The Ultimate Oscilator
Like the name suggests, this project is about trading binary options with different indicators and this one is an oscillator.
The Ultimate Oscillator is not that famous like, say, RSI, but it is a very good one in finding bullish or bearish divergences price is making and therefore showing us where to go and buy call or put options.
The first thing to consider is to look at the values of the oscillator and it can be seen that this one is traveling between the 0 and 100 level, but most of the times it stays between 30 and 70.
This means that the actual middle of the range is the 50 level and we want to take that into consideration.
Of course that the ranges may differ from currency pair to currency pairs, as, for example, crosses that are traveling more will most likely have different ranges with the oscillator.
Looking for Divergences
The next thing to do is to look for divergences between price and oscillator while taking into account the 50 level as well and this is giving us great striking prices for both call and put options.
Another way to trade binary options with the ultimate oscillator is to look at the extreme values it is forming. Like mentioned a bit earlier, it is traveling between the 100 and 0 values and this means that we can edit it to satisfy our need for finding overbought and oversold levels.
The ultimate oscillator is to be found on any trading platform and the most common one where it is offered by default is the JForex trading platform. There it is under the momentum indicators and this means it is offered in the oscillators category. Judging by the fact that it is applied at the bottom of the screen and that it is travelling in limited boundaries we can say it is an oscillator indeed.
Using the Metatrader
On the Metatrader trading platform the Ultimate oscillator is not offered but it can be imported on the trading platform using the Custom Indicators tool provided.
Anyways, like mentioned earlier, the way to find out the overbought and oversold levels is to edit the indicator and add levels like 10 and 20 and 80 and 90. Most of the times it is travelling between the 70 and 30 and this means that by the time it is moving into 10 and 20 area we’re seeing extreme oversold levels and by the time it is moving into 80 and 90 extreme overbought levels appear.
These kind of values are most likely to appear during economic releases as those are the times when market is volatile and chances that it will break into those territories are really big.
How to find the perfect striking price though once market reaches these points? One way is to look for divergences price and the oscillator is doing.
Trading the 30 and 70 Levels
Such a divergence implies that the first swing higher in a bullish move is travelling into the overbought territory while the second one is failing to go above the 70 value on the oscillator while market is making a new high. This is being called a bearish divergence as if a line is being drawn connecting the two points, on price we have a rising line and on oscillator we have a falling one.
It is being said that when looking at a divergence, one of the two, price or oscillator, is lying and there is always safer to stay with the oscillator and not with price as the oscillator is taking into account a bigger period than the actual price is doing.
In a bearish trend, look for market to make a low into the 10-20 area, and the second low not to be confirmed by the oscillator. This means that price is making two consecutive lows while oscillator is having the second move above the 30 level and this is being considered to be a bullish divergence as taking a trend line and connecting the two lows will show a rising trend line for the oscillator and a falling one for price.
Like it is the case with all binary options trading opportunities and setups, the expiration date is to be adjusted based on the time frame the oscillator is being plotted as it is making no sense to trade end of day expiration dates based on the 5 minutes chart for example or sixty seconds based on the daily chart. Correlations are key in finding the perfect combination between a good striking price and the corresponding expiration date.