A Field Guide to Technical Indicators in Nadex
Are you thinking of opening an account on Nadex? If so, you are joining a binary options online trading site with a lot to offer. This is a site where your broker never trades against you, and you can demo for as long as you would like. You can enjoy matchless control over your trades, and the peace of mind that comes with a USA regulated broker. On top of all those benefits, you also get the advantage of Nadex charts.
Nadex charts are awesome! You just click the little icon that looks like three climbing bars next to the contract you are interested in, and you get a chart you can expand to full size. It displays beautifully, and it offers you so much more than what you would get from a competing broker. Most binary options online brokers offer small charts that only give several technical indicators to play with (or none). Nadex gives access to quite a few! These are all tools you can use to help you plan winning trades.
Let’s check them out.
To find the technical indicators on your Nadex chart, look at the menu across the top of the chart. Click on Technical and you will bring up a dropdown menu across the top. This menu includes around a dozen technical indicators, each with a pictogram to help identify it. If you click on the little arrow on the far right, you can see more. You can scroll back using the little arrow on the far left.
What are all of these indicators and what can they do for you?
Aroon: The Aroon indicator helps you to see whether price is trending, how strong the trend is, and whether a reversal may be imminent. One line is the “Aroon Down” line and one is the “Aroon Up” line. One line tracks the strength of up trends; the other tracks the strength of down trends. When one line crosses the other, momentum has shifted and a new trend is developing.
Average True Range (ATR): This indicator is used to measure volatility. It does not measure direction.
Awesome Oscillator (AWSM): This histogram displays the momentum of the market over a recent set of periods compared against the momentum over a larger set of periods. It gives you a means to compare recent activity to long-term activity.
Bollinger Band: This indicator measures volatility. When the bands contract, the volatility is low. When they expand, that indicates that volatility is high. If price touches or surpasses the upper band, this indicates it may be time to sell. The converse (touching or surpassing the lower band) may indicate it is time to buy. Bollinger illustrates volatility and tells you whether the market is overbought or oversold.
Chaikin Volatility: If you are trying to spot a possible shift in trend based on changes in volatility, this may enable you to do it before it becomes obvious from price activity.
Commodity Channel Index: This tells you how far price has moved from its statistical mean. With it, you can determine whether the market may be overbought or oversold, which in turn can help you figure out when to place a trade and in which direction.
Detrended Price Oscillator: This indicator compares the closing price to a moving average, removing trend from price. The goal of the indicator is to help you to spot a reversal point in a longer cycle.
Directional Movement: A crossover in the directional movement indicator (DMI) may tell you that it is time to make a purchase/sale. These lines are not entirely reliable, so it is best to wait for confluence. They do not necessarily tell you direction of price is changing; they tell you that price has the potential to reverse.
Exponential Moving Average: Please see the entry on “Moving Average” to learn more about EMAs. Exponential moving averages put exponentially more weight on recent data than they do on historical data. This means they follow price more closely than simple moving averages.
Ichimoku: This indicator displays five lines and a kind of “cloud.” It is a fairly complicated indicator to learn how to use, but it can help you to identify support and resistance, spot market trends, and determine when it is smart to buy or sell.
KDJ: This is actually a form of Stochastic (see the section on Stochastic for more information) which includes an extra line known as the J line. With this indicator, you can tell whether the market is overbought or oversold.
Moving Average Convergence Divergence (MACD): MACD is a bit daunting if you are new to it. It plots two moving averages and a histogram under the chart. The three numbers you pick are used to calculate the two moving averages; the third is used to calculate the moving average of the difference between them. What is most important to know is how MACD can help you. When the histogram expands and the faster moving average is crossing the slower one, there may be a new trend forming. The histogram’s movement going counter to the movement of price may indicate an impending reversal.
Momentum: Momentum indicates how quickly rates are changing. When momentum slows down, it may indicate that price is about to shift direction.
Money Flow Index (MFI): This momentum indicator is a lot like RSI, but unlike RSI, it is volume-weighted. It can tell you when the market is overbought or oversold; it may signal a reversal.
