Published on November 22nd, 2019 | by Sara Kane0
A Comprehensive Guide to Trend Lines Strategy
As a binary options trader, you would often hear about various trade tools and techniques that are part of the trading game when it comes to forex and binary options trade markets. In order to excel and be successful in this highly competitive and volatile trade niche, you have to stay abreast of the recent developments and trends. A lot of traders make the common error of overlooking the significance of these trade strategies and applications, however, you absolutely need to master them in order to interpret the market analytics, technical charts etc. One of the most commonly used techniques to make calculated trade decisions is the use of ‘trend lines’ (sometimes called, trend-line analysis).
What are Trend Lines?
It is important to understand trend lines from the very fundamental aspects. In simple terms, trend lines are one of the commonly used and most widespread market analysis techniques. However, the fact that it is labelled as a common technique does not mean that it is lesser in importance or that it is the easiest of all. As a matter of fact, trend lines analysis happen to be one of the most effective and important techniques when it comes to making winning binary options trade decisions.
It is important to understand how to actually draw the trade lines and once you do that, you can really focus on interpreting them. For instance if you observe an uptrend (also known as a bullish trend) you would look for the lowest point and draw a line that should cross the low that is next high; you would then extend this line to the end of time-frame of interest. On the other hand, upon observing a downward-trend (bearish) you would do the same process in opposite trend directions. After completing the trend line drawing, you may analyze any possible outer or inner trends. Therefore, to be proficient in understanding and interpreting trend lines is paramount for the overall success in binary options market segment.
What Makes Trend Lines so Powerful?
Trend lines analysis is employed to make everyday trading decision and is used frequently by a majority of traders in order to formulate the diagnostic opinions about various market patterns. By simply incorporating the insights from a comprehensive trend lines analysis, the traders no longer need to look for other market trend indicators (although, triangulating from multiple sources never hurts!).
Trend lines are not only powerful tools but are also quite easy to master and then put to use; they reveal price trends that are moving higher along less down-turn or downward trends that indicate price movements towards lower side along a less up-turn. If you can interpret what trend lines analysis is depicting, you can conveniently identify various price trends in the chart. It is this depth and breadth of trend-line analysis that makes it all the more powerful and a very critical component of conducting market analysis in the binary options market.
Few Insights from Trend Line Interpretation
Interpreting a trend line holds importance because it helps identify the prevalent market sentiment and that is very critical because when you merge it with other technical indicators, they may very well indicate a consistently strong market trend. This information comes handy when you are in the process of making a decision about which direction to place your binary options trade; certainly, you should follow a strong trend direction. However, a stronger market sentiment may also indicate an upcoming reversal in market trends. It is advisable to place the trade by making use of short time-frames along a strong sentiment in market.
An important thing to understand about trend lines is that they aren’t primarily an exclusive indicators, instead they function more as a markers that outline the boundary of a traders’ decisions in accordance with the prevailing market conditions. Therefore, a comprehensive trend line analysis is paramount to gaining in-depth insights about potential movements of price.
Another important source of insight is the trend line formation itself. For example an outward trend serves more of a boundary for the price that a trend would have a tough time to break. A lot of traders see an inner trend as one of the promising indicators or a good sign, denoting that the sentiment and overall momentum may change at a specific time in dynamic conditions. In essence, trend line types (i.e. inner vs. outward) would enable you to pinpoint the most suitable price for the next binary options trading move.
How to Incorporate Trend Lines Strategy to Your Trading?
Trend lines are crowned as a strong identifier of price movements and this makes them very important in binary options trade market. Moreover, they are also significant when you are interested in spotting over-sold and under-sold conditions. As a rule of thumb, always remember that you must call trades when observing an over-sold market trend and place trades in an under-sold market trend.
In order to make use of the trend line strategy, you must understand the key concepts of resistance and support lines. Support lines are concerned with a line that is going through the low-ends of price extremities, while resistance lines are crossing through the up-trends of such price movements. A support line denotes that movement of a price below that specific level wouldn’t happen, however, for the resistance line the interpretation is concerned with less likelihood of a price moving beyond the cust off mark. The space between support and resistance lines have been termed as ‘price channel’ and usually market price stays within this area. Therefore, it is a wise strategy to call options when price movement is getting nearer to support line and go for trade options when the price movement is near the resistance line.
In conclusion, even though the trend lines strategic analysis appear to be overly simplistic, it holds great potential and plays a critical role towards the success of trading decisions on a daily basis.
Here are few more articles, to sharpen up your binary options analytic skills…
- Fundamentals of binary options market analysis
- A Comprehensive Guide to Market Analysis for Binary Options
- Understanding Time Frames and Trends in Binary Trading
- Should You go for a Technical or Fundamental Analysis?
Have you been using trend line analysis in your binary options trade decisions? Share with us your experience, challenges or any tips regarding trend line strategy in the comments below…
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