Canala Donchian's indicator
Donchian Channels indicator is another quite interesting indicator for binary options trading. Externally, it is very similar to the Bollinger Lanes, but has a number of significant differences.
In particular, in horizontal motion, its lines are straight, not curves.
Donchian Channels indicator is Forex volatility algorithm. It is based on the calculation of the current price range. Recent highs and lows are taken into account. With increasing volatility, the Forex channel begins to deviate from its horizontal position to one side (the one in which the current trend develops). When the volatility of Forex currency pairs narrows, the channel becomes again horizontal.
Forex trading platform: TradingView.
Time scale: any.
Basic asset: any.
Description of the indicator
The Forex indicator is built directly on the price chart. It is 3 curves, two of which define the range boundaries and the third is as if the median moving average. All vibrations pass inside the indicator, which greatly facilitates the task of the trader.
To work with this algorithm, the author himself recommended to use period 20. This means that in each individual candle, the minimum and maximum values of the last twenty candles will be calculated. The result is displayed as the top and bottom face of the range.
The Donchian indicator offers 2 types of signals:
signals on a rebound.
The first type is widely used by Forex traders, but it is not entirely suitable for binary option traders. Why? Now we will explain.
The punching system operates according to the Donchian indicator according to the following principle: when the candle goes beyond the horizontal channel, a signal appears.
But the fact is that this signal is not accurate in terms of binary options, where the duration of the contract is strictly limited. For Forex traders, such a signal is quite acceptable.
In case of a break, the price can return to the initial values and even slightly lower, which can lead to very negative consequences for those who trade binary options.
Therefore, we recommend to use the second method, namely bounce. When a price reaches one of the levels (that is, one of the faces), the possibility of opening a transaction in the opposite direction can be considered. That is, for example, the signal to buy the Call option will be to reach the bottom face of the corridor at the cost of the base asset. As for the Put option, it can be bought when the price reaches the upper limit of the channel.
However, we recommend using additional filters. The strongest of these is pork analysis. The appearance of a turning model on one of the faces of the Donchian Channel will significantly enhance the signal and make your work more profitable.
Another indicator for profitable trading is Bollinger 's lanes.