support and resistance Binary Options 2020

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Trading Guide: Support and Resistance Trading with Binary Options

One of the first things many forex traders learn when they start out are the definitions of support and resistance

The support/resistance trading strategy is used for both short and long-term binary trading. With it you take into account historical levels that a certain currency, stock, commodity or index has reached and reversed from.

To be able to understand this strategy, one has to know the definitions of support and resistance. The first is defined as a historical level that a certain price has previously been unable to fall below, or a position that a lot of buyers enter. For resistance levels it’s the opposite – a level that the price reaches, but regularly falls down from, as more traders start selling it.

In order to take advantage of how this style works, there needs to be some knowledge of charts and how to read them. This starts with selecting the most suitable chart type such as Japanese candlesticks, bar, line etc. After this comes the establishiment of previous patterns and occurrences of the price reaching a certain level and then backing off it. These need to be found over a long enough period (for turbo trades this can be looking at 30 minutes or a full hour back and further increases with the longevity of the binary option that is being traded).

There is no preset number of these occurrences that can fully guarantee profitability (just like there is no single trading strategy that guarantees success), this would have to be determined by traders themselves.

After identifying the levels the next most important thing is entering the trades at the correct moment. This would be when the price reaches the respective support or resistance and is believed to be on the verge of reversing, or has already begun doing so.

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Binary options traders have adapted the strategy to turbo options that last several minutes or seconds. They have been popular in slower markets, where timing has an even greater importance as the window of opportunity can last several seconds. This would be between the close of the US stock markets and the open of the Australian one. During this time, binary option brokers still offer currency trading for the most popular pairs, albeit not on the shortest types of options.

Hourly and daily trades are also possible using this strategy. This would almost always fall within the most active hours, as the largest number of testing support and resistance levels happens then. Other factors such as news, announcements and economic data come into play here and traders use them to confirm stronger levels on which they can trade.

In the above example you can see a recent four-hour chart of USD/CHF with two buying signals and three selling ones, indicating the currency pair was moving in a range for this period – the most suitable ground for support/resistance trading.

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The strategy as a whole has to be based on previous research that provides some assurance that the levels will not only hold the current price direction, but also make it reverse. There are no general guarantees that this will happen, as each new situation comes with a multitude of other factors. Regardless, some traders have come to appreciate the relative simplicity the strategy offers when it comes to deciding the timing and direction of their trades.

Support and Resistance Strategy

The support resistance strategy is one of my favorites.

Maybe being a FOREX trader explains why is this one of the strategies that I use most often in Binary Options. I especially use it if the market is in a neutral trend and during the off-hours when important news that can create volatility and sudden changes in the direction of the market will not be emerging.

The support and resistance strategy is very used in the Forex and Stock markets with very interesting results.

There are several automated trading systems (algorithmic trading) that are developed using the support and resistance strategy as their trading basis.

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  1. Each platform has its differences. If you try different platforms you may find those more suitable to your trading style.
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  6. Each platform has its owns indicators and trading tools, imagine you found a new stratey and it does not work on your broker because it uses an indicator that your broker does not offer.

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The support and resistance strategy should be used with the following criteria:

1 – Neutral Trend

When the market is in a neutral trend, typically, it is because it is not moving much and the lowest point is bounded by a support or resistance and the highest point is bounded by another support or resistance.

Usually, a neutral trend occurs during the hours when there isn’t important breaking news and during low volatility hours. Or simply when the market volatility is decreasing or the market is awaiting important news. In the image below you can see a neutral trend.

Trending Upwards ( Bullish ) | Trending Downwards ( Bearish ) | Moving Sideways ( Correction )

2 – Platform

In order to use the support and resistance strategy you must have a platform installed on your computer. I use the MT4 platform that is widely used in Forex by most Brokers. Simply open a Forex demo account at a Forex Broker and then download the platform software. It is completely free.

3 – Time Bars

The frequency that I use for the support and resistance strategy is 15 minutes. Each candle/bar lasts 15 minutes.

You can even try the 5-minute candle or some of the longer ones like the 30 minutes and one-hour candles.

You should match the bar/candle time period on the platform to the trade’s time period.

Thus, if you use a 15-minute bar/candle, open a 15-minute trade. It is important to do several experiments because the effectiveness of this strategy varies from asset to asset.

Some work best with smaller time intervals, while others work best with larger intervals. Some of the assets that work well with this system are USD/CHF, EUR/USD, EUR/CHF, USD/CAD.

4 – Support and Resistance

The support and resistance are the prices of an asset where there is a resistance to surpass that value.

There are indicators that calculate the daily support and resistance for each asset type.

The distance between the support and resistance varies from day to day and is related to the existing variations on each asset on the previous day.

Normally the pivots, the daily support, and resistance are calculated at midnight, local time for the Broker.

When the market is in a neutral trend, normally the support and resistance prevent the price from surpassing the values; the price reaches the value, and then drops or rises back.

This situation sometimes lasts the better part of a day, which allows for a lot of trades with a high percentage of profitable trades.

5 – Indicators

I use a paid indicator that calculates the pivot, the support, and resistance using the Fibonacci system.

