That’s exactly the purpose of any trading system - to identify not only the perfect entry level but also to signal when it’s time to stop opening deals, putting yourself in a wait-and-see mode. ‘Stochastic and Awesome’ binary options trading strategy answers all of those questions, as it has been designed based on two different technical indicators with a similar approach but different purpose.
The stochastic oscillator uses two different periods in order to calculate the market momentum, measuring the strength of current price action. A traditional period which is used in Stochastic is 14 bars (days or hours, depending on the timeframe). However, we recommend modifying that parameter, lowering it to 10, just to increase its efficiency. That would give us fewer signals with better accuracy. All of the rest settings remain the default for the oscillator. One more comment is related to the timeframes for this strategy - the shorter timeframes are the better profitability it gets - 5M, 15M, 30M and 1H. Longer terms might have a sudden effect of the price momentum which could be ignored by the fast-moving Stochastic.
Perfect entry signal is formed when Stochastic oscillator main line crosses 60% level from the downside. In this case, we buy a call option. Otherwise, when the indicator points to a descending price action with its line breaking through 40% level after being above it, then we buy put option. As easy as that.
After we started the deal cycle, we should switch our attention to Awesome Oscillator. It consists of a simple histogram with bars having to colours. The main idea of the oscillator is to compare simple moving averages for two periods: 34 and 5 candlesticks. The trick is that once the correlation changes, Awesome oscillator changes the colour of its bars, even if they remain at the same level compared to zero levels. Traditionally that signals momentum changing which leads to the price reversal. So if we’re in a continuous buying cycle for the call option and Awesome oscillator changes the colour of its bars from green to red - then we just stop the cycle, grabbing the profit. The same picture is seen for put options cycle but the opposite. Meaning that we stop buying put options once the second oscillator shifts from red to green.
‘Stochastic and Awesome’ binary options trading strategy can be used with a wide variety of financial instruments. Most popular currency pairs, such as EUR/USD, GBP/USD and GBP/JPY give the best number of signals with high accuracy. However, different assets could be chosen to trade with this algorithm, as any asset class is vulnerable to the technical analysis principles.
An example is shown on the chart below. We used EUR/USD and H1 timeframe and the illustration shows two periods with 80/90% profitable deals which is quite an acceptable range for binary options trading.