level is to stop buying options after 4-5 profitable bars. An example of the System in action is shown on a chart below.
