Considering the fact that binary options trading always offers fixed returns, reversal strategies can produce the same level of profits as any other strategy. Trading around reversals is riskier than trading along with a trend, but with some practice this type of price movement can provide additional profits during time when trends are not taking place. The following three methods are designed specifically with reversals in mind and should be used by traders who have at least some previous experience in using price charts.
Reversal Pattern Strategy: Asset prices rarely trend in a completely straight line and they do not reverse in that manner either. Reversal patterns can be identified by using Japanese candlesticks within your chosen price chart. Each time these patterns begin to manifest, especially in conjunction with support or resistance, they can be used to successfully predict the forthcoming direction of movement. Reversals may occur with little notice, which makes strategy usage all the more important. Reversals can be identified when studying shorter time-frames, but be sure to take a look at the support and resistance levels for the longer term as well.
Contrarian Strategy: Contrarian trading makes use of a combination of multiple techniques in order to generate a reversal entry signal. Trading against the current conditions is something that lots of gurus will tell you never to do. This is normally, but not always, sound advice. Contrarian trading may require the employment of oscillators, support and resistance, Fibonacci, and various other tools which can be used to forecast an upcoming reversal. The entry points that are produced as based on the assumption that the last investor has bought or sold the asset and the price must then reverse. A small number of sellers equals upward price movement, while a small number of buyers leads to a decrease in value.
Divergence Strategy: Divergences manifest when a technical indicator such as MACD or Stochastic do not peak in conjunction with the actual asset price. Lower peaks are going to serve as an indication of weakness, with the price movement slowing down and a prospective reversal upcoming. Note that divergences don’t invariably imply that a complete reversal is going to take place. Instead, they generally tell you that support is beginning to weaken and a reversal is a realistic possibility.
It’s actually not unusual for a strongly trending asset price to produce quite a few peaks as it starts to slow down. The easiest way to utilize divergences will be to enter into your binary options trades whenever they manifest in several different time-frames all at one time. This is referred to as “convergence of divergence”. Divergences can be used to predict reversals and range of price movement when utilized in conjunction with support and resistance levels. If divergence appears while the underlying asset is drawing near an area of either support or resistance, the chance of a reversal goes up. Note that it may be possible to enter into more than one binary options trade once the reversal takes place and the price trends in the opposite direction.
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