As you may know, most financial assets available with binary options are following trends (uptrend or downtrend) that may vary in magnitude and time horizon. A long-term uptrend is often called a bullish market on Wall Street and long-term downtrend market is often referred as bear market. This is why most financial analyst and economists defend the idea that financial markets and assets are evolving in cycles.
Using trends for binary option trading
Even though binary options are really simple to understand and to use, it would be foolish to assume that you can earn an income without having a clear trading strategy. Binary options are relatively straightforward instruments, as the retail investor is only required to predict whether the price of an asset will go up or down. Analysing, identifying and predicting trend lines can thus represent a huge advantage to implement successful binary option strategies. We already covered the trends, supports and resistances concepts in our technical analysis article.
As a reminder, a support line can be drawn by the lower price extremes. Most support lines are uptrend support lines where the asset price tends to bounce and resume its uptrend pattern. An experienced binary option trader will thus buy a High binary option around the support line level, as the probability of a rebound is much higher around this level.
A resistance line can be drawn by the upper price extremes. Most resistance lines are downtrend resistance lines where the asset price is likely to pull back and resume its downtrend pattern. An experienced binary option trader will thus buy a Low binary option around the support line level, as the probability of a pull back is much higher around this level as volatility increases.
Trend line characteristics
The longer a trend line the stronger and more likely is the asset price to bounce or pullback on this trend. Another indicator of the trend’s reliability is the number of times that the price has tested support and resistance lines (that is trying to break them), but it did not stand their power and came back.