Buying Strength/Selling Weakness
When you are trading binary options it all comes down to being able to predict price moves and their subsequent duration. This is not always easy to do, if it was, everybody would be getting rich off the markets. The most successful traders like to trade by a set of rules that they have formed by experience, listening to others talk about proven analysis techniques and seeing other prediction methods actually work. One theory that never changes is to take advantage of a powerful move if you see one.
It can be said that the most powerful moves occur when there is a bullish trend that is overtaking its previous highs or a bearish trend that is overtaking its previous lows. You already know that a bullish or bearish trend signifies the market is rising or falling. When trading binary options it is best to place call options based on the strength of the market and place put options based on a weak market.
Buying or selling at the highs and lows of the market is not without its risks. At any time markets can and do reverse their trends; it is the very nature of the market and the reason why there are just as many losers as winners when trading. It is also why many traders tend to avoid trading near points which they feel could change the direction they trend at any moment.
Not everyone agrees with this theory; some think that if the market for a certain asset was strong enough to reach its previous highs, then there is no reason it shouldn’t continue to rise in the same direction. They encourage you to buy and get on board the trend because the asset is still in demand.
The opposite can also be true when it comes to selling the lows and in turn buying put options.
That is why it is important to learn to identify these continuing trends during technical analysis through the use of continuation patterns such as flags and pennants.
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References and Further Reading:
1. A novel approach for studying the high-frequency FOREX market (S Masry, M ALOud, E Tsang, A Dupuis – 2010)
2. An Ensemble Model for Pattern Prediction Problems (A Chitra, S Uma – 2009)
3. The Calculation of Illicit Profit in US Insider Trading Cases (PY Lai – J Stock Forex Trad – 2013)
4. Developing Profitable Trading System (AEM Ibrahim – 2015)
5. Technical analysis of Forex by MACD Indicator (SHM Yazdi, ZH Lashkari – 2010)
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