Resistance and support binary options trading involves analyzing exchange rate charts to identify significant levels of support and resistance. Support levels are located below the current market price and indicate where the market is likely to reverse and move higher.
On the other hand, resistance levels are situated above the market price and indicate potential reversal points where the market may turn lower.
Traders employing this strategy typically aim to purchase a Down binary option before reaching a resistance level or buy an Up binary option above a support level. They may also choose to close their binary option position at a loss if the chart level is breached.
In some cases, traders may even establish a long binary option of the opposite type to take advantage of the subsequent move.
For trading within a range-bound market, followers of this strategy can purchase an In Boundary binary option. In this case, the lower strike price of the option is set at the support level, while the upper strike price is set at the resistance level. This strategy assumes that the market will remain within that specified range.
By utilizing resistance and support trading, traders aim to profit from the price reversals that often occur at significant support and resistance levels.
However, it’s important to note that market conditions can be unpredictable, and proper risk management and thorough analysis are necessary to increase the likelihood of successful trades.
How to Use Resistance and Support Binary Options Strategy
- Identify the support and resistance levels: Use technical analysis to identify the key support and resistance levels on the price chart of the asset you want to trade. Support levels are price levels where buying pressure is expected to prevent the price from falling further. Resistance levels are price levels where selling pressure is expected to prevent the price from rising further.
- Confirm the validity of the levels: Ensure that the support and resistance levels you have identified are significant and have been tested multiple times in the past. The more times a level has been tested without being broken, the stronger it is considered.
- Determine the trading range: Observe the price action within the support and resistance levels to determine the trading range. The range is the area between the support and resistance levels where the price tends to fluctuate.
- Choose the appropriate binary option type: Based on the trading range, select the appropriate type of binary option. If the price is approaching the resistance level and you anticipate a reversal, consider a “Put (Down)” option. If the price is approaching the support level and you expect a rebound, consider a “Call (Up)” option.
- Set the expiration time: Determine the expiration time for your binary option. It should allow enough time for the price to potentially reach the desired level or for the anticipated reversal to occur. Select an expiration time that aligns with the timeframe of your analysis and the expected price movement.
- Manage risk: Define 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 is appropriate for your risk tolerance.
- Place the trade: Execute your binary option trade with your chosen broker. Specify the asset, option type, expiration time, and investment amount. Double-check all the details before confirming the trade.
- Monitor the price action: Keep a close eye on the price movement as it approaches the support or resistance level. Look for signs of a potential breakout or reversal. Pay attention to any candlestick patterns, indicators, or other signals that may indicate a change in the price direction.
- Assess the outcome: Once the trade reaches its expiration time, assess the outcome. If the price respected the support or resistance level as expected, your trade may be profitable. If the price broke through the level or did not reach your target, you may experience a loss.
- Review and learn: Analyze your results, review your trade, and assess the effectiveness of your strategy. Identify any areas for improvement and adjust your approach for future resistance and support binary option trading.