The Chaikin’s oscillator binary options’ indicator appeared thanks to Mark Chaikin. It is based on the accumulation/distribution indicator, as well as on the works of Joseph Granville and Larry Williams, who are the famous traders. The accumulation/distribution indicator determines the strength of buyers and sellers by the closing prices for the previous periods. If the period closes near the maximums, then it is believed that bulls dominate in the market. And if it is located near the minimums, then it is believed that bears prevail.
Overview of Chaikin’s oscillator indicator
This indicator is based on the tool of convergence and divergence of the moving averages. This approach is somewhat similar to the MACD indicator, but in this case it is used for accumulation and distribution indicator. The calculation of this Chaikin’s oscillator binary options’ indicator is performed in the following way: the difference between the three-day and the ten-day exponential moving averages are taken for consideration. There are the certain principles, on which the Chaikin’s oscillator binary options’ indicator is based, and these principles require the special trader’s attention.
For example, if the price level is located above the middle of the trading range within the certain period, then the majority of market players are buying a tool, and it is the time when an asset is accumulated. And the higher a price becomes, the more intensive the accumulation period is. The same can be said about the situation when the closing price is located below the middle of the range at the certain time. In this case, we can conclude that the distribution occurs. The lower a price becomes, the stronger a distribution with this trading tool is.
Also, it is necessary to mention that the appearance of a trend occurs together with the growth of volumes in the majority of markets. For this reason, for example, if there is a growth of the trading tool’s price, but, at the same time, the volumes don’t grow, then the strength of the ascending trend is exhausting. And we can assume that the trend’s strength will exhaust completely soon, and the trend will change its’ direction.
How to use Chaikin’s oscillator
When it comes to the trading signals, sent by the Chaikin’s oscillator binary options indicator, they can be divided into two types: divergence and crossing of the middle line. As for divergence, it is divided into two types too: the bearish divergence (appears when the price line shows the growth of maximums and the indicator’s line shows the decline of maximums) and the bullish divergence (appears when the minimums update on a chart and, at the same time, minimums begin to grow on the indicator’s line). It’s necessary to note that the strongest divergences are those when the situation with overbought and oversold zones occurs in the market. The calculation of these situations has to be performed based on other indicators. If the bearish divergence appears, you can buy the Put option. And if the bullish divergence appears, you ought to buy the Call option.
Among the disadvantages of this indicator is the fact that it can’t be used independent from others. In other words, it is desirable to rest on the signals of several indicators. The Chaikin’s oscillator binary options’ indicator can be used together with theBollinger Bands, as well as with those tools that can show the overbought or the oversold condition to a trader. Also, another disadvantage is that the Chaikin’s oscillator binary options’ indicator has shorter moving averages, compared, for example, to the MACD. As a result, we can conclude that this indicator is sensitive to the changes in the market and sends the false signals sometimes.