Recognising Bullish & Bearish Market Trends – Binary Option Strategies

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TABLE OF CONTENTS:

For those looking to get started in the exciting world of binary options trading, there are some underlying concepts that should be understood. Specifically, this means knowing the differences between bullish trends and bearish trends. This is important because of the dual nature of the binary options market: Investments are based on the belief that the price of an asset will either rise or fall in the future. Because of this, traders must be aware of the ways experts differentiate between these two market outcomes.

“For those looking to establish call options in an asset, a bullish trend should be in place,” said Michael Carney, options analyst at Teach Me Trading. “On price charts, this suggests that there is a series of higher highs and higher lows that is clearly visible on the price chart.” From the fundamental perspective, things are slightly more complicated, and will depend on the type of asset that is being traded. For example, stocks will need to see strong corporate earnings in order to generate bullish trends. In currencies, higher interest rates are generally positive for the asset and this is something that can send more active buyers into the market. In commodities like gold and oil, markets will generally need to see that there is decreased supply in the market in order to generate a bullish rally.

For those looking to establish put options in an asset, a bearish trend should be in place. On price charts, this suggests that there is a series of lower highs and lower lows that is clearly visible on the price chart. From the fundamental perspective, stocks will need to see weak corporate earnings in order to generate bearish trends. In currencies, lower interest rates are generally negative for the asset and this is something that can send more active sellers into the market. In commodities, markets will generally need to see that there is decreased demand in the market in order to generate a bearish rally.

Conclusion

With all of these factors in mind, options traders are better able to tailor their positions to what is actually happening in the market. Once you are able to align your trading initiations with the dominant forces that cause prices to rise or fall, it becomes much easier to generate stable profits on a consistent basis. These are all factors that should be considered, as they can help you to turn the odds back into your favor and avoid the unnecessary losses that can often come when traders fail to outline a strong trading plan.

In the financial markets, the trend is everything. New traders are taught a popular market slogan very early in their trading careers that the trend is the trader’s friend until it ends.

The binary options market, just like other financial markets, can be traded in a bi-directional basis, with the opportunity to trade and profit when prices are going up or when they are coming down.

There are also trade types which can be used to trade sideways trends. However, the big question is this: which of these binary options trades should you be trading? We will examine how to recognize the trends in binary options, and then do a comparison to show why you should be focusing more on the directional trend-based trades.

Recognizing the trend

Trends are best recognized on long term charts such as the daily charts. A typical daily chart displays price action for an asset over a two or three month period, depending on whether the zoom tool on the chart was used.

You will have a clearer picture of the trend using the daily chart. Short term charts such as the 5-minute, 15-minute or 1 hour chart are intraday charts that show a lot of market noise. You may see a price movement on a one hour chart which may look like a trend, but if you look at the situation on a daily chart, it may just be a retracement from the main trend.

The chances of getting caught out by a reversal will thus be very high. It is therefore essential to first get a picture of what the trend is, and then to place trades accordingly. Three trends exist in the financial markets: Uptrend, Downtrend, and Sidetrend.

Uptrend

An uptrend is seen when prices are heading upwards. An uptrend is characterized by higher highs and higher lows. This is seen in the snapshot on the left. When market is in an uptrend it is also known as a bullish market.

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When you’re drawing your trend lines onto your charting window, for an uptrend, you should draw your line below the low data points as these would potentially be your entries if you’re trading with the uptrend. If you are trading against the trend (reversals) you could draw your trend line above the high data points.

The binary options trade which is used to capitalize on rising prices as seen in an uptrend is the CALL trade contract. It is also known as BUY, HIGH, ABOVE or UP binary option, depending on which platform is used. This trade is made expecting the expiry value of the asset to be higher than the market/entry price of the asset.

Downtrend

A downtrend is seen when prices are falling. The candlesticks which constitute price action are therefore seen to form lower highs and lower lows. This is seen in the snapshot on the left. When market is in an downtrend it is also known as a bearish market.

When you’re drawing your trend lines onto your charts, for a downtrend, you should draw your line above the higher data points as these would potentially be your entries if you’re trading with the downtrend. If you are trading against the trend you could draw your trend line below the lower data points.

The binary options trade which is used to profit from falling prices as seen in a downtrend is the PUT trade contract. It is also known as SELL, LOW, BELOW or DOWN binary option, depending on which platform is used. This trade is made expecting the expiry value of the asset to be lower than the market/entry price of the asset.

