Last Updated: October 20, 2012 by Martin

Binary options are one of the leading trading sectors where you can make a lot of profit in a very short period of time. As the binary options are getting more and more popular, a lot of  binary options strategies which can help you get a better chance of making money are being developed. One of such methods is called exponential moving average rainbow strategy. It is one of the popular moving strategies with potential of amazing results. This strategy makes use of exponentially moving averages of period 6, 14 and 26. This strategy works in short time positions and is considered to be very effective.

How to use Exponential Moving Average Rainbow Strategy

Here is a step by step tutorial on using Exponential Moving Average Rainbow Strategy .

Step 1. Observe the trading of an asset using the candles of 5 minutes. 5 minutes are widely considered to be the most appropriate time period for this strategy.

Step 2. Add three exponential moving average indicators using charting software. The period of these averages must be 6, 14 and 26 period respectively. Use different colors for each moving average and it will be a smart idea to use a bold indicator for 26 period moving averages as it is the most important one. It is highly recommended that you use a smooth functioning and updated charting software.

Step 3. Treat 26 period line as the base line. If the 14 period and 6 period lines are above it, it indicates bear trading i.e. the stock prices will rise and if you find the opposite of it i.e. 14 periods and 6 period lines under the 26-period line, it indicates that the prices of the shares will fall. You should place your money accordingly.

It is important to understand that the lines have to be observed carefully. You have to wait for the right opportunity. Do not trade using this strategy when the period lines are close to each other. Exponential moving average rainbow strategy works only if the 24-period line is distinctly below or far top of the 14 period and 6 period lines. The advantage of this strategy is that it is less complicated than many other strategies of binary options and easy to use. However, it is recommended that you practice this strategy on a demo platform till you feel confident about it before investing in the real market.