When trend trading binary options, the general idea is to trade along with the prominent direction of asset price movement. Where problems may occur is in the areas of reversals and retractions. Short-term retractions can be tough to detect, and most definitely can cause losses. Even worse, it can be tough to determine initially whether the movement is a retraction or a full-blown reversal. The following strategy will most definitely help to solve this problem.
Retractions can be either short-term price increases or decreases which go against the prevailing trend. This type of movement will not last long, and the prevailing trend will continue after it is over (unlike a reversal). Retractions are caused by a spike in buying or selling in the marketplace. These actions can cause the direction of price movement to change for a few minutes or so, but are not robust enough to cause a complete reversal. You can trade a reversal, of course, but we are not going to cover that type of trading in this article.
When looking at a technical price chart, a retraction is viewed as a minor formation, such as a few minor candlestick patterns. These typically appear following a larger movement that has just taken place. Always remember that these short-term movements may end as quickly as they began. Spotting a pull back is one thing, knowing how to apply them in an actual trading situation is another, so let’s cover that…
The selections to make within your binary options platform are very clear. When a retraction takes place within a bullish channel, select a Call position when the price moves to the lower trend line and then begins to climb. For a Put position, the price would be within a bearish channel. When that price moves up to the high trend line and then starts to move down away from that line, that would be the time to enter the market.
To clarify, the first step would be to identify the trend channel and determine the type (bearish or bullish). Trend lines will need to be drawn (upper to most recent highs, lower to most recent lows). Watch to make sure that when the price reaches either a high or low line, that it does not exceed that line. When using candlesticks, you would check to see that the most current candle does’t close under the top line or above the low line. A one-minute expiry time tends to be the best selection when using this strategy.
Clearly, this method should only be used when a trend is taking place. If the asset you wish to trade with is not trending, move on to analyzing other assets. Any ongoing trend will provide you with at least a few chances to enter into trades. For new traders, do be sure to learn how to correctly identify price trends. This can first be done using basic price charts, and then using more advanced technical charts such as MT4. This is a skill that you will need not only for this binary options strategy, but throughout your trading career.
We make it our mission to not recommend anything but the best – which, according to industry experts, is IQ Option, the top regulated broker for your country with a minimum deposit of ONLY $10!
Between 74-89 % of retail investor accounts lose money when trading CFDs