This is another strategy for trading the Call/Put binary options contract, and involves the use of the Ichimoku Kinko Hyo indicator. As discussed in a previous strategy, this indicator consists of several components, each of which can be used in different ways to create different trade strategies. We have described a strategy using the Kumo. For the strategy we shall describe here, we shall use the Tenkan line and Kijun line in what is called the TK Cross.
The Ichimoku Kinko Hyo indicator has several components, and for this component, we shall use the Tenkan sen and Kijun sen. The word “sen” means “line” in Japanese, so we are referring to the Tenkan and Kijun lines. The snapshot above shows exactly what components make up the Ichimoku Kinko Hyo indicator.
The Tenkan Sen
The Tenkan line, which by default is a red coloured line on the Ichimoku indicator as seen on the MT4 chart, is the leading indicator and its action is akin to that of a fast moving moving average line. If the Tenkan sen crosses the Kijun line with a sharper angle, it means that the momentum of the price action is strong and the signals are more assured.
The Kijun Sen
The Kijun sen (Kijun line) is by default, a blue coloured line on the Ichimoku indicator. It can be likened to the slow moving average, providing a support or resistance to the price action depending on the direction the asset will assume. The direction and angle of slope of the Kijun line is an indication of the direction and strength of the asset’s trend. A greater degree of slope points towards a market which is strongly trending. If the degree of slope is small, it is indicative of a market in consolidation.
An ideal situation would therefore be one in which the Tenkan line crosses the Kijun line with a sharp angulation, with the Kijun line also trending in either direction with a sharp slope, showing that enough momentum exists for the strategy to produce profits.
The TK cross simply means the Tenkan Kijun Cross strategy. This strategy has two components designed to complement each other and ensure that the signals produced are going to stand the test of market and produce profits.
- The basis of the actual TK cross itself is to detect a change in trend in the asset, so that the binary options trade can be set in that direction. The TK cross here refers to the crossover of the Tenkan line over the Kijun line, much like when the faster moving average crosses a slower moving average.
- The second component is what is known as the Kumo reinforcement, which is simply a situation when positioning of the price action of the asset relative to the Kumo (cloud), occurs in the direction of the TK cross. In this setup, the Kumo will act as a support when the TK cross occurs in an upward direction, or act as a resistance when the TK cross occurs downwards.
The TK Cross Strategy
The key to the strategy is to identify the TK cross, and the relative position of the TK cross to the Kumo. Putting this all together, we have the TK cross strategy for the binary options market playing out as follows:
A Call trade setup occurs when the Tenkan line crosses the Kijun line in an upward direction, with a sharp angulation and when the price of the asset located above the Kumo, since the Kumo in this case will function as a price support. This setup is seen below:
When the setup occurs as is shown by the brown circled area, the trader should open a CALL trade at the open of the next candle. In this snapshot shown above, we can see that according to our entry guidelines, the circled area represented the only good entry point for a CALL trade on the asset. As soon as the signal candle closes, the CALL trade is initiated on the platform, and the time frame chart is used to get an indication as to what expiry time should be used for the trade. This chart is a 4 hour chart, so it is going to be more expedient for the trader to use at least 4 candles (or 16 hours) as the minimum expiry time so that the trade is given time to end in the money.
We would be looking for a PUT trade if the Tenkan line crosses the Kijun line in a downward direction, making a sharp angulation as it does, and at the same time that that the price action is located below the Kumo, since the Kumo will act as a resistance in this case. This is depicted below:
The circled area shows the point at which the TK cross occurs, and we can also see that the price action is below the Kumo. Again, the expiry time is a function of the time frame chart used for the analysis, and it is usually a safer option to use several candles in setting your expiry time so the trade can end up in the money.
Important points to note
It is very important to use certain cues which could help your trade end in the money. You will notice that the orientation of the Kumo will tell you whether the bias is for a CALL trade or a PUT trade. This is because the colour of the “up Kumo” and the “down Kumo” are different. The direction of the Kumo will also determine how successful the trade signals are. For instance, a Kumo which is flat will not favour a very successful trade. But if the Kumo is trending either to the upside or downside, then we can expect the trade to follow suit.
The strategy requires extensive practice on demo before it can be deployed on an account with real money in it. Therefore, you should request for a demo account from your binary options broker for this purpose, then open a demo account on an MT4 broker so that you can get the signals from the MT4, and use them on the binary options demo account.