Profitable trading of binary options includes knowledge of such fundamental topics as money management , risk management , trading psychology and the ability to identify a trend , but also the understanding of bullish and bearish trends is also important.
A trend is a unidirectional price movement with constant updating of extremes, and according to statistics, markets are in trend movements about 25-30% of the time, and this can be either a bullish trend (upward movement) or a bearish one (downward movement).
If we analyze the concepts of bearish and bullish trends in more detail, then a bearish trend is a unidirectional downward movement (the bear hits the ground with its paws and pushes down), and a bullish trend is a unidirectional upward movement (the bull pushes up with its horns).
For both options, there are exceptions and trends can be mixed, but most often the decrease or increase occurs gradually and in one direction. In the case of a downward trend (bearish), sales predominate in the market and supply displaces demand, and during an uptrend, on the contrary, demand displaces supply, since there are many more people willing to buy.
Why is it important to trade binary options with the trend?
The importance of trend trading in binary options or any other market is talked about in almost every article and book on trading , and for good reason. The formation of a trend is influenced by many factors, and movement in a certain direction in the market never begins without a reason and without expending effort:
Please note that before the start of the bullish movement (H1 timeframe ), a “base” ( flat ) was formed. That is why changing this upward trend will require the formation of a new “base” (which most likely has begun to happen) and the reverse movement will not happen in one hour or in one candle. This is why it is important to trade only with the trend, since if a movement in one direction has begun, it will not end very quickly.
Small time frames, such as M1-M15, form their movements in the same way, but they always follow the larger time frame.
How to determine the trend direction for binary options trading?
The trend direction can be determined by eye, but this approach is only suitable for a quick look at the market. In order to use a trend in trading, you need to use more accurate methods.
One option for determining a trend is to use various indicators, but there is a more convenient and popular method, which is to use channels or trend lines . To correctly construct trend lines, you need to draw them along price extremes:
Of course, the price will not always move in a strict channel and it will need to be corrected, but note that exiting the upward channel only indicates a strong bullish trend, while a breakdown of the lower line of the channel indicates a possible change in trend from bullish to bearish.
A downward trend looks and is indicated by lines in the same way:
Determining a change (break) in a trend
Any trend ends sooner or later and is replaced either by a flat or a reverse movement. This can happen for various reasons, and for global trends it can be a change in the fundamental background, economic crises, emergencies in countries, and small trends are most often influenced by local supply and demand or banal market manipulation.
But no matter what trend is used in trading, it is always important to be able to determine its end. You can determine a trend change using the same lines or channels, and the main indicator of a trend change will be the breaking of the opposite channel line. Accordingly, during a bullish trend, the price should break through the lower channel line and then consolidate below it, and during a bearish trend, the price should break through the upper channel line and consolidate above it.
An example of a trend change during an upward movement:
From the example you can see that the breakdown led to the end of the trend, and a new downward movement finally determined the turning point.
For a downward trend, the turning point can be determined in the same way:
It is also worth taking into account that sometimes false breakouts can occur, but in such cases the price returns to the channel and most often does not close outside the channel:
How to trade binary options with the trend?
Determining the direction of the trend is absolutely not difficult, but trading binary options through such channels will not always work. Therefore, one option may be to use trading strategies or indicators for binary options that will generate signals , and if the market is currently in a bullish trend, then only purchases of Call options should be considered, and for a bearish trend, only purchases of options should be taken into account Put.
For example, you can take the Stochastic Oscillator indicator and look at possible trades:
Since the trend in this case was bearish, it is worth considering only Put options with expirations from 3 candles and moments when the indicator leaves the overbought zones. Particularly accurate signals appear when the price approaches the channel line.
Conclusion
Now it becomes clear why trading with the trend is much more profitable and profitable in any market and according to any strategy. Therefore, every beginner should learn to determine the trend and not trade in those moments when the movement begins to change or when the situation seems unclear.
See also:
What novice traders need to know about binary options
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