Binary options support and resistance — these concepts are closely related to each other. Based on the levels of resistance and support to build most of the strategies are divided into two types: inner-channel tactics (on the rebound) and tactics “breakdown”. About what it is like to draw the levels and use in binary options trading, how to build strategies based on support and resistance read more.
What are the levels of resistance and support
Lines of support and resistance are horizontal lines, reaching which the price is likely to unfold in the opposite direction:
- the higher the price rises, the less sellers;
- the lower the lower the price, the less buyers.
If there are no objective factors for appreciation or depreciation of the asset (a news release or report, publication of financial results, etc.), the price will fluctuate within a certain range. Understanding that when you trend touches channel boundary the turn will happen soon and gives the signal to open position.
The levels are based on the maximum and minimum values of the trend, which it reached in the past on a certain stretch of time, at least 3-4 points.
How to build lines of support and resistance:
- remove all extra indicators from the graph. Set a one-week timeframe and build long-term levels. It will be the key boundaries which will need to start when building a strategy and determine the time of expiry;
- moving on to day or minute graph and find the corresponding local maxima, draw the boundaries of the channel.
Working with long time intervals in binary options allows you to determine the strength of the trend. The breakdown of the boundaries on the weekly chart would mean the emergence of a new direction. For fans of fast binary options the lines on the minute charts will be indispensable.
Tips for building canals in binary options:
- do not overload the graph with many lines. Enough to build a clear channel on weekly and daily (minute) time frames;
- it will not be possible to perfectly build resistance and support. If they cross the tails of the price bars — not scary;
- to build a weekly schedule it is enough to take the time span of 2-3 years, for day — 6-12 months, to an hourly not less than 3 months.
Strategies based on levels of support and resistance
The theory of strategies based on the boundary lines in binary options trading is based on two fundamental situations:
- flat. At the time of flat market is in equilibrium, the buyers and sellers either inactive, or can’t play each other. The price ranges in the equilibrium corridor because the maximum points on the graph, the demand for the asset falls sharply, and minimum increases on the contrary. Therefore, if the movement between the borders of the channel takes about 5 minutes, then at the time of rebound can safely open a position in the respective direction with expiration of 2-3 minutes;
- breakthrough. Breakthrough of the boundaries of the channel means that the trend gained strength and real direction. Correction is possible, but is rare. And let the strength of the trend is difficult to determine, at the time of breakthrough in the direction of the trend open a binary option with expiration of a few minutes.
Let’s move on to practical trading.
1. Inner-channel strategy
I would like to emphasize that I prefer to build boundary lines in binary options according to a linear schedule, and not on candle. Set timeframe to 5 minutes and draw the border at least 10 hours.
I think this picture fully explains how to use the tool. To clarify some points:
- to open a position only at the time of rebound from the border of the channel (a good entrance marked with a blue circle);
- the expiration time at least 2 hours. Over this period of time the trend comes from one level to another.
Please note. Even the entrance to the market at the point marked with a purple circle, despite the return, trial and correction, would give a positive result even in 2 hours. But the opening position at the point marked by gray color, would bring us a loss, because the trend has gone a little into decline and has received a fundamental boost. The price has made a break out and went up without correction. 3 good deals out of 4 — a good result. And after the breakdown it makes sense to go to at least a 30-minute timeframe and to draw new boundary lines.
Let’s add an oscillator and draw the same points.
In the first two positions the stochastics clearly showed the need for open positions (located almost in the overbought and oversold). In the third position the oscillator clearly showed that you needed to open position a little earlier. And in the fourth to open a position was absolutely impossible, because the price did not move from resistance, as stochastic is immediately collapsed into the oversold area.
2. The strategy of “breakthrough”
In relation to this tactic again go back to the first picture and see that the price broke the level. But since stochastic is in the overbought zone — this can give a very accurate signal of a reversal (correction). Because the transaction is not open.
Summary. Resistance and support for binary options can act as an independent strategy, and be the auxiliary tools to determine the strength of the market. I recommend working with a combination of graphical analysis with oscillators confirming the signal. And if you draw the levels you can’t (this comes with experience), then use the Bollinger Bands. The principle of operation channels is the same, the only difference is that the boundaries of the channel are not strictly horizontal. Ask questions in the comments, share your strategies in the comments and trade without loss!