The Momentum is one of the simplest indicators to calculate, it indicates in advance if trend inversions occur. If the value is upwards or downwards, it means that the asset we are interested in analyzing goes through a moment of imbalance in both directions and approaches a particularly interesting event.
The Momentum indicator in trading is useful, when analyzing from 8 to 14 periods, below, the waves in the chart can give false signals, while above 20 periods, can make the analysis unreal.
Indicators are mathematical tools used to study the behavior of financial markets.
It allows to identify market situations characterized by overbought and oversold excesses and highlight possible deviations from the trend.
Two formulas can be used to calculate it. The formula of the moment is the simplest one you can meet: it is nothing more than the difference between the current price and the one marked a certain number of previous sessions:
Mt = Pt - (Pt-n)
Where: M = Momentum; Pt = Current price; Pt-n = Price of previous sessions; n = Period of the Momentum.
It should also be specified that:
In the construction scheme of the momentum, at the end of the session we measure the closing price of the day, we then take the closing price of n previous sessions in our case 14, they calculate the difference. In this case, this difference is almost zero and so the moment (continuous curve) will be very close to its line of equilibrium that is the zero line. Same value two days later, When the closing of day B and day B 14 are on the same level.
Of course, this will not always be the case: when prices move upwards, the difference will give a positive result, and this will be even more positive when the bars are lengthened the closing close to the maximum; vice versa, the moment will bring back negative values when the current price will be lower than that of n previous sessions.
The first rule of thumb for success in binary options is proper capital management (also called money management). Capital management is already one of the fundamental aspects of our lives. Every day we make decisions based on the money we have. If we take a salary of 2000 dollar we cannot consume it all in the first days of the month, but we have to share it in 30 days, so as not to find ourselves at the end of the month without money.
If we have deposited a capital of 250 dollars, we must not invest more than 5% of the capital we hold. 5% of 250 dollar and 12.50 because (250*5)/100= 12.50.
This is called defensive investment, where we strictly abide by a rule called 5/15 on risk management. The number 5 refers to the percentage of investment for each operation and transaction, instead 15 refers to the fact that we can keep open 3 positions at the same time for a total of 15%.
In all we will risk 12.50*3=37.50, however, in diversified investments, so that if one investment goes into a loss it is likely that the others will go into the money.
The same applies to more aggressive investments where the 10/30 rule is respected, i.e. we will invest 10% of the capital, (250*10)/100=25 for each transaction, for a total of 3 simultaneous transactions with a value of 75 dollar.
In this case, this type of management will lead us over time not to lose our earnings, to diversify investments, to know how to manage situations. In many cases traders also recommend investing less than 5% of the capital, i.e. 1 or 2%. There are serious risks involved in investing a large amount of money straight away. If this sum were lost with the remaining capital, it would be difficult to recover everything, while with small investments, the recovery would be more fruitful and easier.
Diversifying investments means managing minimum sums on multiple assets so that if an investment goes to a loss and the next one is likely to be in the money (perhaps marking everything on a convenient excel sheet (easily exportable in pdf) and / or using apps for our Android SmartPhone and Apple (Mac)).
Applying the rule of defensive investment means never investing more than 5% of the capital, if you can even less than 1% or 2%. All this together with our patience will bring us very good gains at the end of the month.
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Money management in binary options trading is the set of rules to be adopted for the proper management of our capital.
Maximize profit and minimize losses, use a trading system with proper risk management, when we realize that we are making a loss it is better to close the position by recovering part of the investment, many platforms allow early closure. This money will help us recover the lost investment.
The ability and skill of the trader is not to suffer several losses, but to try to limit them, because the phase of recovery is very tiring.
Furthermore, the trader must learn to control his emotions both in case of winnings and losses and, with a cold mind and calculator, evaluate what to do.
They are instruments through which traders study the behavior of financial markets. They are essential for anticipating price movements and anticipating their future evolution.
The use as a trading signal generator is not effective enough, although some use it at the equilibrium line. Specifically, the assumption is that positive values of the indicator have bullish implications and, conversely, negative values have bearish ones; in this regard, it is clearly noted that there may be many false signals.
The situation can be improved slightly by replacing the break-even line with a neutral zone, for example + or - 3% in buying and selling orders is triggered not only by exceeding the indicator of these limits, respectively, upwards and downwards. However, the results are not without false signals.
Finally, the Momentum could be used in automatic systems, but only as a confirmation and in combination with a group of other analysis tools.
Oscillators are mathematical tools used by traders and investors to understand and analyze the behavior of all financial markets. Oscillators are key to analysing price movements and anticipating their future evolution.
The operating signals provided by the Momentum oscillator, are buy when it crosses, from bottom to top, the line of 0 and a sell when it goes below the line of 0.
Two formulas can be used to calculate the Momentum.
The first formula records the difference between the current price and the price of a certain previous period:
Mt = Pt - (Pt-n)
The second formula expresses this difference as a percentage:
Mt = ((Pt/(Pt-n)) * 100
Where: M= Momentum, Pt= current price, Pt-n= price of n periods ago.
In the first case the Momentum curve oscillates around the axis of 0; in the second case it oscillates around the axis of 100.
In this way, if prices are rising and the Momentum line is above 0 (or 100) and in increasing phase, the indicator signals that the bullish trend is accelerating.
When instead the Momentum line begins to flatten out and go down you have the signal that the upward trend is gaining strength: with the passage below the line of 0 (or 100) is signaled the actual reversal of trend and then the beginning of a bearish trend.
Operating Segments Provided
The Momentum oscillator in forex evaluates the volume of transactions in the market and measures the speed of price variation, the change of trend at levels of resistance and support to exchange and price reversal; when it reaches the minimum, it indicates us to buy and when it reaches the maximum it indicates us to sell.
Oscillators are mathematical instruments widely used by investors and traders through which, study the behavior of financial markets. They are therefore a key tool for analysing price movements and forecasting their future development. They make it possible to highlight market situations characterised by excess demand and supply and to highlight possible deviations from price movements. They provide the typical operating signals of buying and selling. They identify the directionality and strength of market movements.
Describing Dow's theory, the importance of identifying price trends and exploiting them from an operational point of view was underlined. A trend in fact remains such until a reversal is perfected.
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It is much easier to analyze some data through the reading of graphs than the discussion that can arise around simple numerical inputs. Through the graphs it will be possible to monitor information related to volumes and other technical indicators (they are displayed at the base of the graph characterizing the time axis). To give a concrete example, the bands of Bollinger are directly represented on the price graph.
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