Support and resistance is a popular concept familiar with forex traders. Using support and resistance lines in binary options can be quite rewarding, yet brings with a certain complexity, especially for novice binary options traders. However, support and resistance is quite easy to understand and traders can start making use of support and resistance in binary options to make profits. In this article, support and resistance in binary options, we focus on the basics so it is easy to understand. To get a further understand on read what support and resistance in forex is.
The first thing you will notice when you look at any trading chart for any asset is the patterns that emerge. These spikes and surges are what is known as support and resistance lines and indicate an asset’s high and low barriers. These barriers prevent the price for that asset from being pushed beyond a certain direction. When the asset’s price fluctutates between these lines, it is known as the trading range. Support and resistance prices are driven by the supply and demand. When there is more supply the price falls, thus providing support and resistance lines are formed when there is more demand. The price line moves sideways when supply and demand are equal.
The concept being that the market will tend to trade above or below the resistance levels.
Support & Resistance Lines – Applying this to Binary options trading
A simple strategy for binary options traders is to use these patterns and figure out when the new directions emerge and from which prices. This is often refered to as signals which can be used to enter a trade. Having a firm grasp on support and resistance can go a long way for traders to make consistent profits.
Identify Support Line
Identifying support lines is easy as it is an indication of the price at which the asset’s price stops falling any further. This means that there is a strong demand for the asset at that price and thus the only way the price can move is upwards.
From a binary options trading strategy, this makes for a good opportunity for traders to enter a trade because of the fact that the price will only move upwards, traders can place a CALL option (which is when you believe that the price of the instrument will close above the prevailing market price).
Identify Resistance Line
The resistance lines in a price chart indicates the price level at which the price of the asset stops rising any further. Traders believe that by the time the price of an asset touches the resistance levels, supply overcomes demand thus preventing the price from rising any further. This makes for a good trading strategy because when the price starts falling, traders can place a PUT option (when you think that the price of the instrument will close below the present market price).
It is advised to make use of Candlestick charts in order to help traders to identify support and resistance levels a bit more accurately. With Candlesticks, traders can identify the shadows that represent the prices that move beyond the support and resistance levels which is nothing but the markets trying to test the prices. Read this article to get an overview of Candlestick charts
By spending some time in order to understand the charts can be a truly rewarding experience for binary options traders. Recognizing support and resistance in binary options should in fact be one of the most basic trading strategies even before you trade Binary Options. Identifying these chart patterns can allow the trader to have a good understanding when new directions emerge, and at the price levels this happens.