The first, easiest and most popular binary option tool we are going to look at is the candlestick chart. If interpreted correctly this chart can help us predict winning options at least 55% of the time, which means that over the course of a trading period you will come out with a profit.
Analyzing the Candlestick Chart
Look for a candlestick chart that shows a definite trend for a particular asset, whether it be currency pairs, stocks, commodities or indices. For example the chart below is the one hourly time frame price chart for oil for the 31st December 2015.
There is clearly a downtrend for oil on the 31st December 2015. You could have traded five binary option puts (predicting the oil price will go down) for five consecutive expiry times and made profit of 70% on your capital per trade. This is probably the easiest and most popular tool for the binary option trader. A common way to use the candlestick chart as a trade signal is to watch the current candle for 15 minutes into the hour, take note of the trend and trade in the trends direction. In most cases the trend will not reverse direction so you will have a high probability of success.
Moving averages are also an easy to use binary option tool for both the non-professional and professional binary option trader. They are used to generate a trading signal when the faster moving average crosses above or below the slower moving average. Take a look at the EUR/USD 1 hour price chart below. There are two moving averages, one being a 15 period moving average (the average closing price for the latest 15 hourly periods) and a 5 period moving average (the average closing prices for the latest 5 hourly periods).
The faster (5 period) moving average crosses up above the slower (15 period) moving average indicating that the assets price is rising and crosses down below the slower moving average indicating that the assets price is falling. On the price chart below the cross over events are indicated by a down arrow for a downward cross over and an upward arrow for an upward cross over.
If you are going to use moving averages to help you decide how to trade binary options you should wait for the cross over whether it is up or down and then wait for next candle to form at the beginning of the option period and trade according to that candles direction.
Bollinger Bands as Binary Options Trading Signals
Bollinger Bands are also an easy binary trading tool which a non-professional or professional trader can use as a trading signal indicating the future direction of an assets price.
Bollinger Bands as you can see from the price chart above are essentially three lines plotted on a price chart where the middle line is a 20 period moving average line, and the two outer lines are both 2 deviations from the moving average. The two outer lines form resistance (upper line) and support (lower line) price lines. When a price hits the upper resistance line it generally reverses itself, moving towards the moving average line, which sometimes become a support line for a while, before moving down to the lower support line. By tracking the price chart using a Bollinger Band you will be able to trade binary options with a higher degree of success.