› Chande Momentum Oscillator Binary Options Trading System.

Chande Momentum Oscillator Binary Options Trading System.

A perfect moment for binary options type of trading is when a trader stops the cycle of buying call options and starts a new cycle of buying put options right on the next candlestick. Such market conditions give a brilliant opportunity to gain on both price actions when prices move like waves bouncing from certain levels up and down. That’s not too often occasion, however, certain assets have those trading conditions from time to time. In this case, we mean cross-rates for currency pairs when the underlying asset does not have the world’s reserve currency (USD) in its symbol. For example, EUR/GBP or AUD/CAD crosses often play ping-pong on intraday charts, and the main question is to find a reliable combination of technical indicators to take advantage of those price swings.

It’s understood that we need a combination of oscillators showing overbought and oversold market conditions. Tushar Chande, a technical analyst, noticed a tendency of the price to depend on momentum. As a result of his mathematical efforts, he designed personal indicator - Chande Momentum Oscillator (CMO). It’s similar to popular oscillators like Stochastic and RSI, it’s also range bounded (-100 to +100), but the main difference is in its mathematical formula, which divides the total amount of gains and losses by the sum of price action for the given period. The default period is 9 bars and we recommend using this period for short-term trading.

An additional instrument in this strategy is the Relative Strength Index, which works as a confirmation tool. Moreover, RSI’s ability to find divergences, when the likelihood of the market to reverse is large, helps a trader to make profitable decisions. We’d consider changing the RSI period to 13 bars or 21 bars depending on hold long do you plan to trade with the same cycle. The trading system works well for consolidation ranges, but strong trends should be avoided as it gives false entry signals when price action is sharp and one-sided. Trendlines and horizontal resistances/support could be used to enhance the system’s efficiency.

Conditions to start trading cycle buying call options are simple. CMO must be above -50, while RSI has to bounce off the value of 30. For put options, we should find moments when CMO is below +50 level, while RSI must be below 70, which is the threshold for overbought conditions. The system is a reversal, so we buy when the price goes down and we sell when it goes up.

When do we stop the trading cycle? One of the best ways to find exit points is to calculate the distance the price went after the reversal. In our case (see the screenshot below), we operate with EUR/GBP cross-rate on 1-hour chart, therefore, recommended distance is in the range of 30-40 pips. Another way of analysing the end of the cycle is to find an opposite signal and reverse the direction right away. An example below shows exactly the same occasion.

Chande Momentum Oscillator Binary Options Trading System.

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