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Three Indicators and Medium-Term Strategy

Do you want to trade successfully? Are you looking for the best technical indicators? Your strategy affects interpretation of the trends, positions, averages, and opportunities. Choose wisely and you’ve built a solid foundation for success in speculation. Choose poorly and you will suffer.

So, how can a beginner choose the right strategy? The best approach in most cases is to begin with the most popular numbers while adjusting one, two or three indicators at a time and seeing if the output helps or hurts your performance. Using this method, you’ll quickly grasp the specific needs of your level. Many experienced traders choose medium-term or long-term trading strategies.

In our article, Pocket Option experts consider a simple and successful medium-term strategy based on signals from three indicators. Most traders offer a list of indicators but you need only three indicators. The Pocket Option offers the traders all necessary tools and indicators so they can trade with confidence.

Indicators for Medium-Term Strategy

The medium-term strategy for binary options requires three indicators: SMA, Bollinger Bands and Stochastic. Every indicator plays a role in the success of the strategy. Let’s discuss in more details:

  1. The SMA is a technical indicator for determining if an asset price will continue or reverse a bull or bear trend. The SMA  is calculated as the arithmetic average of an asset’s price over some period. It determines the general  market trend. As a general guideline, if the price is above a moving average, the trend is up. If the price is below a moving average, the trend is down. However, moving averages can have different lengths (discussed shortly), so one MA may indicate an uptrend while another MA indicates a downtrend.
  2. Bollinger Bands consist of a centerline and two price channels (bands) above and below it. The centerline is an exponential moving average: the price channels are the standard deviations of the stock being studied. The bands will expand and contract as the price becomes volatile or becomes bound into a tight trading pattern.
  3. The Stochastic Oscillator is a momentum indicator comparing a particular closing price of an asset to a range of its prices over a certain period of time. The sensitivity of the oscillator to market movements is reducible by adjusting that time period or by taking a moving average of the result.

In terms of the settings, the experts recommend using “Japanese Candles” with a timeframe of h1.

Set the indicators, changing the default settings to the following:

  1. SMA– period 150;
  2. Bollinger Bands – period 20, deviation 2;
  3. Stochastic– period (k) 5, period (d) 3, deviation 3.

In order to change the parameters of the selected indicators, you need to select the “Active” tab and click on the “Pencil”.

How to trade on a medium term strategy?

After setting up all indicators, consider the following signals:

  • Call option:
  • SMA should show the uptrend. The contract is bought when the price bounces off the lower Bollinger line, and the Stochastic is leaving the 0-20 zone up.

  • Put option:
  • SMA should show the downtrend. The contract is bought when the price bounces off the upper Bollinger line, and the Stochastic is leaving the 80-100 zone and moving down.

The expiration period should be set at least 2 hours.

Basic Tips for Medium Term Strategy

Follow the basic rules for success of the medium-term strategy:

  1. Choose highly volatile assets with active trading
  2. Trade when the trend is going up or down. Do not trade flat.
  3. Stochastic should leave the “pre-” zone. Do not trade when it is stuck.

In conclusion, most traders agree that the medium-term strategy based on three indicators do not require any special skills. However, there are some limitations. One of them is that the Stochastic Oscillator has been known to produce false signals. This is when the indicator generates a trading signal, yet the price does not actually follow through, which can end up as a losing trade. During volatile market conditions change unpredictably so use stochastic as a filter, where signals are only taken if they are in the same direction as the trend.

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