Around a month ago I posted a trading strategy named MACD Strategy For Short Term Trading. In this article, I want to show how I used it to trade binary options with different types of underlying assets.

To begin with, the indicators should be set up in the charting software. The strategy presupposes using the following indicators with corresponding parameters:

  1. Exponential Moving Average with the period of 200
  2. MACD with fast MA period of 12, slow MA period of 26, signal MA period of 9
  3. Stochastic oscillator with K% period of 13, D% period of 5 and slowing of 3. Threshold equals to 50.

Once the indicators are set up, I’d recommend adding alerts for the intersection of Stochastic and its signal line if your charting software has such feature. In that case, the charting software would send you a notification whenever Stochastic had crossed its signal line. With currently discussed strategy, we should pay attention to stochastic oscillator first since MACD usually crosses its signal line with a time lag.

I decided to start testing the strategy using 15m candles. The short term trend usually lasts for 1-2 candles with such timing. Therefore, the strategy should be applied for options with an expiry time of around 30 minutes meaning that investment decision should be made once crossover occurs. If the option is about to expire in around 15 minutes, it is recommended to change the charting range to 5 minutes.

MACD + Stochastic Strategy Reminder

Just a reminder, with MACD + Stochastic strategy we should look for the following signals. Priorities are shown from highest to lowest. 

  1. Crossover or crossunder of Stochastic oscillator with its signal line
  2. Is Stochastic above or below the threshold (50)?
  3. The direction of MACD.
  4. Is MACD above or below 0?
  5. Has MACD already crossed its signal line or it is going to cross it within a couple of candles?
  6. Is the current price above or below 200 EMA?

For placing CALL options we expect the following conditions to be met:

  • Stochastic crossed its signal line over
  • Stochastic is below 50
  • MACD is directed up
  • MACD is above 0
  • MACD has crossed its signal line or is directed to do so within a couple of candles
  • Current price is above 200 EMA

Alternatively, for placing PUT options we expect the following conditions to be met:

  • Stochastic crossed its signal line under
  • Stochastic is above 50
  • MACD is directed down
  • MACD is below 0
  • MACD has crossed its signal line or is directed to do so within a couple of candles
  • Current price is below 200 EMA

As we finished with a theoretical part to refresh your memory, it’s time to move on to the most interesting section – strategy application during live trading.

Successful Trades

The first trade was done with a currency pair – USDSEK. That was the case when all conditions were met which resulted in a strong PUT signal. I place the trade around 20 minutes before option expiry time. It ended up in the money.

Another PUT opportunity was identified when trading Natural Gas (NGAS). It was a very similar case to the previous one. The trade was closed in the money.

Another trading signal was identified for Goldman Sachs stock (GS). That time it was a CALL opportunity which ended up in the money.

Unsuccessful Trades

We should always keep in mind that any strategy cannot guarantee 100% successful trades. There will always be trades out of the money in the long run. Sometimes it depends on a human factor whereas it could be a volatile nature of the markets.

One of my unsuccessful trades happened while trading Bank Of America (BAC) stock options. The chart showed call signal, however, crossover hadn’t happened yet and the last candle was represented as a gravestone Doji which often signals a reversal into a downtrend. I decided to take a risk and purchase a call option.

As a result, the crossover did not happen and price took opposite direction. That resulted in out of the money trade.

Another unsuccessful trade was placed with Citi Group (C) stock. The Stochastic slightly touched its signal line. MACD had a rather neutral direction. However, I decided to take the risk and purchase a CALL option.

Eventually, the price changed the direction and trade ended up out of the money.


In general, MACD + Stochastic strategy provides strong trading signals, however, there are cases when price eventually moved direction. Hence, stick to your money management strategy to manage the risks. Keep a cool head and place your trade when all the conditions are strictly met even though it does not occur often. That will increase your chances to win the trade.