Contents:Most of the binary options traders noticed that sometimes the price action accelerates after a period of calm trade without any clear direction. At that moment, trading volume usually jumps, volatility gets higher, quotes tick faster and prices start moving rapidly. However, some trading periods are tricky as the market shows one direction initially, and then, suddenly reverses and goes in a completely opposite direction, forcing traders to suffer losses instead of promising profits.
How could traders avoid that market trap? What is the key parameter or indicator to watch in order to miss the fake signal and determining the real market’s intentions?
What is Force Index System
Force Index Binary Options Trading System is base on a powerful combination of three technical indicators which are not related to each other in terms of mathematical formulas. Thus, the combination cannot provide traders with false signals as if all of the tree tools point to one direction of the price, then the likelihood of one-way action is huge. The primary indicator of the System is Force Index developed by Alexander Elder, a guru of trading. Initially, he used this tool to trade stocks and shares. However, modern technologies adopted the indicator to use for trading on binary options with a wide variety of assets classes such as currency pairs, commodities and even cryptocurrencies.
EFI - Definition and Meaning
The force index (FI) is an indicator used in technical analysis to illustrate how strong the actual buying or selling pressure is. High positive values mean there is a strong rising trend, and low values signify a strong downward trend.
The Elder Force Index indicator is a complicated tool, taking into the account a multi-level calculation of trading volume the speed of price change, and trend’s momentum. It’s not a traditional oscillator, showing just oversold and overbought levels, as Force Index points to the direction of the underlying asset’s price. If the indicator shows positive value, then the uptrend is in play, and traders should consider buying call options. For put-options trading cycles, traders should find periods when Force Index is below the zero line.
In addition to Force Index indicator, the system has two secondary technical indicators to confirm the trading signal and avoid fake movements. First, Smoothed Moving Average with a short-term period of 3 bars calculates recent close prices, and if the quote crosses the MA, then traders could start monitoring other indicators of the system. Second, Stochastic oscillator is one of the most popular indicators to show the trend’s direction, as well as overbought/oversold levels. However, Stochastic is used here only to confirm the one-way action, and threshold levels have to be modified to 40/60 from 20/80.
If you like this strategy, you might also be interested in this Bearish Engulfing Pattern
The range of underlining assets and timeframe is widest for the system, and it could be used with any financial instrument available in the trading terminal. The only difference is in the duration of the trading cycle. If, for example, traders chose EUR/USD as the currency pair to trade on using the Elder Force Index Binary Options Trading System, then they should monitor the number of pips, for which quotes moved depending on the expiration time. Charts with 30-minutes scale are usually giving the distance of 20-25 pips to stop buying options in the same direction; 1H 25-30 pips; 4H - 30-40 pips.
Entry conditions before buying call options are simple. The current price has to cross the Smoothed MA3 from below, Stochastic oscillator has to be above 60%, while Force Index has to be positive. For put options, conditions are the same but mirrored. The current quote has to cross the Smoothed MA3 from above, Stochastic oscillator has to edge below 40%, while Force Index has to drop below zero. An example of the system in action is shown on a chart below.