trend trading strategy binary options

Trend channels are a highly useful technical analysis and trading tool. Trend channels are easy to depict and provide trade ideas and entry signals, with the proper strategy. Here I'll show you what these technical tools are and a simple and useful tendency channel binary trading strategy.

Trend Aqueduct

A trend channel is two lines that run along the price highs and toll lows of a trend. Typically these lines should run pretty close to parallel of each other. If lines are converging on each other this is probable a wedge pattern, and if the lines are moving away from each other, this could be a broadening wedge. These are different patterns birthday, so ideally we want the trendlines running pretty much parallel to each other. Figure 1 shows a trend channel in General Electric (NYSE:GE) stock. The lines are pretty shut to parallel with each other, and the lines are touching near all the major price peaks and troughs.

Effigy 1. Tendency Channel – General Electric Daily Chart

Cartoon a Trend Channel

A trend channel is a guideline, therefore, I prefer it to run forth multiple high and depression points, instead of running along only the farthermost high and low points. I like this method because usually markets don't move in perfect trend channels anyhow. Rather, the price may movement simply above or below information technology before reversing course and heading dorsum to toward to the other side of the tendency aqueduct.

Therefore, I use "lines of best fit" when drawing tendency channels. Don't worry if the lines don't perfectly incorporate all the price action, because it isn't necessary to get quality trade signals.

Trend Channels Trading

Trading tendency channels, when y'all find them, involves a surprising elementary strategy. The get-go step is to find a trending asset. Then focus on assets which are moving in a relatively rhythmic style, such as General Electric in figure 1. Once the trendline are fatigued the cost seems to gravitate toward these lines; moving into the vicinity of the line and and so reversing course.

Almost traders brand an fault in that they jump into trades too before long. They assume the price will stay within the trend aqueduct, but as effigy ane showed often the toll volition overshoot the trend channel resulting in a loss or a poorly timed trade. Another trouble is that traders wait for the price to affect one of the trendlines before ownership (lower trendline) or selling/shorting (upper trendline). As figure 1 showed though, markets don't movement perfectly and it is highly improbable that the price will movement right to the trendline and then reverse.

The following trend channel trading strategy takes care of these 2 issues. It requires that y'all're patient and let the marketplace make up one's mind when you make your merchandise, and not the other way around.

Trend Channel Trading Strategy

The rules for trend channel trading are simple. In one case you've found an asset yous want to trade and drawn your trendlines, expect for the price to move toward i of the trendlines.

The simplest trades are when the toll comes very close to ane of the trendlines, or the cost moves through information technology. When either of these scenarios occurs, as presently as you come across ane bar moving in the contrary management (dorsum toward the opposite side of the trend channel), accept a position.

For case, if the price is dropping and comes very shut to the lower trend line expect for the price to start moving higher (toward the upper trend channel line). When it does, take a long position (buy call). Same for if the price pierces 1 of the lines. For example, if the price rallies slightly above the upper trendline, watch for the aforementioned reversal blueprint. You want to encounter the toll contrary, for at to the lowest degree i bar, and when it does you have a short position (buy put).

Figure two shows a zoomed in shot with a couple examples in General Electric stock.

Effigy two. Trend Aqueduct Trading Examples – General Electric Daily Nautical chart

When the toll doesn't reach i of the trendlines the strategy can still be used, but with a few cautionary notes. If y'all are going to trade reversal signals inside the trendlines, ideally these signals should occur within about 2% of one of the trendlines.

Figure 3. Tendency Channel Trading within the Channel

Figure iii shows an example where the price didn't reach the upper line, merely was yet a tradable reversal, since it came with a few percent of the trendline. In this case, the trendline at the fourth dimension of the bar was intersecting at 24.75. So two% of that is roughly fifty cents. That means the price must achieve at least 24.25 (24.75-0.fifty) in lodge to have the trade. The price reached 24.45, which is closer to the trendline, then the trade is taken.

By just taking the trades that accomplish shut to the trendlines, bear upon the trendlines or slightly penetrate the trendlines we avoid much of the whip-saw like movement that occurs toward the middle the channel. While it won't always exist the case, the reversals are quite decisive near the trendlines.

Exiting

If trading binary options your go out is straight forward: get out 2 to three confined after your entry. For example, if you are trading on a v minute chart, you'd want to cull an expiry that is roughly 10 to fifteen minutes away.

If trading traditional markets such every bit forex or stocks, leave your position at 70% of trend aqueduct. For case if the tendency channel is $3 wide and you lot get long nearly the bottom you'd exit at $iii×0.70=$2.25 from the low of the range. Effigy 4 shows an example of this, as well every bit where to place a finish loss. A terminate loss should be placed below the recent swing low for long trades, and above the recent swing loftier for short trades.

Figure 4. Tendency Channel Trading Exit Point

Concluding Word

If the trend channel is up, ideally focus on long trades which volition position you in alignment with the uptrend. If the trend is down, ideally focus on short trades which will position you lot in alignment with the downtrend. Also, spotter for reversals that occur near the trendlines, and don't worry nigh what happens toward the middle of the tendency channel. Don't assume a reversal will occur. Instead, wait for the price to "bounce" off a trendline for at to the lowest degree 1 bar before taking a trade.