Have you ever heard of Semafors
before? Did you know that you can incorporate it into your Binary Options Trading
strategy? There is usually a huge misunderstanding under traders when it comes to this type of indicators. You will hear people saying: "Semafors re-paint and are no good"; "Semafors are a lagging indicator";"Semafors give false signals and can't be trusted". While these statements might be true there is a good reason why the indicator does this. So how about we begin by addressing the "re-painting" issue. Firstly - forex prices are not static, they are rather quite dynamic in nature. Lets say for instance I phone you at 9am and tell you that there is a high printed at 1.1234. Is there any guarantee that at 10am there won't be a another high? Ofcourse not silly. Semafors are created to mark each high/turning points in the market. So what is re-painting other than the indicator doing what it should do and caution you that another high has printed. In the event that you enter a trade singularly based upon a semafor painting - you are basically entering each time another high or low is made. If you can discover an edge by doing this - congratulations, you have become a market wizard. Now lets get on to Semafors!
What Exactly Are Semafors
Semafors are simply a mathematical method of representing price movement. All it is actually doing is showing you another perspective of what price is doing. They plot market turning points on the chart for you. Not all of these turning points will be the same though. Some of them are more important and stronger than others are.
How Semafors Are Calculated
Semafors makes use of the zig zag indicator (ZZ) to find these highs and lows. It paints 3 different levels of zig zags. These levels have different dots that represent each zig zag turning point. Semafors work in the following three levels:
- The signal that a number 3 Semafor gives you will be the strongest one of them all. This will be represented by the biggest dot. (Number 1 on the chart
- These ones are the intermediate turning points in the market. It is not as strong as the level 3 Semafor. This dot is a little smaller than the previous one. (Number 2 on the chart
- Clearly this one is the weakest one of them all. This signal could still be traded profitabil if you know what to look for. It is represented by the smallest dot. (Number 3 on the chart
Figure 1 – Semafor levels
You should not get too caught up focusing on only one of these levels. It is much more rewarding when you use them in conjuction with eachother. This will lead to an increased win rate which in return will make you a more profitable trader overall.
How Can I Apply This To My Trading
The Semafor indicator is anything but difficult to use and to follow. In spite of the fact that it repaints on occasion, the signal that you get from a level 3 is typically very solid. When you combine this semafor point with price action and market sentiment it can be extremely helpful in determining buy and sell opportunities.
Metatrader indicator for Semafors
As always, MetaBinaryOptions is offering you a free Metatrader
indicator for helping you apply this strategy.
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This indicator will automatically plot all 3 Semafors levels on your chart to show you where all the important turning points are.
Figure 2 – Semafors Trading Examples
Taking a look at the above chart (in hindsight) it is really evident that the semafors imprint the swings of the market. As you already know markets are not static but rather quite dynamic. So how can you trade these levels in real-time? Lets go through a trading example:
At point "1" on the chart we can see that a red level 3 Semafor was formed. If you are experienced enough you could have taken a short trade on the close of the candle. This would have resulted in a winner. Remember that waiting for confirmation will always be the better option. So after forming the level 3 Semafor we now know that the market has turned to the downside. All we have to do now is wait for a red level 1 or 2 Semafor to be formed to take a short trade. We get three trades marked with the arrows that we could have taken short. The first two arrows were both In-The-Money and the last arrow could have been a winner/loser/breakeven depending on the chosen expiry time.
This is only the nuts and bolts of how to use the Semafor indicator. There are tons of different approaches to utilize them. Don't be afraid to play around with different ideas. The best would be to use them in conjunction with other indicators or price action to get the most out of these levels.
Some people love using Semafors and other absolutely despise it. Don't think because it does not work for someone else that it will be the same case for you. Experiment with different indicators to see what works for you. Who knows, you just might find what you were looking for all this time. What are you waiting for... Download some of our indicators and give it a go!