Analyzing volumes in binary options trades
Traders were bullish and now became bearish, or the other way around. Now would be a good time to invest in the new direction.
The next period does not necessarily have to point in the direction of the indication, which is why you should use a medium expiry of at least five periods. In a minute chart, for example, you should use at least an expiry of 50 minutes, if available, or one hour. You can also trade this strategy with one touch options. Since this options type requires a strong movement, you should add a momentum indicator to your strategy that helps you predict the range of the movement.
Based on the OBV alone, this strategy would be too risky. Sometimes, the OBV will show a sudden surge or fall. These quick, strong movements are often the result of fundamental changes in market opinion, which is why they can alert you to great trading opportunities.
For the OBV to significantly accelerate its current movement or change direction, there has to be a sudden surge in volume. When many traders are suddenly entering the market, there must be something going on. The effects of this momentum shift are highly likely to carry over to the next periods. The sudden movement tells you that something is going on, its direction tells you in which direction to invest. When the trend or movement reaches moves further, the OBV should mirror the trend.
As soon as the trend creates a new extreme without the OBV creating a new extreme, too, the trend is in trouble — this is considered a failure swing. Failure swings imply that traders have lost faith in the current trade.
While there are still enough traders around who invest in the trade to push the market to new extremes, more and more traders distance themselves from the trade. Soon, this changing market sentiment is likely to force the trend to turn around. This prediction makes sense when you consider that price action is exclusively determined by supply and demand.
After periods of high demand or supply, the market eventually reaches a point where everyone who wants to sell has sold, or everyone who wants to buy has bought. Before the trend can continue in its main direction, it has to go through a consolidation that helps it create new momentum. The OBV can help you anticipate these consolidations and adjust your trading accordingly.
Failure swings indicate long-term changes in market direction. These changes take time to develop, which is you should choose a long expiry of at least seven to ten periods. You can use additional indicators such as trend analysis or the Relative Strength Index RSI to find the right timing for this type of strategy.
Simply put, the OBV can help you find profitable trading opportunities and avoid bad ones. Both effects alone would be more than enough reason to add the OBV to your strategy. Combined, they can significantly increase your profits. Generally, every trader should at least have an eye on the volume. You can use the OBV, another technical indicator, or monitor the volume directly, but you should definitely choose one of these options.
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