What is Binary Options with Exponential Moving Averages? Complete Guide


Binary options with exponential moving average are peculiar types of moving averages that accentuate current periods even the more. A simple moving average at times takes too long to change its course and creates signals very late, even as the best EMA will alter a course more rapidly and consequently has the propensity to produce signals very untimely.

Binary Options with Exponential Moving AveragesTrading with the best exponential moving average when you are conversant with it is one of the ways to succeed in binary options trading. They are a great indicator of the potency of the market and they furthermore help a trader to measure price trends. These moving averages reveal the average price of an asset as it shows in a variety of time frames.

For the calculation exponential moving averages, the weighting factor is applied exponentially as a substitute for linear. This implies that the latest is exponentiated by the total number of periods used. This simply means that the exponent is abridged by one for every successive period.

What makes the Exponential Moving Averages perfect for use in binary options trading and technical analysis is because they may be sometimes controlled. When compared with price, the data they make measures trends.

That is why more current data is well thought-out to be stronger to trust as far as trades are concerned whenever you are using exponential moving averages. They have extensively considered a more dominant indicator than the normal moving averages due to the fact that a normal moving average tends to value all data the same.

The moving average you should use for your FOREX trading depends largely on your personality and the type of moving average you consider you are more contented with. The quickness to react to recent price movement is the most important difference between these types of moving average.

Moreover, an exponential moving average emphasizes more on the most current time period, unlike the weighted moving average that emphasizes more on a simple moving average. The more the latest periods control the moving average, the faster a change in price direction will allow the moving average to turn around.

Whenever you are making use of a moving average to create trading signals or point to the general market direction, it makes a major difference. As an exponential moving average is the speediest to react, it will make the most trading signals and offer you with the most options for moving as well as trading opportunities. It will, on the other hand, also create the highest number of false signals which cause you to lose trades.

As a result, an exponential moving average is best suitable for you if you are one of those traders who want to create a lot of signals and have the moving average as close to the existing price as possible. This can be due to the of a towering peril broad-mindedness by these traders, or to a certain point in their strategy.

Common Uses of the EMA

EMAs are commonly used in combination with some other indicators to authenticate considerable market moves and to measure their soundness. The EMA is more appropriate for traders who trade fast-moving and intraday markets. Traders make use of the EMA to determine a trading predisposition pretty often. For instance, if an EMA shows a strong upward trend on a daily chart, it means an intraday trader’s strategy may be to trade just from the long side of an intraday chart.

Exponential Moving Average Example

An EMA will normally make use of a 30 days exponential moving average and its relationship with a set of two-time frames. These two time frames are not always similar while the first time frame is particularly longer than the other. Consequently, it indicates a bullish if a trader is making use of a twenty-four-hour chart and the asset price is on top of a thirty bar. However, a bearish trend is indicated when it is under the thirty bar.

An exponential moving average is just like a moving average for the time-series data that puts a bigger weight on more current data. For instance, the prices on ninth and tenth days in a 10-day price chart for a particular security will be weighted more heavily as the components of the average.

What really matters is that EMA is more responsive to everyday price fluctuations because it is weighted more heavily on current data. As a result, an exponential moving average example of high volatility causes volatile moving averages.

Here’s how a simple binary options trading system with EMA would look like:

  • Establish your entry position at the intersect as soon as the “Blue” EMA crosses the slower “Red” EMA in an upward fashion;
  • Carry out a “Buy” order for not more than 2 percent to 3 percent of your account;
  • Set a stop-loss order at 20 “pips” lower than your entry point;
  • Decide on your exit point as soon as the “Blue” EMA crosses back all the way through the “Red” EMA in a downward direction.

Steps “2” and “3” from the above characterize wise risk and money management principles that should frequently be used. This simple binary options trading system would have realized a profitable trade of about 90 “pips”, but don’t forget the fact that the past is no assurance for the future in exponential moving averages. Nevertheless, your objective is consistency, and optimistically, EMA technical analysis will give you an edge over time.

How to Calculate Exponential Moving Average

Calculating the exponent or the factor that would change the weight is the initial step in this case. But the exponent depends on many periods such as the days for daily EMA.

Exponent = 2 divided by the number of periods +1.

Assuming you want to compute EMA for 22 periods, the exponent will then be 2 / (22+1) = 0.08695

The Formula

The present periods’ exponential moving average = (Previous period’s closing price * Exponent) + (Previous period’s EMA * (1 – Exponent))

Bottom Line

The EMA binary options trading technique is adjudged one of the most solid paths you can get today. In addition, it is quite simple and should not prove challenging for beginner traders who have adapted themselves with the technical analysis charts. Moving Averages can be used in more than a ways and this is only one of them. There are quite a lot of more intricate methods that use EMA. But think about leaving these for a later period and beginning with the simple strategies like this one, if you are just starting your career in binary options trading.

Exponential Moving Averages FAQs

Question: What are the Best Technical Indicators to Support the Best Exponential Moving Average (EMA)?

Answer: In actual fact, determining the best technical indicators to complement the best exponential moving average can be very difficult, but most common ones are the momentum and trend line indicators.

Question: What is the Formula for EMA (Exponential Moving Average) and How is it Computed?

Answer: The formula for calculating the exponential moving average entails making use of a multiplier and beginning with the SMA. The SMA for any particular number of time periods is just the sum of the closing prices for that number of time periods, over that same number. Therefore, a 10-day SMA is simply the total of the closing prices for the last 10 days, over 10.

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