Moving Average: Moving averages are among the most basic and simple technical indicators you are going to find. If you are new to technical analysis, I recommend learning about these first. It takes only seconds to set them up. Three types exist: simple moving averages, exponential moving averages, and weighted moving averages (presumably this indicator on Nadex is a simple MA). Not getting too technical, MAs provide you with lines that smooth out price movement over time, giving you a feel for the general trend. When faster-moving averages (which follow price more closely) cross over slower ones, it often signals that price is about to change direction.
Parabolic SAR: SAR stands for “Stop and Reverse.” This tool plots a lot of little dots above and below your price bars. If the dots are above the bars, it is time to sell. If they are below the bars, it means you should buy. Use it to spot trend reversals (where price “stops and reverses”). Avoid it in choppy markets.
Pivot Point: This is simply an area of support and resistance which price tends to “pivot” around. If you use price action to plan your trades, you will probably use pivot points a lot. Eventually you can learn to spot them by eye alone.
Relative Strength Index (RSI): Plot this and you will see a line that oscillates between, above, or below two horizontal lines. When the line goes below 40, you should buy, and when it goes above 80, you should sell.
Standard Deviation: The standard deviation tells you the difference between the average prices and closing prices over a certain time period. You can use it to measure volatility. A high deviation means high volatility.
Stochastic: You will see two lines oscillating at the bottom of your chart, as in the RSI. Like RSI, this oscillator helps you to determine when the market is overbought and oversold. Use it to spot trend reversals and decide when to buy and sell.
Volume: This is a simple indicator. If volume is rising in conjunction with a trend, it may indicate the trend is strong. But if volume is dropping in accordance with a trend, this may mean that the market is about to reverse.
Williams %R: This indicator tells you when the market is oversold or overbought. This in turn tells you when it is a good time to buy or sell.
To display any of these indicators on your chart, simply click on the indicator icon that you are interested in. You will see it appear. If you want to remove it, simply click on the same icon again. If you click on another icon, that will not remove the current indicator; it will simply add another. You can add as many or as few indicators to your chart as you would like.
If you are brand new to technical analysis, I strongly advise the following:
Get a trading system! This can be something you create on your own, or something you borrow from an outside source. You will probably get your first trading system from someone else. There is no reason to reinvent the wheel. Just make sure you actually have a system and are not simply using indicators at random.
Use a system that gives confluence—that means two or more signals telling you the same thing. But resist the urge to add a dozen indicators to your charts. That will lead to conflicting information and will overwhelm your eyes at the same time. That will result in messy trading, not certainty
While you are at it, click on “Drawings” next to the “Technical” tab at the top of your chart. Here you will see a few other things you can add to your chart:
Fibonacci Retracements Levels. These are some levels you can draw on your charts which will show areas where price may hesitate or reverse. Support and resistance forms around these levels. Why? Because traders expect it to; Fibonacci levels are a kind of self-fulfilling prophecy.
Arrows. These are handy if you want to share your charts online and point at something for others to see.
Gann Fan. These angled lines can help you to predict where price may be headed in the future; it is yet another way of illustrating areas of support or resistance.
Horizontal, Point to Point, Trend, and Vertical Lines. These are just more helpful lines you can draw on your charts to help you visualize movement directions and support and resistance clearly.
Text. Like the arrows, this is useful if you want to place notes on your chart for yourself or others to see.
If you are new to technical analysis, you may find it confusing that some of these are under Drawings and not under Technical. The Fibonacci tool for example may seem like it belongs under the Technical section. But as this is a set of lines you are drawing yourself to visualize trends, it does not. Your own discretion actually is involved in where you plot the retracement levels. It is up to you to identify swing highs and swing lows to use. The same goes for the Gann Fan.
Finally, one more useful thing for you to know about is the “Layouts” tab. You will see this to the right of the Drawings tab. Click on it, and you will be able to save a template. This is very handy if you have all your indicators set up and customized just the way you want them and do not wish to have to repeat all this hard work in the future. You can then load your template quickly and easily the next time you sit down to trade.
Now you know some of what you can do with Nadex charts! This really is an amazing number of indicators—more even than I have seen on some Forex platforms. Remember that you have only just scratched the surface by reading this guide. To trade successfully with technical indicators, you must become an expert in a system which uses one or more of these indicators properly. Be sure to take advantage of Nadex demo testing. You never need to lose a dime trading on Nadex. Learn by trading virtual money, and then switch over to real money only when you are ready to win!