The problem with many strategies is that they often give false signals when used on short timeframes in binary options trading. Today, we suggest taking a closer look at the Double Stochastic strategy for binary options. It uses the classic Stochastic indicator — precisely, 2 Stochastics, configured in a special way.
What is Double Stochastic?
The regular Stochastic strategy is commonly used to get a trend reversal signal. It highlights the beginning of a new trend formation, which every trader wants to catch since this is an optimal time for investing.
However, the Stochastic indicator with default settings often lags when indicating the reversal point. For example, it can show false signals on short periods or be late on the long ones.
The Double Stochastic strategy solves this problem with an approach embodied in the title: using two indicators instead of one. That is, the secondary signal will confirm the main one.
So, the Double Stochastic strategy requires you to use two Stochastic indicators, but with different settings. This will combine long and short timeframes and thus filter out false signals and lags.
By doing so, you can significantly reduce possible risks and increase the signal’s reliability. This is why it’s considered an effective binary options strategy.
How to use the Double Stochastic strategy on the IQ Option platform
You need to open two indicators at the same time and set separate settings for each:
- The main indicator is based on long parameters: 21,9,9;
- The auxiliary one should be configured for short values: 9,3,3.
To configure the Stochastic indicator settings, click on the Indicators icon in the bottom left corner of the Traderoom and choose Stochastic from the list.
Change the default parameters for the first indicator:
Period K: 21
Smoothing: 9
Period D: 9
Then, press Apply, and the first Stochastic will appear on the chart.
Repeat the steps for the second Stochastic using the following parameters:
Period K: 9
Smoothing: 3
Period D: 3
This is how it will look on the chart:
How to read the signals
BUY signal
If both indicators go beyond the lower border, that is, below 20, it’s a BUY signal. The blue line should intersect the red one from below.
In this example, the lines of the first Stochastic intersect below the lower border at the end of the downtrend. It signals a possible trend reversal, so we wait for the confirming signal from the second Stochastic. Seconds later, its lines cross below 20 as well. So, we wait for the candle at which the intersection appeared to close, and go for the BUY option. Immediately, the current downtrend reverses, and the deal closes in the money.
SELL signal
If both indicators go beyond the upper border (above 80), it's a SELL signal. The red line must cross the blue one from below.
Here, the lines of the first Stochastic intersect above the upper border. The second Stochastic’s lines cross above 80 too, which confirms the signal. Thus, we open a trade at the very beginning of the new downtrend and make a 87% profit.
Be sure to test the signal:
- Don’t take action until both lines intersect.
- Wait for the candle at which the intersection happens to close.
If the signal repeats on both Stochastics, you can buy an option in the corresponding direction. The suggested settings work best for short-term deals, which makes this strategy a perfect fit for binary options trading with 1-minute expirations and 5-15 second candle time period.
Conclusion
Double Stochastic is a binary options strategy that works well on short timeframes thanks to the combination of two indicators. Each indicator has different settings, which helps confirm the signal and make more accurate predictions even when the time is limited to 1 minute.
Following the strategy is very easy: just monitor the chart and open a trade when both indicators intersect above the upper border (SELL) or below the lower border (BUY).
Good luck!
