This binary option trading strategy is structured on the momentum indicator that is supported by most popular trading platforms. A buy signal to execute a new CALL binary option is generated when an asset registers increasing momentum while a PUT binary option should be activated when decreasing momentum is recorded.

Fundamentally, significant changes in momentum very often prelude major price reversals that are associated with the creation of new trends. Consequently, if you can master how to identify this events then you can utilize this knowledge to dramatically improve your binary options profits.

The key feature of the momentum indicator is its reference point located at its 100 level which is used to differentiate between rising and falling momentum. In addition, momentum is displayed as a signal line. Consequently, upward momentum is registered and a buy signal produced when the signal line climbs above the 100 reference point. When you detect such an event, you should open a CALL binary option based on the associated asset.

In contrast, if you observe that the signal line is declining and has just slipped beneath the 100 reference line, then you should perceive such a development as a SELL alert. As such, you should then activate a PUT binary option using the applicable security as its underlying asset. Many traders use candlestick formations as a source of secondary confirmation in order to verify all the critical events posted by the momentum indicator.

The above chart displays the primary features of a momentum strategy. You can confirm that as the signal line crosses above the 100 reference line towards the center of the chart advising that increasing momentum is signaling the birth of a new bullish trend. You can now assess the viability of activating a CALL binary option. However, before doing so, always seek secondary confirmation that validates the recommendations produced by the momentum indicator.

Similarly, the decreasing momentum displayed towards the far right of the diagram announces the birth of a new bearish trend. Evaluate the opening a PUT binary option at this point after identifying additional validation evidence.

Disadvantages for using the Momentum Strategy in Binary Options

Unfortunately, this strategy has attracted a certain amount of criticism over the years. Most of the complaints have been centered on the fact that the signal line is not a sufficient means to determine the quality and magnitude of the prevailing momentum. Even the supporting candlestick formations provide limited help to improve this matter. This is because patterns based on just one candlestick, which are normally used in association with the momentum indicator, are not very reliable. Basically, formations consisting of at least two candlesticks are required in order to produce consistent and dependable alert signals.

Another drawback is that the signal line of the momentum indicator is an oscillator. Consequently, the readings produced will have a tendency to lag the prevailing market conditions. This feature implies that by the time you have received an alert from the momentum indicator and open a new binary option, the price of your chosen asset could have already entered a new phase.

Such situations would be dangerous as they could propel price in the opposite direction to that which you have selected for your new trade. For example, a major price reversal could suddenly materialize causing your binary option to register a serious ‘out-of-the-money’ status just after you executed it.

Consequently, many experts advise that momentum strategies are not really suitable for trading binary options because of all this problems. This viewpoint gains additional credence when you appreciate that momentum strategies were designed for long-term expiry period, i.e. daily upwards, which is not the primary nature of binary options trading. The lagging aspect of this strategy implies that traders must always provide sufficient time for price to respond to the underlying fundamentals of the prevailing market conditions in order to drive price into their favored direction.

Another serious concern is that momentum strategies are difficult to master as significant experience and skill are required to deploy them properly. As such, they are certainly not ideally suitable for novices. The basic problem is that the momentum indicator is renowned for generating fakeout or false signals which can be very misleading especially if you are not a professional trader .

You will need to develop patience in order to utilize momentum strategies successfully. Specifically, when you detect a buy or sell alert then you must not rush in straightaway by executing a new binary option immediately. In contrast, you will need to exert patience by waiting for additional proof to appear verifying any signals generated by the momentum indicator.

As already stated, many traders opt to use candlestick formations to assist them in performing this task. Only when the signals from then momentum indicator and your secondary source coincide should you consider activating a new binary option. If you can overcome all these inherent problems then you will have a powerful tool at your disposal to trade binary options. This is because some professional traders have achieved impressive success and profits by combining the momentum indicator with the very lucrative ‘Touch’ binary options.

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