Convergence and divergence of Moving Averages is a key factor in terms of technical analysis. This principle is the basis of a significant percentage of all indicators, including MACD, Alligator, and other tools based on the Moving Average. The point of intersection of the lines with different periods indicates a change in the balance of forces on the market. That's why a large number of trading systems have been created on the basis of this principle. In this article we will look at a simple strategy for Binomo which clearly shows the essence of this approach to market analysis.
Trading strategy rules
Money management. The cost of a fixed contract when trading on Binomo should be within 4-5%, i.e. 1/20 of the account balance. This is the upper limit of acceptable risk. It is recommended to invest in each trade 0,5% of the account balance or less. This provides a powerful security buffer, protecting against financial losses.
Trading assets. Binomo offers 50 options. For short-term trading, cryptocurrencies and currency pairs are available. A win-win choice is the crypto index (CRYPTO IDX).
The expiration term. For 15-, 30-, and 60-second charts, in most cases the standard rule for expirations applies - from 3 to 6 candles. For the 15-second chart, these are 1-minute contracts. These are the default settings on the Binomo platform.
Preparing the platform for trading
Binomo offers 14 indicators, but there are in fact 24 of them. The thing is that in addition to just the Moving Average, 10 more types are offered - exponential, triangular, weighted, smoothed, and others. Such a large selection opens up a lot of potential for technical analysis. That's why the Binomo platform is popular with experienced traders. Unlike standard services for technical analysis, such as Meta Trader or the live chart from TradingView, it allows you to use second time frames.
Step-by-step instructions for setting up the Binomo web terminal for trading on the strategy:
- The chart. Short-term trading differs from the standard approach in the increased demands on the assets used. A 15-second candlestick chart is used for the CRYPTO IDX asset. Other currency pairs are suitable only if they are recorded with a high level of activity.
- Contracts. Standard “Higher/Lower” trades with fixed profit are used. On a 15-second chart, the expiration should be 1 minute.
- IndicatorsYou should add two Time Series type Moving Averages to the chart. The period of the first line is 50, the color is red; Parameters of the second line are period 30, color yellow. The "Offset" for both indicators should be set to 5.
When choosing the expiration of contracts, you should be guided by the value of the selected chart time frame. For example, with the 30-second interval it is 2 minutes, on the 1-minute time frame it is 5 minutes, and so on. It is necessary to adhere to the ratio so that the duration of the contract is 4-5 candles.
Trading systems using linear indicators are known for ease of initial signal evaluation. Recognizing the point of intersection of two lines is simple, even for beginners. Therefore, the overall trading efficiency of the system depends on the trader's attention to various details. We'll consider some important nuances at the end of this review.
Reversal signals on the strategy:
- On an increase - the red TSMA curve intersects the yellow line and is in a dominant upper position.
- On a decrease - the red TSMA line takes the initiative and is in an upper position relative to the yellow curve of the Moving Averag
Not every intersection is a clear signal to open a trade. It is necessary to manually evaluate the complete picture of what is happening on the chart. Let's consider some important nuances that make trading on the strategy more effective.
Practical advice for traders
First, a key parameter is divergence between the Moving Average lines. A separate indicator (MACD) was even created for this, but it is possible to evaluate it without using the indicator. Divergence is the distance between the Moving Averages. The bigger it is, the higher the market volatility. When both TSMAs merge into one line and often intertwine with each other, that is a negative sign.
The second important nuance is the distance of the Moving Averages from price formations. The candles should not be built within the channel formed by the TSMA curves. The price should quickly cross the lines and intensively deviate from them. This is how expressed trend movements manifest themselves on the chart. And the task of the trader is timely recognition of the reversal points of strongly pronounced trends.