Category Archives: stochastic

Market tides can be predicted.

Ebb And Flow Strategy For Binary Options

Like an ocean, the markets are also affected by tidal factors, ebbing and flowing along with the trend. The trend is like the tide of the ocean itself, surging ahead as another wave crashes onto the beach, then pulling back, only to get ready for another advance. So is the motion of the markets. As the trend advances it does not do so in a straight line. The market tide surges forward on good news and then draws back as fear mounts or bad news is delivered. Timing these ebbs and flows of the market is one way binary options traders can profit.

I try to avoid the ebbs and to focus only on the flow of the market. The ebbs, which are the pullbacks during a bull market or the bounces during a bear market, are too short term when compared with the flow and much harder to predict. The flow of the market is the longer term movements that are in line with the underlying trend. Since the trend is your friend I always trade with the trend.

Benefits of this strategy include:

  • This strategy is appropriate for all types of trading including spot binary, NADEX binary options, 0-100  binary options and forex binary options.
  • This strategy seeks to weed out the noise of shorter term corrections, pullbacks and relief rallies focusing instead on the longer term trend following moves.
  • This strategy uses multiple time frame analysis
  • This strategy uses more than one indicator
  • This is a binary options strategy that works! I know because it is how I trade.

One Theory Behind Market Movements

One basic theory behind market movement is that for every rally there is a correction and for every bear market there is a relief rally.Another theory is that no trend moves in a straight line; there will always be pull backs and corrections. Technical analysis assumes that the rallies and correction are repeatable and predictable but what does this mean and how can binary options traders profit from it? It means that during any rally there will be peaks and troughs, rallies and declines that traders can profit from. The key is to time the markets and profit from the ebb and flow of the market as it moves through the peaks and troughs.

In this first chart (S&P 500 weekly price candles) we can clearly see that the long term primary trend is up. This is the tide and flow of the market. We can also clearly see that there are periodic dips, or ebbs, in the flow of the market as it moves higher.  Recognizing the pattern of ebb and flow is the key to using this strategy properly. Any time there is a dip in the assets prices is a good time to enter into long term positions. It is important to remember that not all assets will behave in exactly the same way, especially if they are range bound, so it is useful to add a couple of other indicators to your analysis to time your entries.  Two tools that I find useful to help pinpoint the dips and my entry points are the MACD and stochastic indicators. Notice how they both make dips in synch with price action.

Ebb and flow strategy for binary options

Ebb and flow strategy for binary options


How To Apply The Ebb And Flow Strategy To Binary Options

You can trade off of the monthly charts but the signals take a long time to develop, usually a month or more. Not all broker offer options with enough expiry to cover the time needed and you most likely don’t want to wait a month, two or more for a trade to close.  So, how to apple Ebb and Flow strategy to short term binary options trading. First, start with the charts as shown above. Use candlesticks of weekly price action with stochastic and MACD set to the standard settings. Any time that you can confidently say that the market is ebbing or flowing it is time to look for a signal. To find a signal move down to a chart of daily prices. This is where you will find entry points for trades with one week to one month expiry horizons.  When the market is in a flow period on the weekly charts you will look for bullish signals on the daily charts, any time the market is in an identified ebb period bearish trades will be taken on the daily charts.

Using the chart above as an example we can see that the asset is in a period of flow. The long term trend us up and the indicators are currently bullish so that means that only bullish signals will be taken. To find a signal move down to a chart of daily prices, shown below. The chart  shows that the asset is in a short term ebb period. Take note that this ebb is not a full blown pullback but a sideways consolidation; not all ebbs will result in a pull back or correction. Since the market is in an ebb the ideal thing to do is to wait for the MACD to cross or at least come to the zero line, indicating that market flow has begun again. Once the flow of the shorter term daily charts synchs up with the flow of the longer term weekly charts it is safe to begin entering positions. The ebb in early October shown on this chart resulted in a bullish flow with 15 days of trading where positions opened with the market open profited at days end.

spx daily ebb and flow


This technique can be taken down to a shorter time frame than the daily charts. If you use charts of hourly prices then hourly and end of day expiry are more appropriate. The caveat is that the shorter the time frame you are using the less reliable the signals. This is because short term movement is more susceptible to random market noise than longer term movements. To do this use charts of daily prices to set the ebb and flow of the market, then move down charts of 60 minute or 30 candlesticks to find a signal.

Limitations Of This Strategy

There are some limitations for this strategy. First, if you wait for the MACD to hit zero or to actually cross back over to the bullish or flow side before taking the signal the move has already begun. At this time you may have missed up to half of the really good entry points. In order to catch a higher number of profitable entries you have to anticipate the flow before it really starts. If you look at the chart of daily prices you can see that when prices begin to flow back upward the bearish MACD is declining. Watch the bearish MACD for peaks when the underlying market is rallying. The decline in the bearish peak can be used as an early signal that market flow is reversing back to trend.

Another limitation is resistance. Without some form of resistance analysis this strategy is left open to potential losses from unanticipated market reversal. This can be avoided by simply drawing potential resistance lines on a chart at least on time frame higher than the one on which you are taking your signals.  Fibonacci Retracements are another great way to predict potential areas for resistance and support that could adversely affect trades made using this system.

