The Violinist trading scheme using MACD indicator

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The Violinist trading scheme using MACD indicator

How to earn on binary options: the Violinist trading scheme

Trading binary options should be not only interesting, but profitable, otherwise the whole meaning of using this financial instrument is lost. If you want optional trading to bring you a considerable profit, we suggest using the trading method called Violinist — it allows closing over 85% of contracts with a profit.

How to earn on binary options, the Violinist tactics: parameters

This trading strategy is based on the most famous stock trading indicator — the Moving Average, which is applied to the chart in combination with the MACD indicator that filters it. That is, the strategy is based on a popular combination of tools that most approaches to market analysis include. But the focus of this approach is that the Moving Average, the main indicator determining the trend, is applied for 7 different periods of movings at once, which makes its trading signal even more accurate. The MACDs’ role in the strategy is traditional — it determines the dynamics and direction of the movement, as well as the market turns. The two indicators generate a complex trading signal, following which you can conclude a deal on an emerging short-term trend.

Building the trading pattern Template

If you have access to a professional trading terminal equipped with a set of technical indicators that can be applied to a quotations chart with the change of settings, then building a template would be easy. In order to show you how the strategy works, we chose the terminal developed by Binomo brokerage company and equipped with all the necessary functions.

The first thing we do is choose a high-volatility asset with a strong trend on the broker’s terminal for daytime trading. We set the quotes chart to M1 interval to trade at a moderate pace. Then we add the MA and MACD indicators to the chart with the following configurations:

– MA, Exponential; line periods of 3, 5, 7, 9, 11 and 13, all blue;

– MA, Exponential; period of moving 55; the line is red;

– MACD, settings left unchanged.

Profitable system of binary options Violinist: the trading rules

Create a technical template on the price chart of the asset. What’s left now is to monitor the work of technical tools and wait for a signal of the indicator to form. It has an easily identifiable form and shows that the market made a turn and the trader can enter the trade with a CALL/PUT option (quotes growing/declining). The signal itself will be displayed as an intercrossing of the blue beam of EMAs and a red moving, with MACD simultaneously crossing the 0 level.

A trader should buy a CALL option (predicting an increase in the asset’s value) when:

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– Blue EMAs cross the red moving average in the upward direction;

– The movings in the MACD indicator window cross the 0 level of the graph upward.

Conclude a deal only after the signal is confirmed by the MACD indicator:

A trader should buy a PUT option (predicting a decline in the asset’s value) when:

– Blue EMAs cross the red moving average in the downward direction;

– The movings in the MACD indicator window cross the 0 level of the graph upward.

Conclude a deal only after the signal is confirmed by the MACD indicator:

The indicators can also form an additional trading signal displayed as a consolidating the blue shifts above/below the red moving and the intercrossing of the MACD lines. The signal of this type indicates a continuation of the trend and allows to conclude an additional deal:

Choosing the expiration time

This strategy is used on the M1 timeframe, however you can apply it to other intervals with similar efficiency. In this case, you should set expiration for a formation of at least 5 price candles. Taking into account the duration of the trading signal, the expiration time on a M1 timeframe can be within 5-10 minutes.

Money Management

When trading with this system, it is best to follow the classical rules of risk management, limiting the amount of the option to 5% of the trading capital. If you have a small trading deposit, trade the minimum possible options before you increase. For instance, the minimum contract for Binomo is only 1 dollar

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

How to Use the MACD Indicator

MACD is an acronym for Moving Average Convergence Divergence.

This tool is used to identify moving averages that are indicating a new trend, whether it’s bullish or bearish.

With an MACD chart, you will usually see three numbers that are used for its settings.

  • The first is the number of periods that is used to calculate the faster-moving average.
  • The second is the number of periods that is used in the slower moving average.
  • And the third is the number of bars that is used to calculate the moving average of the difference between the faster and slower moving averages.
  • The 12 represents the previous 12 bars of the faster moving average.
  • The 26 represents the previous 26 bars of the slower moving average.
  • The 9 represents the previous 9 bars of the difference between the two moving averages. This is plotted by vertical lines called a histogram (the green lines in the chart above).

There is a common misconception when it comes to the lines of the MACD.

