Trend Line Trading
Identifying Trend Reversals
The trend is your friend is an oft-repeated maxim of trading, and a lot of binary options trading strategies hinge around identifying a trend and trading with it. Of course every market is volatile, and every trend comes to an end. So, what do you do when trend ends?
Knowing when to get into the market is an essential skill, but getting out at the right time is just as important. With binary options, it’s a little easier to know when to get out, because they expire at a fixed time. But, if you are following a trend, how do you know if it’s going to last until the option expires, and how do you know whether it’s a good idea to get into another option right after, taking advantage of the continuing trend?
Let’s take the following chart:
identify trend reversals
It shows a clearly defined rising trend. However, it didn’t just go up and up, but came across different pauses along the way when it went down for a brief bit. These are corrections, and they happen in every market. The trouble is identifying when a change in direction is just a correction, or it’s an outright reversal as we see at the end of the chart. This is even more important in binary options, because if you’ve identified the upwards trend, you don’t want to get caught in one of those corrections.
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The binary options strategy for trend line trading is deceptively simple but yet profitable. The strategy is essentially a short term trading strategy calling for the use of the popular Call/Put (Up/Down) option and Touch/No Touch option trade. To employ this strategy, you will need the use charts based on hourly and 4 hours charts. There is also an additional technical tool called the “Price Channel” that you will need for trend line trading with binary options.
Using The Price Channel
The price channel is basically two parallel lines which are used to indicate regions where the prices are contained within those lines. In other words, these two lines represent the resistance and support lines of a trend. As most binary options trading platforms lack the above mentioned tools, you can derive the charts and price channel that you need with any MT4 trading platform downloaded from any reputable forex broker website. With the superimposition of the price channel into the charts, we will then be able to derive the basis for our trend line trading strategy.
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