 Additional Resources For Using The Ebb And Flow Strategy

Stochastic oscillator is a great tool for binary options.

Stochastic Strategy For Binary Options

Winning Stochastic Strategy For Binary Options

This strategy works in multiple time frames and will lead you to numerous trades. I use this strategy in three time frames based on weekly, daily and hourly candlesticks. It can be used with other time frames, the key is to use longer time frames to signal trading direction in shorter time frames. Once a signal is taken in the longest time frame then trades can be taken in the shorter time frames. In each instance it is necessary for a signal to be present in the longer time frame in order for signals to be valid in the shorter time frames.

What Is Stochastic?

Stochastic is a technical indicator oscillator based on trend analysis of random movements. It utilizes two indicator lines based on the magnitude and direction of price movements. It assumes that over time the day to day or minute to minute movement of asset prices is random but over time that randomness will produce a pattern indicating underlying trend. What this means for binary options traders is that it weeds out a lot of the noise found in the markets and produces an indicator which reveals the underlying trend.

Stochastic oscillator is a great tool for binary options.

Stochastic oscillator is a great tool for binary options.

Stochastic is a popular indicator for forex, stocks, futures and options and is now being applied to binary options trading. It works in any time frame and can produce a number of signals including entry, support/resistance and impending market reversal. The best signals are those that occur in more than one time frame which is what I am focusing on here today.

What Time Frames To Use With Binary Options

I use three time frames for my signals. This provides me with signals for monthly, weekly and daily options. The long term time frame is charts of weekly closing prices. I use charts of 2,3, 5 and 10 years with weekly candlesticks to determine long term trends and areas of support and resistance. The short term time frame I use is daily closing prices. I daily candlesticks with 6 month, 1 and 2  year charts to determine short term trends and areas of support and resistance. As for the near term I use charts of 60 and 30 minute bars, depending on the asset. Heavily traded assets are better in 30 minute bars, less liquid assets in 60 minute bars.

How To Trade Stochastic Signals With Binary Options

Long term stochastic signals work well with weekly and monthly expiry's

Long term stochastic signals work well with weekly and monthly expiry’s

Signals are easy to see and come with a top-down organization. The first signal I take will always be on the long term charts. On this chart if the trend is up I am bullish and if it is down I am bearish. A signal occurs in a bull market when the %K line crosses the signal line from below. The reverse is true in a down trend. A signal occurs when the %K line crossed the signal line from above. The long term signal indicates a long term position such as an option with a monthly expiration. Only enter new long term positions during the week the signal forms or the week after if prices are not running wildly higher. This signal also indicates that trading short term in the direction of the trend is allowed. This secondary signal is valid so long as the %k is above the signal line and it is pointing up on the long term chart.

Weekly Stochastic Signals For Binary Options

Shorter term signals can have one week or less until expiration

Shorter term signals can have one week or less until expiration

Shorter term weekly positions can be taken with signals from the daily charts. When you have identified a bull or bear signal on the weekly charts move down to the daily. Then look for the exact same signal on the daily chart. This means that if the weekly chart signal is bearish you are looking for a bearish signal on the daily charts. Only trade in line with the long term trend in order to get best results. It is possible to trade on divergences and support/resistance bounces but those signals are not as reliable. You may be able to identify several shorter term signals on this chart, so long as the long term signal is still bullish any new bullish signal on the daily charts is tradable.


Short Term Binary Options Stochastic Signals

Near term signals for one day or one hour positions.

Near term signals for one day or one hour positions.

The beauty of stochastic is that it works in multiple time frames and the more time frames that converge with identical signals the stronger the signal is. Trading short term signals for hourly and daily binary positions is easy with stochastic. For these signals I use charts of hourly or 30 minute prices, it depends on the asset. The more volatile assets work well with 30 minute charts and hourly expirations, less volatile assets with hourly charts and daily expirations. The same rules apply as with the long term and short term signals. When the long term signal is bullish and the short term signal is bullish then you can trade near term signals that are bullish with a high degree of success. The exact same is true in the bearish case. When the long term signal is bearish and short term signal is bearish then you can trade near term hourly and daily puts whenever a bear signal occurs.

“The Stochastic Triple Cross” or “The Binary Super Signal”

The stochastic triple cross is when you can identify an active buy or sell signal in all three time frames simultaneously. What I mean is that the stochastic cross is happening on the current bar at the current time. This is even stronger a signal than an ordinary near term signal. A near term signal can occur at any time during the course of a long term signals life. There are many short term signals during the long term. A super signal occurs at or near the beginning of a new rally or bear market or just after a correction or relief rally. These signals have the strength of the long term trend, the short term trend and the near term trend. This signal is the only time that I would enter in all three trades at the same time …. or even consider making a larger trade than usual. One possible trade idea would be to place a 2X position on an hourly or daily position, a 1.5X position on a weekly position and then a regular size trade.

bull bear eva k wiki cc asa 2.5

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