Support and resistance trading strategy for Binary Options.
In binary options trading, indicators play an important role. That’s because you can use indicators to learn the nature of the market. Indicators also help in understanding whether it’s the right time to invest in the binary options market or not.
With so many trading indicators available, it becomes difficult to find a good one. But you don’t have to worry because you can increase your trading profitability with a support and resistance strategy.
Support and resistance level is the roadmap to successful trading . It is an essential indicator tool that traders use for doing technical analysis of the market.
But do you know the right way of identifying support and resistance level? Do you know how to get the most out of support and resistance trading strategy? Or do you know how to trade by using support and resistance?
Well, this guide has all the relevant information.
What you will read in this Post.
What are support and resistance?
You can use support and resistance strategy for both short-term and long-term trading. It’s an easy-to-understand strategy that helps in increasing trading profitability and decreasing loss.
In this trading strategy , after the price of an asset tests support and resistance level, it moves in the opposite direction. At this time, you can enter a trade and leave the market with a high chance of winning after a while.
In simple terms, support and resistance are nothing but a tool that shows an asset’s price reaction. It’s a direct result of differences in selling and buying.
The price rises if there are more buyers. Similarly, if the number of sellers is more, the price decreases.
Support.
Trading support example.
Support level in support and resistance trading strategy is the point at which buyers enter the market. Support is the floor that supports the price of an asset.
When the price of a commodity in the market starts declining, it finds a support level. After spotting the support, the price bounces back. But if the price breaks the level, it falls further till it finds another support level.
Resistance.
Resistance level in support and resistance trading strategy is the level where sellers enter the market. Like support level acts as a floor, resistance level acts as a ceiling. It resists a price rise.
You can find a resistance level in trading when the price of an asset starts increasing. Once the price finds a resistance level, it bounces back. But if the price breaks the resistance level, it rises again till it finds another level.
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Different types of support and resistance.
Here are a few support and resistance that you can easily spot in a trading chart.
Horizontal support and resistance.
Horizontal support and resistance.
Horizontal support and resistance is a static level, which supports and resists the price movement beyond it.
In horizontal support and resistance, when the price of an asset moves through support, it’s a negative sign. But it’s a positive sign when the price moves through the resistance level.
Also, if the price breaks through support and resistance level and crosses the level in the opposite direction, it shows the presence of a false breakout.
Diagonal support and resistance.
Diagonal support and resistance.
Unlike the previous support and resistance level, this one is dynamic. That means the diagonal support and resistance change over time. Generally, it is created by trendline.
You can draw a line by finding a price high and lower price high or a price low and higher price low. After drawing the line, if you notice that the diagonal is down, the trend is down. Similarly, if the diagonal is up, the trend is up.
In diagonal support and resistance, it’s a positive sign if the price bounces off the trendline. Moreover, it’s a warning when the price breaks the trendline.
(Risk warning: You capital can be at risk)
Predictive support and resistance.
Another kind of support and resistance is predictive. Although this type is less common, it has its value. One of the common predictive support and resistance is trendlines. That’s because, in trendline, when the line extends, it can either support or resistance the price movement.
Another form of predictive support and resistance is horizontal support and resistance. You can also use this tool to understand the spot where future support or resistance might develop.
How can you make support and resistance strategy work?
If you want to make the support and resistance strategy work, you should have some basic skills.
Firstly, you must be familiar with the primary kind of binary options charts that brokers use. Bar and candlestick chart is a popular trading chart that you need to familiarize yourself with.
Additionally, you should know technical analysis. And lastly, you must understand what support and resistance are and how you can establish them.
Why support and resistance are important?
With the help of support and resistance, you can identify the price pattern in binary options trading. When you know the direction of price movement, you can select call or put options depending on the nature of the market.
By analyzing the support and resistance level, you can even know the right time to enter and exit a market. Here’s a quick example to understand how support and resistance level works.
Let’s assume that the shares of a company, say XYZ, are bouncing between $750 and $800. These are the support and resistance level. If the price of XYZ falls towards $750, you can place a call option near that amount.
Similarly, you can place a put option if the price of XYZ company goes towards resistance level.