Price action is used in binary options to trade with current price behavior while placing less emphasis on past prices. You save more time using price action and see more trading opportunities
There are hundreds of trading strategies available that advertise their performance, how accurate their market readings are and what you should do to get your hands on them. Yet, time and time again, the one form of trading that always seems to outperform the rest is price action trading. What is price action trading you ask? Well, it’s a form of trading that takes into account the chart patterns of the price candlesticks. This form of analysis, when it comes to trading binary options, has been shown to take a great deal of time to understand. However, those that have a good grasp of the concept have noted their deep appreciation for what it has contributed to their trading careers.
We’re going to cover some of the major elements that compose price action trading with binary options, as well as how to develop a personal approach that fits your trading preferences. Analyzing the market doesn’t require the use of lines and indicators that occupy entire charts. You can still draw lines and levels on your charts – the lines that you draw on the price chart will signify some type of price action. With that said, let’s get started on how to use price action with binary options.
Price Action Definition
Price action trading is a method used to theorize which direction the price of an underlying asset will head based on its current actions. Fundamental analysis relies solely on assessing the events that occur around the market and technical analysis relies heavily on indicators that are a few steps behind the market price. Since you’re trading the price of an asset, doesn’t it make sense for you to trade the price itself and let it guide you instead?
Construction of Price Action
In order to trade binary options with price action, you need to understand four factors that comprise this type of analysis: support and resistance, trends, old time frame trading levels and whole numbers. These four elements are the backbone of price action trading, regardless of what asset you’re trading. Let’s take a closer look at each element in detail.
- Support and Resistance: This is the most important element in price action trading. With support and resistance levels, you can trade along the trend, thus increasing your probabilities of winning your trades.
- Whole Numbers: A whole number e.g. 1.14000 has a significant characteristic to it. If you watch the market carefully, you’ll notice the currency price action skyrocket to this level and simply stop. It’ll retrace a few pips, regain its momentum and steadily pierce through. This is an interesting phenomenon that occurs when trading, and should be observed when using price action.
- Old Time Frame Trading Levels: There are certain areas in the market that have passed the test of time and haven’t been breached by the market price. Although they won’t repeat themselves, they do help increase the winning probabilities of trades in the future, if the price so happens to retrace back to these levels.
- Trends: The most obvious strategy in trading is following the market trend. If the price is on the rise, then the market is in an uptrend. Otherwise, the opposite would be a downtrend. As long as you follow the trend, you’ll be able to make money, as that is where the money flow is headed. This is very helpful when it comes to trading binary options.
Although there are other factors that account for price action trading, these are four of the most significant variables that are used to trade each day by many traders. If you learn and understand how to use price action in your binary options trading, then you’ll have all the tools you need without worrying about all the spaghetti lines and delayed data on your graphs. It takes time to learn, but it is absolutely worthwhile.
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