Sidetrend

Then there is the sidetrend, which is seen when prices are in consolidation i.e. stuck in a tight range. The high prices are at almost the same horizontal level and the low prices are also at a horizontal level. The sideways trend is the basis of the IN/OUT or BOUNDARY trade, which is a bet on whether the price will stay within the constituted range (IN) or will step out of the range (OUT).

Different brokers have their definitions for the IN or OUT trade. Some brokers define OUT as price completely stepping out of the price boundaries, while some will include price touching the boundaries as OUT. This trade type is very tricky because price will always break out of any range either to the upside or downside, no matter how long it has been range bound. It is merely a question of time.

Trading binary options in a sidetrend is very risky and it is advisable to trade only during an uptrend or downtrend. You will have a lot more winning trades when you enter the markets during those times.

A simple way of trading a trend either to the upside or to the downside is to use price channels. Channels are formed when the trend lines which join the high prices is parallel to the trend line which connects the low prices.

When we have higher highs and higher lows and the trend lines connecting them are parallel, this is an ascending channel which can be used for CALL trades.

If the trend line connecting the lower lows and that connecting the lower highs are parallel to each other, then this is a descending channel which can be used to trade the PUT option.

CALL option

To trade the Call option, check to see if the trend on the daily chart is upwards. Then step down to a lower time frame chart and see if an ascending channel has been formed. If yes, aim to trade the option when the price has bounced off the lower trend line so that the rising price can put the option in profit.

The entry must be timed properly. Once the candle approaching the lower trend line from up downwards has bounced off the trend line without closing below it, the entry must be made at the open of the next candle as close to the lower trend line as possible. At least three candles must be allowed to elapse before the trade expires, so the expiry must be set to three candle lengths, equivalent to the three times the time frame of the chart.

PUT option

To trade the Put option, check to see if the trend on the daily chart is downwards. Then step down to a lower time frame chart and see if an ascending channel has been formed. If this is the case, aim to trade the option when the price has been rejected at the upper trend line so that the falling price can put the option in profit.

The entry must be timed properly. Once the candle approaching the upper trend line has rejected at the trend line without closing above it, the entry must be made at the open of the next candle as close to the upper trend line as possible. At least three candles must be allowed to elapse before the trade expires, equivalent to the three times the time frame of the chart.

If you’re not sure about trading using professional charts and technical analysis why not consider an easier approach to professional trading and use a signal service. To compare signals click the link below.

Binary Options Strategy

Binary options trading provides traders with the opportunity to achieve success when trading with a variety of available underlying assets.

In order to become a successful binary options trader, you need to recognize and follow a certain strategy. Not only that, you also need to understand more about the available binary options industry and which ones are used for particular trade option.

For you to be able to form your own trading strategy, we recommend you to read the list of several different strategies, available on our site.

The strategy guide will take you through few steps from initial step to the advanced trader in the binary options industry.

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Importance of Binary Options Strategies

When you look at the financial market and you have plans to participate and trade binary options, then it requires from traders to have enough trading knowledge to know how to use specific strategies when trading with a chosen trade option, short term or long term.

Traders from can choose among many trading strategies, ranging from those that are mostly used by traders beginners or those that require certain trading skills and are intended for experienced traders.

In the industry of binary options, strategies are considered to be in top most important elements of binary options trading.

With well-chosen strategies, it is possible to maximize profit and achieve success, whether we are talking about short terms strategies or other types, offered on various trading platforms. We always advise our readers to evaluate many trading strategies and understand them in order to benefit from them in the trading process.

How to Benefit from Binary Options Strategies?

Binary Options traders are aware of the fact that binary options trading can be profitable thanks to its numerous advantages. Traders should know that they do not necessarily know all available strategies which are used in this industry.

If you have a good plan and cool head, trading binary options can be very profitable, because you don not rely on luck. Knowledge is the key element of successful trading and understanding of available strategies lead to a more profitable trading process.

It is better to know several of them and use them properly so that later on, they can profit from those strategies. In our Guide section, you can find articles that can help you decide what type of trader are you and what are the best and most popular trading strategies for traders beginners and advanced traders.

A great way for the traders to try out the platform and test several strategies is to use demo account with a chosen binary broker. With such a possibility, traders can evaluate the market and try trading with few strategies and see if they suit them in the trading process.

Best Binary Options Brokers 2020:
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  • BINOMO
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