CCI Binary Stock Options Strategy

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Creating a strategy is perhaps the hardest part in trading binary stock options. While strategies can be complex, they dont always have to be. Donald Lambert developed the Commodity Channel Index (CCI). This oscillator went on to become an extremely common tool for binary options traders. Most stock traders use it to identify recurring trends in commodities, currencies and equities. Lambert developed it to establish overbought as well as oversold levels. The following are three crucial steps in creating an effective CCI trading strategy:

Find the Markets Direction

You cannot successfully trade a strategy that is trend based without finding out the direction the market is taking. The CCI produces a reading that more often than not travels between +100 and -100 in a channel. Typically, a reading exceeding +100 is an indicator of an overbought asset. This essentially means that the price of that asset is likely to start going down. On the other hand, a reading lower than -100 signals that a given asset has been oversold and its price is likely to begin moving up.

Traders start selling when CCI indicator reads higher than +100 and they will start buying when the CCI indicator reading goes below -100. This is precisely the purpose of the 200 period Exponential Moving Average (EMA); to read these movements. It is recommended that a trader adds this indicator to a trading graph. This way, the trader will be able to clearly see whether the price is below or above average. If EMA is below the price, traders assume that the trend is going up and thus initiate new orders to buy. When the EMA is above the price traders initiate new orders to sell as the decrease in price takes place.

CCI Entry

Timing the moment of entry into the market is very crucial. After a trader identifies a trend and using the EMA creates a trading bias, traders start creating strategies on the best ways to time their entries into the market. It is recommended that a trader uses a technical indicator. Technical indicators are especially helpful as decision-supporting tools. They help identify divergence level on an indicator in addition to establishing whether you are in an oversold or an overbought situation. Thus, these technical indicators can offer great insight in identifying opportunities of high probability in the market when price is at demand or supply level. You can add the CCI to your graph to help you determine the best moment of entry into the market.

Manage Risk

Dealing with stocks is associated with risk as much as it is associated with rewards. Every trading opportunity has its rewards and, in most cases, an equivalent level of risk. For that reason, a smart trader decides and plans his exit even before he makes his entry into the market. An exit strategy is just as crucial as an entry strategy. If a trader is not careful to identify when it is appropriate to exit, he may lose all he had gained in trading.

Creating a CCI trading strategy that works can be the difference between investors making profits and those on the losing side. As a crucial step in trading binary stock options, it cannot be overstated.