Trend Identification In Binary Options Trading
Binary Options traders dream about stumbling across an asset trading in a trend. It has all the advantages as trading with the trend identification, but also provides a bunch of signals which make binary options trading really profitable. Trends are often hard to identify and carry a risk of breaking unexpectedly, which is why the trends identification often aren’t discussed in many binary options strategies but when the trends do appear, they can give to the binary traders the opportunity for substantial profits in a short time, which makes them worthwhile to discuss.
A trend identification is basically when the market gets confined between a trend line. There are several reasons for why the market would behave like this, such as binary options trader risk appetite, Fibonacci levels among others. But that’s really advanced, and is only useful to someone who spends all day tracking trades. So how can you identify a trend? Well, this is how it looks like:
Notice how the market obligingly keeps between the trend line, and each time it comes up to touch one, it backs off. Trends never last forever, so what the binary options traders are looking for is to get in a few good trades while it lasts and always keep an eye out for what happened near the end when the trend ended. As you can see, the principal advantage of trading a trend is that it gives you signals in both directions – whereas in trend trading you only get signals in one direction, this potentially doubles the number of trades you can make.
Catching a trend:
Of course in that picture, it’s pretty easy to identify the trend once it has already formed. The idea is to catch it in the beginning stages. To do that, we turn to our chart software, and open a chart as a line graph. The reason is that the tops and bottoms of movements are easier to identify because a line graph only shows the close for each period.
Near the end it looks like there might be a down trend forming. A trend of course is a great opportunity to trade on its own merits, but if we want to see it clearly, we need to find three pivot points. Pivot points are where the market changes direction, and they are conveniently indicated with the arrows. Any charts software worth its salt will have a trend tool that you can apply to the graph. The binary trader want to trace the trend tool over the two points that are on the same side.
Note how the drawing points are placed on the points of the movements. Then you want to switch your chart to Japanese candlesticks. You always have to be alert for the possibility that market will break out of the trend, but in the meantime, you need watch for when the market comes down to touch one of the sides of the trend. As long as the market stays in the trend that means it the market will move in the opposite direction and is a great opportunity to buy an option. If the market touches the top of the trend, you buy a “put” option. If the market touches the bottom then you buy a “call” option.
Typically you’d set your chart to the same time frame as the expiry of your options. For example, if the options expire every 15 minutes, then open a 15 minute period chart.This trends identification strategy works in conjunction with other trend strategies, giving you a second set of signals to either confirm the trend or show retrenchment opportunities.
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