In yesterday’s article I have laid out the basics of the main binary options strategies for dummies. Today I would like to share with you a simple digital options strategy that uses the stochastic momentum indicator to trigger your trades on one minute charts with an expiry of five minutes.

Binary options simple strategy 1 min chart/5 min expiry

This has probably been mentioned countless times by binary option traders. Rather than imitating strategies, I’m trying to find out myself some setup that I can use to increase my win rate. Not that I think that I’m smarter than other traders. But by investigating on my own, I believe I’m improving my understanding of price action. Anyway, I found out this simple strategy after this winning trade (orange line):

intro stochastic

As you can see, this is a classical bounce of the price on the lower Bollinger band. A very comfortable win, but what struck me is how the trend was steady afterwards. When analyzing my trades I noticed that when the stochastic momentum indicator was in the grayed out area and that the red line crossed the white line seemed to signal an upward trend. So I started to investigate charts, and the conclusion made on my very partial observations were that this indicator was rather reliable.

The first occurrence of the pattern started an upward trend of way more than five minutes. The one that followed my winning trade lasted almost half an hour. The third one was a false start. The forth valid. The fifth, although choppy and tricky, lasted around 20 minutes while the last one lasted a bit less than 10 minutes.

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During those two hours the pattern appeared seven times. By playing the strategy you would have scored 5 ITM if unlucky, 6 if lucky (signal 3 was a false start and would have led to a loss, although one might say that the overbought period didn’t look like the others. Signal 5 should end up as a win but a loss could have happened depending on your entry point and time).

Even if we assume you loss signal five, using systematically the strategy ends up on the 71.4% win rate (5/7). A performance I would be extremely happy to achieve. Of course you cannot draw conclusions with a couple of trades. That’s why I started to investigate further.

Stochastic momentum indicator with binary options to the test

We are still on the USDJPY chart, it’s now the afternoon. Here is what it looks like:

stochastic momentum binary options 5 min

I took a trade after 2 PM following this simple binary options strategy. As you can see, I could have taken the trade earlier to play the Bollinger bounce. But I didn’t. You might say that it would have been an easier win. But the problem is the following. You see the chart now, everything is clear. But once the price drops like this and ut happens under your eyes, you have no way to really know when it’s going to stop. Actually the price hit the Bollinger bands several times in the previous candles, and the price continued to go down. Using this technique, you basically wait that the reversal is in play. The win might not materialize with a lot of pips, but still it is safer.

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Going back to the chart the pattern appears seven times. The most likely outcome is 6 wins and 1 loss, 5 wins and 2 losses if you are unlucky with the last signal.

What is the stochastic momentum indicator

This indicator was created in 1993 by William Blau in order to make the stochastic oscillator more readable. The stochastic momentum indicator (SMI) provides an understanding of where the current close has taken place relative to the midpoint of the recent high to low range is based on price change in relation to the range of the price.

By reading about it I found out that I used it as it should, and that so far it seems to be a very effective way to trade binary options (1 min chart 5 min expiry).

In conclusion : more data needed

I’m not going to draw conclusions, but I’m really eager to see in the following days if this strategy consistently works with such interesting accuracy. Stay tuned.