Binary options, like all other forms of financial trading, allows traders to employ strategies and trading systems in order to exploit the cyclical nature of markets. Effectively what a good binary options trading strategy will do is to provide a purchase signal each time a high-probability set-up or pattern occurs. Binary options traders can purchase options based on these signals in the knowledge that, countless historical back testing has shown that these will be profitable traded over a period of time.
Price action trading and binary options
One of the most common forms of binary options trading system is known as ‘price action’ trading. This allows traders to effectively ‘read the market’ and trade on what they see happening to the price on a chart in real time. Whilst this sounds as though it may take years to master, which trading generally does in its entirety, there are some fairly simple trading strategies employed using price action trading which allows high-probability profits to be made on a frequent basis.
Price action trading looks for certain movements or reactions in the price which will indicate the near-future direction of price. The most obvious price action occurs at areas where many professional and amateur traders alike know that there are a number of automatic market orders. These orders are the type set in places where traders think that there are is a large psychological influence. These can be witnessed specifically at round numbers (those ending in 00) or, alternatively, at key support or resistance levels of previous significant highs and lows.
Looking for good binary options set-ups
These two examples alone can be seen on any price chart as having a very influential effect on the behavior of price. Looking back through any financial chart it is clear that those areas where price becomes ‘confused’ before pulling away sharply in one way or another are the key support levels that lots of traders are identifying. Given that the key to making any successful binary options trade is to purchase options in an agreeable direction with the market, this can be very helpful in making profitable binary options trades.
Support and resistance alongside reinforcing indicators
Support and resistance levels, created at these round numbers and at previously significant market highs and lows are key areas to look to purchase binary options. By watching how the market moves higher or lower, reacting positively or negatively to the many market orders at these levels, it can provide the opportunity to trade with the majority. One of the most effective ways to monitor the price action to ensure that you will enter with the momentum of the market is to utilise candlestick analysis and momentum oscillators alongside your analysis of these key zones.
Candlesticks at these key areas will provide a signal as to whether the support or resistance will be maintained or if it will be broken. Observing for giveaway candlestick patterns such as ‘hammers’ and ‘inside’ and ‘outside’ bars as well as ‘dojis’ give an indication of whether these zones are going to accept or reject the price movement. Additionally, applying an oscillator such as the Relative Strength Index (RSI) to the chart can also reinforce binary options purchasing opportunities when momentum begins to falter, or divergence occurs, at these key levels. Using both of these analytical techniques around these easily-identifiable zones will increase the probability of purchasing profitable binary options.