One of the most useful indicators in Binomo is the Simple Moving Average (SMA). It’s a tool used in technical analysis that is like a line flowing through the ups and downs of a certain asset’s charts. Simply put, it tracks and averages the number of a selected range of asset prices–most commonly the closing prices–by the period.
This tool is hugely beneficial to traders, as if you know how to read, you’ll be able to determine the right places to enter the market. This guide will teach you how to do effective trading with SMA20 indicator on Binomo!
How to set up the SMA20 indicator on Binomo
For this guide, we’ll use a Japanese candle chart set at 5-minute intervals on the Binomo platform. The pair to be traded is EUR/USD.
The first thing to do is to select the proper chart. There is a box on the top of your Binomo trading interface which has drop-down financial products for the currencies that you can trade on. Select EUR/USD and wait for it to display. Once the dynamic chart is displayed, it’s time to turn on your moving average indicators.
The left side of your dynamic chart is home to a bunch of buttons for optimization. Choose the last one at the upper-bottom called “Chart Preferences”, and from there select indicators, and then select moving averages.
On the window, select 20 for the period and choose ‘simple’ for the kind of moving average that you want. Choose your color preference and then finally click “Apply”. You should be able to see a line that advances along with the price points of your chart.
If you want to learn more about the basics of trading with this tool, read the Guide to Trading with the SMA Indicator on Binomo.
General guidelines for using the SMA20 indicator
Your goal should be to identify the points in the trend when the line cuts through the prices. In the next few screenshots, we’ll show you what using the SMA20 on the Binomo trading platform looks like up close. Scroll further down if you want to see what a full screen looks like when you’re trading on Binomo using the SMA20.
If the line moving above the prices takes a dip and then hits or cuts a green candle, most likely the trend will go down. This bearish path is more likely to continue if a red candle develops right after the green candle that got hit by the line, and even more so if the SMA20 remains above the prices.
If the line is moving from below the prices and it goes up to hit or cut a red candle, then it indicates that an uptrend may be at hand. This bullish path is more likely to continue if a green candle appears right after the red one that got hit by the moving average, and even more so if the SMA20 remains below the prices.
Identifying 3 trade entry points revealed by SMA20
For this example, we’ve got this chart.
Notice that the SMA20 line is moving underneath the prices, and therefore it’s more likely that a bullish trend is going to happen.
This first trade entry point on the Binomo platform is identified by the moving average line cutting across a red candle. Notice the green candle that develops right after–which is a perfect indication that an uptrend is likely to continue. Add to that the fact that the SMA20 line continues to move under the prices. With all these signs, it’s highly advised that you enter a buy position at the next open because it’s very likely that the trend will continue to go up.
The second trade entry point is much the same as the first. The third is a bit different in the sense that it does not cut across but mere touches. However, many of the other signs are the same. It’s highly advised that you enter at the next open with a buy position for the two points.
Simplifying the SMA20
The SMA20 is one of the easiest tools to work with because of its simplicity. All one really needs to do is be mindful of when the line position relative to the newest candle, and the color of the candle that the line will touch.
If the SMA20 line comes into contact with a candle, determine if the line is above or under the price, and then look at the color of the candle it’s touching and the next candle that develops, and make your prediction from there. It’s recommended that each trade lasts for about 5 minutes.
How good is the SMA indicator for trading?
Most will say that the simple moving average is not good because it has a lag in relation to the dynamic prices. However, if the markets are displaying clear trends, the SMA is a good tool for technical analysis. As long as you can identify the opportunities that the line presents, it should be relatively safe and consistent.
However, do take note that this isn’t useful for all situations. The SMA is disadvantageous to use when the markets are extremely volatile because there is less time to react to a sudden change in prices.
Managing capital when trading with SMA20 on Binomo
If used properly, the SMA20 can bring comparatively high profits with just a few trades. To maximize your profit, we recommend compounding your money to manage your capital.
Compounding your money works like this: start with 2% to 5% of your total balance, and then for the next trades invest that with the profits to raise your investment amount. For example, you put $100 for your overall capital. 2% of that would be $2–that would be the money that you’ll use for the trades. Assuming that the return is 80%, the profit would be $1.6. For your next trade, you’re going to invest $3.6 whether or not your previous trade was successful.
With this, there’s a real chance for profit even if you make 3 trades a day. More than that, your capital will be safe.
That said, take note that there’s always a real risk of losing your money when using any strategy, including the SMA20. Always be careful when making trades.
SMA20 trading preparations
Sure, trading with the SMA20 on the Binomo platform is simple and easy to understand. However, it doesn’t mean that you should let down your guard. Trading with the moving average requires patience and mental strength not to rush in, because you may need to wait for a long time before the right signs appear.
If you somehow missed it, you should also deal with the frustration and fight the temptation to just enter the market. You’re going to have to wait for the lines to touch again. Trading without this basis would almost always result in loss.
Now you’ve got all you need to trade in Binomo with the SMA20 as your indicator. The only thing left for you to do is to try it out and develop your strategy. To do this, head over to Binomo and start trading with your free demo account in just a few clicks!
Do you have any other tips for trading using SMA20? Anything we missed? Let us know in the comments!
Good luck on your trading journey with Binomo!