Following The Majority Opinion
Despite the huge number of trading strategies of fundamental and technical analysis developed for binary options, traders often use the statistical indicator of the general trading trend which today is featured on the website of almost every option broker. What is this market analysis tool and how do you use it? In this article we will consider all the nuances of the application of the transactions statistical indicator.
What is a statistical indicator and how does it work?
On the trading platforms of brokerage companies, this statistical analysis tool is displayed in the form of multicolored strips with one dominating color showing in which direction most traders trade.
The predominant green color shows the general mood for trading on the growth of the value of the asset, the red color means most players are betting for its decrease. To generate this statistics, brokerage companies take into account the quantitative indicators of the contracts executed by the players of the website based on the forecast regarding the movement of quotations. Accordingly, the predominance of one of the two colors shows the direction in which most investors trade. It is worth noting that this statistics does not take into account the expiration period of the executed transactions and the amount of funds used by traders.
In the screenshot below, we see that 61% of traders trading on the Binomo platform conclude deals forecasting growth of the British pound relative to the value of the Japanese Yen. In simple words, 9 out of 10 traders believes that the GBP exchange rate against the JPY will increase, and only 1 player predicts a fall.
When the statistical indicator shows a clear preference in the mood of traders, you can focus on it when concluding deals. At the same time, brokers themselves strongly recommend not to follow the “majority opinions” as the main signal for purchasing an option, but rather treat it as a reference point in the trading process.
Also note that such indicators are effective only for broker companies chosen by professional traders — if the platform is used mainly by newcomers and inexperienced players the likelihood of them being mistaken is very high. For example, the Binomo broker used in the examples is the favorite of many experienced successful traders, which means the indicators of its transaction statistics are most reliable.
How to trade with the «Majority opinion» indicator
The fundamental factor in the effective use of the statistical indicator is the expiration period and the timeframe of the quotes chart (which are often not specified and can be completely different for each trader on the website).
If, for instance, you use the second intervals of the chart, during which the asset price can make impulsive hectic movements, it is useless to rely on indicators of the general direction of the market. Therefore, when going to use the bidding statistics, choose a strategy that can be used on the M1 or M5 timeframes. The experts recommend using this statistical tool as an auxiliary to confirm certain movement of quotations. However, with the right approach, it can also be used on its own.
First you need to find a trading asset where the “majority opinion” shows 80-90% of the prevailing mood of the players. An asset with a share of the dominating mood less than 80% will be ineffective for using this approach, since a small difference indicates a low market activity or uncertainty and expectations for important macroeconomic news (before starting trading, go to the macroeconomic news calendar to make sure no important news are to be released at the time of your trading).
Guided by the indicators of statistics, you need to conclude a deal with the forecast about the direction of the majority trade. As we can see, the statistics show 92% of transactions opened with a prognosis of the asset price decrease, therefore it is necessary to make a bet DOWN:
Expiration and Managing
The expiration period should be set depending on the timeframe used, the current volatility and the severity of the trend. For example, with the M1 timeframe, the expiration should be around 5 minutes – 10 minutes, and 20 – 30 minutes with the M5 timeframe.
Using this trading system, it is necessary to limit the amount of the deal to 2% of the trading deposit because of an increased level of risk. And with a small amount of deposit, it is recommended to make deals of the lowest value. For example, Binomo broker (Visit Broker) allows concluding small 1 dollar transactions