Break Out Trading With Binary Options

Break Out Trading With Binary Options

Submitted by adil on Wed, 05/21/2014 - 18:41

It's Time to Break Out!

In the absence of concrete information (in the form of financial reports or press releases) to determine what trend an asset price will follow in the future, expert traders resolve to analyzing live charts to help making successful trades. The most popular strategy that ensures maximum profits through chart analysis is ‘break out’ trading. Let us see the fundamentals and how this strategy is put to work.

Chart regions to focus:

No matter what asset you have decided to trade, the trend chart will always contain the following regions. Keep a close eye on them because they will help you in determining the break out point.

Support: This region of a trend chart highlights the probability that the price trend will continue to increase in the way it has been escalating in previous time intervals. This increase in price is directly proportional to the surge in asset demand.

Resistance: The chart area which signifies that a decline is expected in the price of the asset due to increased market supply.

In the ‘break out’ strategy, traders try to look for regions where price does not change according to the expectations; this breaking of trend has much significance for binary option traders.

Break out trading:

Remember that a break in support highlights bearish market trend. Similarly, a break in resistance highlights bullish market behavior. The resistance break point should be used to make CALL trades, because the market is bullish and buyers will push through the price barrier and encourage more demand. The support break point should be used to make PUT trades, because bearish market environment means sellers are going to win with increased supply.

Break outs help with strategy building:

When more credible data is absent, analyzing break points can help a trader to build a general idea about the market trend. Since directional forecasts can be used effectively in trading binary options, the information from break outs is authentic enough to make successful trades. These break points suggest that market dynamics are changing; therefore price trend of every asset in the market will be affected in a similar fashion. This strategy is a very useful tool for traders who depend upon technical analysis for making trades.

Possible problems with break out strategy:

Traders using this strategy should be very prompt and must be able to make timely trades. The break in the trend sometimes does not last as long as expected, so traders must commit to a trade as soon as the break out happens. If the trend reverses before the expiry time, the trader will lose all his invested capital. This strategy works well with trades having small expiry times.

On the other hand, using small expiry times means trend data will not be available for a larger period of time which demands more experience from the trader to work with binary option trades.

Every trader should master trading with break out strategy. This strategy gives more practical knowledge and experience about market movements. When more reliable sources are unavailable, this strategy helps any trader to continue making profits.