Moving Average Crossover Strategy

As with many techniques, the simple ones sometimes are the best ones.  The 5 period 20 period moving average crossover, seems to be one of the most efficient tools to use when trading binary options.

The concept is the same at the crossover strategy that is used when trading a daily moving average crossover.  When the 5 period moving average crosses above or below the 20 period moving average, a trading signal is created.  If the 5 period moving average crosses above the 20 period moving average, a buy signal is created.  If the 5 period moving average crosses below the 20 period moving average a sell signal is created.

It is important to get a feel for which intra-day period works best with this strategy.  The hourly is definitely a very good candidate.  The hourly bars seem to move coincidentally with the 5 period 20 period moving average crossover.  This means that the crossover designates a period in which the bar is currently moving.  When using the 5 day 20 day moving average crossover, the indicator is a lagging indicator, which sometimes creates an entry level that is behind the market.

Different currency pairs and indexes will act differently.  The benefit to using a strategy like the moving average crossover for binary options is that instead of looking for a strategy that moves the market substantially, to incorporate a spread and noise, with binary options, a trader is only looking for a small move in one direction or another to take advantage of the payout in a binary trade.  In the chart below, a 30 minute 5 period 20 period moving average is depicted.  In this chart, the moves are also coincidental and show that the 5 period 20 period moving average acts like a strong guide to place trades in the binary options market.

For this strategy, hit and miss options, range options and above or below options will have solid outcomes.  The hit option, when placed over a few time periods, seems to be a robust strategy.   The key to success in this strategy is to find the optimal payout for the hit option.  If the hit range is too close to the current price, the payout will be too small and therefore the risk reward will not compensate the investor.  A trader should check the different hit ranges available prior to make a hit trade using this strategy.  A miss option, although sound, might not be as effective as the hit option since there is some noise that is generated after the moving average crossover.  Unless the miss option payout is significant (2:1) or more, the hit option will probably work more efficiently.  The above or below option will allow work well, but it will be important to test the timing of the above or below options with this strategy to see if the timing offered by different brokers allows the strategy to play itself out.