Binary Trading: Trend Lines Strategy
Now that you are becoming an expert at identifying trend lines and how they work, it’s time to take the next step and learn how to use them as part of your binary options trading strategy. If you learn how to do this efficiently and accurately it can lead to very successful binary options trading, but the opposite is also true and not knowing how to use trend lines strategically can lead to making many poor binary option trades.
Why is the use of trend lines a good strategy move for trading? That is because trend lines are a very useful and strong indicator tool to identify price movement; this is extremely important in binary options trading because you will win or lose on your trade based on the way the market trends after you place a put or call. Trend lines are also very useful in identifying both undersold and oversold conditions too. Remember that you will place call trades in oversold markets and put trades in undersold ones.
Many binary options traders regard trend line strategy as simplistic and feel they require little knowledge to use, but assumptions like that can get you making bad trades in no time and keep you from making the profit that you should be if you knew more about trend line strategy. This is not only true for trend line strategy, the more in depth knowledge you have of analysis tools and their use, the better chance you have at being a successful trader in any market.
Don’t confuse the simplistic nature of binary options trading with being easy to predict, that is hardly the case. So even though they involve just correctly picking the right direction price movement will go over time, there is still a lot of analysis and strategy that goes into this win/lose only situation. That is why successful analysis using trend line strategy is so important to making your binary options trades profitable.
There are two key concepts that need to be introduced to you in regards to trend line strategy; they are support lines and resistance lines. Support lines have to do with a line that is drawn through the lower end of price extremes. As you can probably guess, resistance lines are drawn through the upper ends of price extremes. A support line does just that, it indicates that it would be very unusual for a price to fall below that level. A resistance line means that it would be very unusual for price movement to go above it.
The space in between these two lines is what has become to be known as the price channel. Most traders will assume that only on the rarest of circumstances will price break out of the price channel in either direction. That is why many binary options traders will place put options when an asset price gets close to a resistance line and call options when an asset price gets close to a support line.
Simplistic yes, but it is a strategy that proves to work on a regular basis.
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References and Further Reading:
1. Integrating High Volume Financial Datasets to Achieve Profitable and Interpretable Short Term Trading with the FTSE100 Index (T Amorgianiotis, K Theofilatos, S Mitra – 2014)
2. CURRENCY TRADING-FOREX VIEW: ATTENTION FOCUSES ON BANK OF JAPAN (B Blackstone, T Barkley – 2003)
4. Evolving intraday foreign exchange trading strategies utilizing multiple instruments price series (S Cirillo, S Lloyd, P Nordin – 2014)
5. Forex goes into future shock (J Morris – 2001)
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