For those who want to try this strategy and open an account with one of the Brokers that I recommend on this site, I will send the Indicator free of charge.

Then you just have to add it to the platform.

How to use the Support and Resistance Strategy:

Once you have the MT4 platform installed on your computer and the indicator that I offer, you only have to identify whether the given asset is in a neutral trend (see image at the beginning of the article).

Use the 15-minute bars/candles (or another of your choosing).

When the price of the asset is hitting a resistance you should trade a PUT or Low. Because that price “prevents” the value from continuing to rise and it is likely that on the next bar/candle the value will fall.

When the price of the asset is hitting support you should trade a CALL or High.

Because that price “prevents” the value from continuing to fall and it is likely that on the next bar/candle the value will rise.

Please note that this strategy works during hours that important news is not breaking.

To keep abreast of breaking news use this site. Adapt the site’s time to your computer’s time so that when high-impact news breaks (with the red icon) you are not using this strategy. In this situation, you can use this strategy.

So that the entry (opening of the trade) is the most perfect possible, in addition to the support and resistance indicator, you can use the Stochastic Oscillator to assist you on the points of entry.

When you see that the price is close to reaching a resistance or support, look at the Stochastic indicator and check if it is being overbought or oversold (above 80 or below 20).

If this happens, the likelihood of success increases even more.

Below is an image that shows a little of what was explained about the support and resistance strategy.

If you have any questions or suggestions about the support and resistance strategy do not hesitate to contact me or leave your comment below.

Tips For Using Support And Resistance

This is a compilation of tips and tricks I know for trading with support and resistance lines. The tips range from where to draw the lines, to how to confirm the lines, ways to trade and how to derive some targets. For more information on what, why and how support and resistance lines work check out my other articles on the subject. I have been using these lines for over a decade and can say, with confidence, that they are a very valuable tool for traders and one that should not be ignored. No other indicator can give you as precise a target for potential entries and exits.

Support and resistance lines denote areas where traders are buying and selling stocks. When there are enough buyers to maintain or lift prices it said that the market is in support prices. When there are enough sellers to maintain or push prices lower than it is said that the market is resistant to higher prices. The interaction of these two forces is the fundamental driver of market action. Corporate data, economic data, news, expectations, fear and greed lead market participants to choose one side or the other and that is what we read in the charts.

Time Frame – Time frame is an important aspect of support and resistance. Longer term support will be stronger than shorter term support, and also shorter term resistance. It is necessary to be aware of where these lines fall in higher time frames than what you are trading in order to avoid false signals. For example, a resistance line drawn from a chart of weekly prices will likely provide enough resistance to negate a signal taken from a chart of daily or hourly prices. You can avoid this by drawing lines on weekly charts in one color, daily in another and hourly in another. This way you can tell which lines are more or less likely to affect your trades once prices action reaches them.

Long Lasting – Support and resistance lines are one of the longest lasting technical indicators and signal generators I know. Once drawn, these lines can provide target areas where signals can be found far into the future. Lines I have draw during reversals, continuations and break outs years in the past without fail affect price action in the future whenever price action returns to that level. This is an example of the underlying idea behind why support and resistance lines work. These lines mark price levels where buying or selling was heavy, or reversed, or consolidated. Once price action move on from this point the market is left split between losers and winners. When price action returns to the same level losers will want to get out and/or winners will want to get in. Look at the chart below. A support level established in 2004 affected prices 4 and 10 years in the future.

Gaps And Windows – Gaps in price action, otherwise known as windows, are places on the chart where price action moves so rapidly as to create a gap between one day, or one candle, and the next. This can be caused by good or bad news of a wide variety but regardless of the cause, presents the same opportunities for trades. First, gaps and windows provide strong support and resistance. This is usually because the market moved so fast that many traders were left out. As prices retrace back to the gap level those traders who were left out of the move will scramble to get into the next one. Now, gaps provide not one, but two different levels of S/R; the upper and lower ledge, or window sill. In the case of an uptrend and up gap, the upper sill will provide support but if broken, the lower sill becomes the target. The same is true in reverse for down trends. I should also note here that most gaps will eventually close, that is, once price gaps up, sooner or later it will retrace all the way to the original price level.

Fibonacci Retracements – Fibonacci Retracements are a great tool for finding support and resistance levels but also for confirming a support or resistance level. Not only that, depending on which retracement level is closest or coincident with your support/resistance line you can also make further predictions about price is heading.

Reflexive Theory Of Support And Resistance – It is well known that support and resistance lines that have been broken will reverse in nature. This means that if prices are moving up and break through a known resistance level that resistance level then becomes support. When prices retrace to the break out level you can expect for buyers to step in. Why is this? Think about it like this; resistance is there because a large part of the market wants to sell, the breakout occurs because over time buyers over power the sellers. When prices move past this level they can move fast which can leave a lot of potential bulls out of the market, and also prevent bears from exiting at a price of their choosing. When prices retrace to the break out level it provides an additional exit for those on the loosing side of the line and an additional entry for those on the winning side. Look at the chart below, this is the same chart as above but with different annotations. See how support held in 2008, then broke and then provided resistance in 2009. See how prices approached that same resistance line in 2020, were held back. See how that line was then broken in 2020 and became support.

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