Trend lines are simply lines drawn across the highs and lows of price action in order to determine the trend of the asset. Trend-line trading in binary options is really easy if the trader is able to use them properly.
In financial trading, there are several ways to use trend lines for trading purposes.
- They can be used to trade price ranges, especially when the trend lines are parallel to each other as is seen in price channels.
- They can be used as support and resistance price levels, which can form boundaries in a ranging market.
- They can serve as landmarks for trading certain binary options contracts.
Let us now identify how to use trend-lines in the ways identified above, in the binary options market.
Price channels are made up of two parallel trend lines: an upper trend line drawn across at least two price highs, and a lower trend line drawn across at least two price lows. As a rule, the price of the asset will bounce off the two trend lines until an external factor causes the price to break out of the channel. So when conducting trend line trading in binary options using price channels, you may use the two trend lines as strike prices for a tunnel trade, a Touch trade or a High/Low trade contract.
Trend-lines as Support and Resistance
Have you ever come across pivot points? If you have, you will be a bit familiar with this use of trend lines. Pivot points are simply trend lines that demarcate three areas of support and resistance, as well as a neutrally acting trend line (central pivot point). When prices are trading within the range of the pivot points, the pivots can serve as reversal points, or as benchmarks for price breakouts. Pivot points are extremely good for the In/Out trade. You can simply select two of these pivot points/trend lines as the upper and lower price barriers for the boundary trade.
Trend-lines as Trading Landmarks
If you are looking for some direction or landmarks to use when setting strike prices, trend lines can come in very handy. For instance, supposing a trader wants to trade a trade contract on an asset, and is looking for the best place to set a strike price to execute a Touch trade, what does he do? The trader can look at the charts and see if a line can be drawn across two areas where prices form highs or lows, and see if this line is part of a bigger pattern such as a triangle, rectangle, rounded top, diamond top or bottom, a flag, pennant, etc. These are all patterns that define where prices will head to, so a trader can use a trend line as part of these patterns as a landmark for executing a trade contract.
Trend line trading in binary options is easy and when the trader uses them in the three ways that have been identified above, they can deliver profits.