binary options trend line strategy

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

Trend Channel

A trend aqueduct 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 likely a wedge design, and if the lines are moving away from each other, this could be a broadening wedge. These are dissimilar patterns birthday, so ideally we want the trendlines running pretty much parallel to each other. Figure one shows a tendency aqueduct in General Electric (NYSE:GE) stock. The lines are pretty close to parallel with each other, and the lines are touching nearly all the major price peaks and troughs.

Figure 1. Trend Channel – General Electric Daily Chart

Drawing a Trend Channel

A trend channel is a guideline, therefore, I prefer it to run along multiple loftier and low points, instead of running along only the farthermost high and depression points. I similar this method because usually markets don't move in perfect trend channels anyway. Rather, the toll may motility just above or below information technology before reversing grade and heading back to toward to the other side of the trend aqueduct.

Therefore, I employ "lines of best fit" when drawing tendency channels. Don't worry if the lines don't perfectly contain all the price activity, considering it isn't necessary to get quality trade signals.

Trend Channels Trading

Trading trend channels, when you 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 way, such as Full general Electric in figure 1. Once the trendline are fatigued the price seems to gravitate toward these lines; moving into the vicinity of the line and so reversing course.

Most traders make an mistake in that they jump into trades besides soon. They assume the price volition stay within the tendency channel, merely as figure i showed frequently the cost will overshoot the trend channel resulting in a loss or a poorly timed trade. Another trouble is that traders wait for the toll to touch ane of the trendlines before buying (lower trendline) or selling/shorting (upper trendline). As figure 1 showed though, markets don't motility perfectly and information technology is highly improbable that the price will move correct to the trendline so opposite.

The following trend channel trading strategy takes care of these two issues. It requires that you're patient and let the market determine when you make your trade, and non the other manner around.

Tendency Aqueduct Trading Strategy

The rules for trend channel trading are simple. One time y'all've institute an asset you want to merchandise and drawn your trendlines, wait for the cost to motility toward one of the trendlines.

The simplest trades are when the price comes very close to ane of the trendlines, or the price moves through it. When either of these scenarios occurs, as soon as you run into one bar moving in the opposite direction (back toward the opposite side of the tendency aqueduct), take a position.

For example, if the cost is dropping and comes very close to the lower trend line expect for the cost to start moving higher (toward the upper tendency channel line). When it does, take a long position (buy telephone call). Same for if the price pierces i of the lines. For example, if the price rallies slightly in a higher place the upper trendline, picket for the same reversal blueprint. You want to see the price opposite, for at least one bar, and when it does you accept a short position (buy put).

Figure 2 shows a zoomed in shot with a couple examples in General Electrical stock.

Figure 2. Tendency Channel Trading Examples – General Electric Daily Chart

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

Figure 3. Trend Channel Trading inside the Channel

Figure three shows an example where the toll didn't reach the upper line, but was still a tradable reversal, since it came with a few percent of the trendline. In this case, the trendline at the time of the bar was intersecting at 24.75. So 2% of that is roughly 50 cents. That means the toll must reach at least 24.25 (24.75-0.50) in lodge to take the trade. The price reached 24.45, which is closer to the trendline, so the trade is taken.

By only taking the trades that attain close to the trendlines, touch 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 e'er be the case, the reversals are quite decisive nigh the trendlines.

Exiting

If trading binary options your exit is straight forrad: exit two to 3 bars after your entry. For instance, if you are trading on a 5 infinitesimal chart, yous'd desire to cull an expiry that is roughly x to xv minutes away.

If trading traditional markets such every bit forex or stocks, exit your position at lxx% of trend channel. For example if the trend channel is $3 wide and y'all go long near the bottom you'd go out at $3×0.70=$2.25 from the low of the range. Figure 4 shows an instance of this, equally well as where to place a stop loss. A end loss should exist placed below the recent swing low for long trades, and above the contempo swing high for curt trades.

Figure 4. Trend Aqueduct Trading Leave Point

Final Word

If the trend aqueduct is up, ideally focus on long trades which will position you in alignment with the uptrend. If the trend is down, ideally focus on brusque trades which will position you in alignment with the downtrend. Besides, watch for reversals that occur near the trendlines, and don't worry about what happens toward the center of the trend channel. Don't assume a reversal will occur. Instead, wait for the price to "bounciness" off a trendline for at least one bar earlier taking a trade.