Binary Options Reversal and Breakout Trading

Binary Options Reversal and Breakout Trading

Submitted by adil on Tue, 12/10/2013 - 15:48

Success in binary option trading highly depends on the trader's ability to make correct predictions on price directions. Making the right calls on price direction will allow the trader to make deals that are in the money. To succeed with your predictions, you need to be aware of the different trading strategies that are available in the market.

Binary options reversal and breakout trading is a combination of two other strategies; the Binary option reversal strategy and the breakout trading strategy. The Binary options reversal and breakout trading strategy is not often practiced today due to the fact that its outcome is mostly dependant on trend trading. However, whenever the strategy is correctly used, it leads to large amounts of winning trades.

The best thing about reversal and breakout trading is that traders can use the strategy on any time frame i.e. whether it is suing the one minute time frame or the daily time frame.

Understanding support and resistance

A level of support can be defined as an area in the past where prices had rallied. Here, the market demand is likely to increase whenever the prices attempt to approach the support region causing further rallies in the future.

On the other hand, a level of resistance refers to an area in the past where prices had declined. In this particular case, the market supply is likely to increase whenever the prices approach the resistance region and cause further declines in future.  

Binary option reversal strategy

The reversal strategy is very common among beginners wishing to trade in binary options. It requires common sense hence most traders come to it independently. The strategy is based on the concept that whenever an asset moves consistently in one direction, it is unlikely to stay rooted at its peak. Instead, chances are that it will return to its initial position or somewhere near. In such a case, the trader can therefore place a CALL or PUT depending on the asset's movement. In doing so, the trader will be assured that the asset's price will return to its original position on reaching its peak.

With this strategy, it is very important to identify when the asset reaches its peak. Therefore as a trader, you need to be well versed with the skills of using fundamental and technical analysis.   

The breakout trading strategy

The breakout strategy is normally applied in markets where there is low volatility leading to thin trading volume which then results to price consolidation. In such a scenario, the price tends to occupy a narrow band. When this happens, the price cannot at any point go above (resistance) or go below (support). It remains in a clearly defined region.

On reaching a point where there is stillness in the price activities, the players found in the market will readjust their bias and trading positions in accordance to the events of the high impact news.  The readjustment will cause sharp movements of price in a certain direction. If the impact is heavy, the asset's price will break out of its range limitations.