Success in binary options trading is directly connected to ones ability to predict the forthcoming direction of price movement with an above average degree of accuracy. With each correct prediction comes profits and fortunately for traders, there are a number of powerful strategies which can be used to forecast price movement well. Price breakouts are one of several types of price action that traders can use to increase their profits via the analysis process.
Prior to delving into the specifics of breakouts, let’s first review what price action is, and how it works to influence asset price movement throughout the day. Price action is the direct result of the actions taken by traders within a specific market. Traders trade for one reason only – to make money. When a trader sees an opportunity that they feel will provide them with a profit, they make an investment and thus enter into the market. When a large number of traders do the same, the price of the asset is going to increase.
The opposite applies when traders feel that an investment is unlikely to pay off. In this case, when many others feel the same way, a sell off is the result. Excessive selling will cause asset prices to drop. There is the possibility that market indicators point to neither profits or losses, which basically leads to inactivity as there is no real reason to buy or sell. When this happens, expect to see asset prices moving sideways, also referred to as being flat.
For all types of price action there exists a suitable type of binary options trade. This is quite different from the Forex or traditional marketplaces, where prices must be not only in motion, but also moving upward in order for any profit to be earned. Breakouts are a type of movement that takes place after a period of flat price movement, or inactivity. This type of movement takes place when traders feel that some event is going to cause the value of a specific asset to rise or fall, and they take action based on that belief by buying or selling the asset.
Support and resistance levels provide lots of information in relation to potential breakouts. Prior to an upward moving breakout, you’ll likely see the asset price test a key level of resistance a number of times, with the retracement points moving higher with time. What this shows is buying pressure and an indication that the price is about to move higher. For downward price movement, the opposite takes place, with support levels being tested and selling pressure noted. In some cases, the asset price will push past either support or resistance levels.
Seasoned traders will already be familiar with support and resistance lines, but new traders should not be overly concerned, as these lines are easily spotted within any suitable technical chart. Prior to using this trading method, novice traders are encouraged to spend some time watching how asset prices move in relation to support and resistance levels. Once you’ve become familiar with the way in which prices move within these levels, profitable binary options trade outcomes will occur much more frequently.
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