The two lines that are drawn are NOT moving averages of the price. Instead, they are the moving averages of the DIFFERENCE between two moving averages.

In our example above, the faster moving average is the moving average of the difference between the 12 and 26-period moving averages.

This means that we are taking the average of the last 9 periods of the faster MACD line and plotting it as our slower moving average.

This smoothens out the original line even more, which gives us a more accurate line.

The histogram simply plots the difference between the fast and slow moving average.

If you look at our original chart, you can see that, as the two moving averages separate, the histogram gets bigger.

This is called divergence because the faster moving average is “diverging” or moving away from the slower moving average.

As the moving averages get closer to each other, the histogram gets smaller. This is called convergence because the faster moving average is “converging” or getting closer to the slower moving average.

And that, my friend, is how you get the name, Moving Average Convergence Divergence! Whew, we need to crack our knuckles after that one!

Ok, so now you know what MACD does. Now we’ll show you what MACD can do for YOU.

How to Trade Using MACD

Because there are two moving averages with different “speeds”, the faster one will obviously be quicker to react to price movement than the slower one.

When a new trend occurs, the fast line will react first and eventually cross the slower line. When this “crossover” occurs, and the fast line starts to “diverge” or move away from the slower line, it often indicates that a new trend has formed.

From the chart above, you can see that the fast line crossed under the slow line and correctly identified a new downtrend.

This is because the difference between the lines at the time of the cross is 0.

As the downtrend begins and the fast line diverges away from the slow line, the histogram gets bigger, which is good indication of a strong trend.

Let’s take a look at an example.

In EUR/USD’s 1-hour chart above, the fast line crossed above the slow line while the histogram disappeared. This suggested that the brief downtrend would eventually reverse.

There is one drawback to MACD. Naturally, moving averages tend to lag behind price. After all, it’s just an average of historical prices.

Since the MACD represents moving averages of other moving averages and is smoothed out by another moving average, you can imagine that there is quite a bit of lag. However, MACD is still one of the most favored tools by many traders.

How to Interpret the MACD on a Trading Chart

On a trading chart, the moving average convergence-divergence indicator (MACD) was designed use exponential moving averages of 26 and 12 days, although the MACD is a model into which you can insert any moving average that suits your fancy and backtests well on your security.

A full MACD indicator, as shown in this figure, includes

An indicator line

A trigger (usually a moving average of the indicator, superimposed on top of the indicator)

The arrows in this figure show where you would buy and sell:

Buy: In the MACD indicator window, the crossover of the trigger and the MACD indicator occurs earlier than the crossover of the two moving averages in the top window. Looking from the left, the MACD tells you to buy two days earlier than the moving average crossover.

Sell: The real benefit comes at the next signal — the exit. Here, the MACD tells you to sell over two weeks ahead of the moving average crossover, saving you $4.68, or almost 5 percent.

Reenter: At the right-hand side of the chart, the MACD tells you to reenter, while the moving averages are still lollygagging along and haven’t yet crossed.

The MACD’s forecasting ability makes it one of the most popular indicators. But watch out for attributing too much to it. A shock can come along and cause the price to vary wildly from the trend, whereupon the tendency to converge or diverge becomes irrelevant. A new price configuration develops, and because the MACD is comprised of moving averages, the indicator still lags the price event like any other moving average.

You may find it hard to “read” the MACD indicator, except when the trigger is actually crossing the indicator line. You’re not alone. Another way of displaying the MACD, in histogram format, is much easier on the eye.

In this figure, each bar in the histogram represents the difference between the two moving averages on that date. You don’t use the trigger line in the histogram because you can choose by eye how fast the histogram bars are closing in on the zero line, or diverging from it:

At zero: The two moving averages have the same numerical value — they have zero difference between them.

While the bars grow taller: The difference between the two averages is increasing (divergence), and this movement favors the trend continuing.

When the bars stop growing and start to shrink: The two moving averages are converging — watch out for a signal change.

When the bars are upside down (below zero), the signal is to sell. What do you do when the bars become less negative? This indicator means selling pressure (supply) is running out of steam. Technically, you don’t get a buy signal until the bars are actually over the zero line, but it’s up to you whether to act in anticipation that it will cross the line.

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