Binary options are simple: support and resistance levels. Part 1.
- VFX Blog
- For beginners
If you analyze how binary options signals work and watch the price movement of any financial asset, you can see areas where the movement "stops", as if it is facing a strong obstacle. The trend can turn around, continue moving, or go sideways. Such key zones are called support and resistance levels.
From a financial market, the appearance of a level of support and resistance has two reasons:
1. The action of market makers
In fact, this is the price at which there is a large interest or accumulation of pending orders. No matter what considerations guide market makers when choosing a particular level, it is important that they struggle to change the balance of power between buyers and sellers.
In the picture, the uptrend and the levels of support and resistance, constructed as required by theory - according to local maximums and minimums. It is logical to assume that bounces from support indicate that buyers have the potential to continue moving, and buyers at resistance points are trying to reverse the trend. The trading binary signal, when they succeed, will be the final breakdown of the support line.
Many theorists and analysts disagree with this, arguing that support and resistance levels only appear when market makers are interested in price. It is difficult to argue with this in medium- and long-term trends, but when trading intraday, where there are smaller and medium traders, additional factors appear. It is no secret that most traders studied according to classical works of Williams, Elder and other "gurus".
Everyone also knows about levels of support and Fibonacci resistance, therefore, when the price comes to calculated correction, there is a desire to close the current position “in theory”. This is just one example of how, solely on psychological factors, a new level can be obtained where it should not be in terms of the current balance of power.
Ways to build support and resistance levels
Similar to building candle patterns, the quality of future binary option trading signals depends on how a particular trader visually perceives chart. Where the novice sees nothing, the professional can find a reliable entry point, so there is no clear classification of zones where the price can slow down the movement. There are only a few universal methods for building support/resistance that can be used on any asset and timeframe:
Using multiple time frames
Like any other technical tool, the more reliable levels, larger timeframe on which they are built. Always start marking up with an interval of at least H1 and then switch to lower timeframes. At the same time, senior levels should be maintained; this will help not to lose control over medium- and long-term trends.
The levels of support and resistance should not coincide "point to point" especially since this rarely happens and top binary options signals take this into account. Usually, this is a zone of various sizes depending on the current volatility, where the price may stop in its movement.
Everyone knows the rule "the old level of support after its break becomes new resistance and vice versa - the old resistance becomes new support". The graph shows this trend as consistently higher local highs or lows depending on the direction of the trend.
Such "changing" levels are built only when they are fully formed. It is optimal when the price before the breakout was in brief consolidation. Now you can trade on-trend or on pullbacks.
Profit-taking and expiration calculation
As you know, in most cases the price of any asset is in the lateral range, so you need to trade correctly, and not just according to the trend. It is important to determine the size of the range of movement, and then support/resistance can be used to calculate the optimal values for the duration of live trading signals.
We always look at how the current support/resistance correlates with the higher timeframes. It will be better if they are as close as possible to each other, but always look at the situation. Perhaps the "long" levels can be ignored, especially on lower timeframes.
Examples of how binary options signals with confirmation from support/resistance levels:
50% trend correction
As practice has shown, the market often stops when the price reaches 50% of the pullback from the previous trend, goes into a sideways movement, where there are reliable levels of support/resistance.
From the picture of a view of market psychology, this behaviour looks quite logical - such deep adjustments raise doubts about the continuation of trend, and most traders are outside the market.
Return to the trading range
The main idea is that we first determine support/resistance between which price moves, and then we expect the appearance of clear reversal real binary options signals, for example, using the Price Action method. The picture shows how the Pin bar gives a clear buy signal from the support line.
"Event zones" are areas where the price chart reacts to strong events, such as the release of fundamental news or the appearance of a strong reversal signal. In the picture, we can see how the Doji candle indicates a strategy for binary options at the beginning of a downward movement.
When the price returns to this zone, you can look for additional confirmation from binary signals software for a sell trade that opens after breaking the lower limit, which is also a resistance. The expiration of a binary option is set at the opposite border (support) of the trading range.
Dynamic Support Levels
The above methods of constructing support and resistance levels can be attributed to "static" because it is assumed that they will not change over time. Another option would be to follow the levels after the price, as is done on Moving Average.
This approach better defines not only the current entry points but also a fundamental change in the market situation. Efficiency increases if the price moves in the “range” of the Moving Average as Bollinger Bands do.
In the second part of the article, you will learn how to trade binary options using standard support/resistance levels.