With the beginning of September we started a new analysis cycle in which we test and validate the effectiveness of various Binary Options strategies. For the past two weeks we tested strategy End of the Day, a detailed summary of which is available in a separate article. As promised, today is the time to introduce another strategy that we will be testing for the next two weeks.
The strategy is called EMA Rainbow and from a technical point of view it is extremely easy. All this because it uses only one indicator, which is the exponential moving average (EMA). Word “Rainbow”, signals that we will use several different settings of this indicator but don’t worry it is wery simple.
The Rainbow EMA strategy uses three exponential moving average EMAs:
- 6-period moving average (EMA 6)
- 14-period moving average (EMA 14)
- 26-period moving average (EMA 26)
Moving averages make it possible to determine the trend and level allowing to make transaction. In various sources I have found various information about the time frame used, so this strategy can be used from the interval M1 to H1 mainly but higher intervals are not excluded.
The whole set of indicators looks like this:
When to make a transaction:
Buy CALL option:
- Moving mediums are facing upward.
- The EMA 6 (blue) is at the top and the EMA 26 (yellow) at the bottom.
- Price makes pullback to the purple moving average and crosses it from above.
- If one of the next two candles are bullish ( start to grow) and closes above the purple moving average, we open the CALL option.
- The expiration period of the option is three times the observed interval:
If we observe a 1 minute interval, the option expires after 3 minutes
If we observe a 5 minute interval, the option expires after 15 minutes
If we observe the 15 minute interval, the option expires after 45 minutes
If we observe a 30 minute interval, the option expires after 90 minutes (1.5 hours).
If we observe a 1 hour interval, the option expires after 3 hours
Buy PUT option:
- The moving averages are pointing downwards.
- The EMA 26 (yellow) is at the top and the EMA 6 (blue) at the bottom.
- The price makes pullback (returns) to the purple moving average and crosses it from below.
- If one of the following two candles are bearish (starts to fall) and closes below the purple moving average, we open the PUT option.
- The expiration period of the option is three times the observed interval:
If we observe a 1 minute interval, the option expires after 3 minutes
If we observe a 5 minute interval, the option expires after 15 minutes
If we observe the 15 minute interval, the option expires after 45 minutes
If we observe a 30 minute interval, the option expires after 90 minutes (1.5 hours).
If we observe a 1 hour interval, the option expires after 3 hours
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