This binary options’ indicator belongs to the category of trend indicators. It can be used both singly and in combination with other binary options’ indicators in order to receive a more authentic signal.
Basics of Chaikin Money Flow indicator
A trader has to know the current moods in the market in a number of cases. In order to determine moods in the market, traders can use absolutely different indicators. One of these auxiliary tools is the Chaikin Money Flow indicator. It is necessary to note that this indicator is pretty complicated, but if you understand the main point of its work, you will manage to increase your odds for success.
The work of the Chaikin Money Flow binary options’ indicator is based on its ties with the distribution line which shows the trend’s strength in the market. This line itself is based on the closing levels. For example, if the closing level is located near the maximum (considering range of extreme points), a trader can assume that the bulls are dominating in the market currently. The opposite situation occurs when the closing levels are located near the minimums of the extreme points’ range. In this case, there will be an obvious dominance of the bears in the market.
The accumulation/distribution line works based on this principle. Calculation of the Chaikin Money Flow binary options’ indicator is pretty easy. In order to conduct it, you have to know several values of the accumulation/distribution line. If a trader manages to determine these values, he may conduct the further calculations. A sum of values of the accumulation/distribution line is divided by the entire volume of trading for the same period of time. In this situation, the period of 21 days is used as a period of time very often. It is assumed that this period is ideal for work with the Chaikin Money Flow binary options’ indicator.
But a trader can determine the periods for calculations on his own based on his wishes and strategy. In addition, periods can be moved in time. In order to do this, you will have to remove the previous days and add the same amount of further days. After this, the indicator will repeat all calculations all over again. This is how the Chaikin Money Flow binary options’ indicator works.
Usage of Chaikin Money Flow indicator in trading
When you look at this indicator, you may notice that all of its values oscillate near the neutral line. Therefore, traders react to the line’s oscillations in the following way: if they see that the line is located above the neutral line, they buy the Call binary option. In the opposite situation, they buy the Put option. This is the simplest way to use this indicator. But there are some aspects which are especially noteworthy for a trader during the usage of this auxiliary tool.
For example, it is occasionally needed to view the absolute indexes of the indicator, as well as the duration of time when it stays in the certain field (in other words, how long it stays above or below the zero level). Practically, there are situations, when the line of the Chaikin binary options’ indicator stays in the positive zone for a fairly long time. And it grows gradually. So, this is a pretty strong signal that the ascending trend will continue. In this case, a trader is recommended to consider the possible purchase of the Call option. But if the indicator’s line stays in the negative zone for a long time and declines gradually, a strong bearish signal is taking place, so a trader is recommended to buy the Put option.