Heat map of currencies is a reflection of the deviation of the current price from its maximum and minimum values over a period of time. Information about this is clearly reflected in the table, which consists of colored squares for each currency pair. The strategy is based on the principle of an imminent reversal if the price has moved too far away from its minimum or maximum. Even though a pullback may signify the emergence of a new strong trend, in most cases a reversal follows. This strategy is more suitable for binary options where it is important to predict the direction of the trend rather than the length of the price pass in pips.
How to trade on a currency heatmap
The currency heat map can be found on analytical resources, where it is updated online. The most frequent timeframes are from 15 minutes to 5 hours with updates every 5 minutes. The horizontal and vertical axes of the table contain the names of the currencies, which form a currency pair on the intersection of the horizontal and vertical axes. The diagonal of the table is blank. If you haven’t looked at the picture on the Internet yet, just imagine a tournament table, the principle of the heat map is the same.
Binary options trading strategy by heat map:
- Choose a currency pair that will have both squares the same saturated color. For example, EUR/CHF and CHF/EUR. If one square will be of a saturated color, the second one – pale, it is better not to open the option;
- If the color is green, we open a put option, as green signals that the asset is overbought and reversal is possible soon;
- the expiration of the option – 1/2 – 3/4 of the time of the analyzed period.
Additionally, the signals can be checked with another tool – the Pivot points. If the square is green, we open the Pivot table and look at the price values. If the current price is higher than the value in the column with the pivot points, there is a high probability of reversal in the near future.
Tips for using the strategy
- it is better to apply it on pairs with moderate volatility. The higher the volatility, the more likely it is that the price will change direction again during the expiration;
- it’s better to compare heat maps on at least 3 different analytical resources. The simultaneous coincidence of signals is more trustworthy;
- the fundamental factor can influence trade. At the time of the release of important news (triple and double marks in the economic calendar) it is better not to trade on the pair.
If you want to start trading forex, you should first study the list of here.