The Binary Options breakout trading strategy focuses on utilizing pivot points to identify and trade breakouts. This strategy is suitable for risk-tolerant traders who can make quick decisions. It can be implemented through a three-step plan.
The first step involves analyzing the current trends in the traded options. These trends occur when a significant number of traders take actions that drive the market in a specific direction. By identifying these trends, traders can ride them and profit from the resulting price movements.
The next step is to monitor inactive options. Breakouts often occur in options that have shown limited price fluctuations over an extended period. These options typically trade within pivot points or specific price levels. When an inactive option repeatedly touches the pivot point, it signals a potential breakout. The likelihood of a breakout increases with the number of times the option’s price touches the pivot point.
When using pivot points for Binary Options breakout trading, the third step is to assess the option’s price in relation to the resistance level. If the option’s price has reached the resistance level multiple times and shows a gradual increase in its upper and lower price values, it indicates a potential breakout. In such cases, traders should act quickly and enter the trade.
By effectively utilizing pivot points, traders can identify breakouts and take advantage of price movements when options break out of their established ranges. It’s important to note that breakout trading carries risks, and traders should carefully analyze market conditions, manage risk, and make informed decisions to increase their chances of success.
How to Use Trend Following Binary Options Strategy
- Identify the consolidation phase: Look for an asset that has been trading within a well-defined range or pattern, such as a horizontal range, triangle, or rectangle formation. The asset’s price should be consolidating and moving sideways, indicating a lack of clear direction.
- Confirm the breakout: Wait for a clear breakout from the consolidation phase. A breakout occurs when the price breaks above a resistance level or below a support level with significant volume and momentum. The breakout candle should have a strong bullish or bearish close, indicating a decisive move.
- Determine the binary option type: Based on the direction of the breakout, select the appropriate binary option type. If the price breaks above resistance, choose a “Call” option as you expect the price to continue rising. If the price breaks below support, choose a “Put” option as you anticipate further downside.
- Set the expiration time: Determine the expiration time for your binary option. It should provide sufficient time for the price to continue its momentum and achieve your target. Consider the timeframe of your analysis and the expected duration of the breakout move.
- Implement risk management: Establish your risk management parameters before entering the trade. Determine the amount of capital you’re willing to risk, set stop-loss orders to limit potential losses, and ensure your position size aligns with your risk tolerance.
- Enter the trade: Execute your binary option trade with your chosen broker, specifying the asset, option type, expiration time, and investment amount. Double-check all the details before confirming the trade.
- Monitor the trade: Keep a close eye on the trade as it progresses. Continuously monitor the price action and volume to assess whether the breakout move continues as expected. Adjust your stop-loss order or consider closing the trade early if the price reverses or shows signs of a false breakout.
- Assess the outcome: Once the trade reaches its expiration time, evaluate the outcome. If the price continued in the anticipated direction and your trade was profitable, it’s considered a successful breakout trade. If the price reversed or failed to sustain the breakout, you may experience a loss.
- Review and learn: Analyze your results, review your trade, and assess the effectiveness of your strategy. Consider factors such as the strength of the breakout, volume confirmation, and the accuracy of your entry and exit points. Identify any areas for improvement and adjust your approach for future breakout trading binary options.
Remember, breakout trading can be volatile, and false breakouts can occur. It’s crucial to wait for confirmation of the breakout, use additional technical analysis tools to validate the move, and practice proper risk management.