Binary Trading and Trend Lines Strategy
A trend line is simply a straight line which reflects the overall movement of an asset; whether up or down. They can be easily picked out of an asset price chart and can be of great assistance in assessing whether a specific asset will increase or decrease in value. Learning to use them effectively can make a huge difference to the success of your binary trading strategy. Of course, if you think you know what you are doing with these trend lines and do not use the information properly you can easily find your trades moving in the wrong direction and your rate of return rapidly dropping.
Trend lines are usually an excellent guide to what an asset is doing; the trend can be assessed in real time or by using historical data. Identifying and understanding a trend is essential to a successful trade, after all you are attempting to predict what an asset will do next, this will usually involve it following a predetermined trend. A trend line can also show you is the market has been oversold; in which case you should place a call option, or if it is undersold; in which case you need to place a put.
Although trading binary options is simple, this does not mean it is easy to predict the direction of an asset. If this was the case everyone would be doing it and making a huge amount of money. To make sure you know which direction the asset is likely to move in you need to analyze as much data as possible. The more you know about any asset the better your chance of placing successful trades.
Learning to use the trend line as an effective strategy involves understanding the following two concepts:
Support lines
This is a line on a graph which is drawn through the bottom of every extreme downward price movement. Do not try to draw it through the bottom of every price drop; you will end up with a zigzag line which does not mean anything. If the line runs only through the extremes you will be able to assess, at a glance, whether the overall trend for the bottoming out price is increasing or decreasing.
Resistance Lines
These are the opposite to support lines. They run through the extreme highs on the price chart for a given time frame. Again, do not draw the line through every price peak, only the extreme ones. Again you will be able to see the direction of the extreme prices and whether these extreme prices are generally getting higher or lower. Understanding this will assist with knowing when to place your trade.
The two lines represent a channel; it is very rare for the average asset to move outside of the channel; you can continue the lines forward to provide an assessment of the future extremes. You may also be able to predict when the next extreme price rise or fall will happen.
The idea of trend lines is that when an asset price reaches, or is very close to the support mine you will place a call option and, when it is very close to the resistance line you will place a put option.
