Binary Options Breakout Strategy

March 4, 2014 8:54 am

breakeven numbersBinary options trading is all about predictions. If you can make accurate enough predictions based on the information you’re presented with, then you can make a nice profit without too much of an effort.

However, predicting the price movements isn’t easy, especially on the one-minute scale you will be working with (after all, they’re called 60-second binaries for a reason) which means that you need to have a viable strategy to implement in order to improve your chances of profiting.

Never take unnecessary risks. Even though it’s true that 60-second binaries require you to be quick in your decisions, that doesn’t mean that you’re supposed to commit to bad trades. Your strategy will determine what is a good and what is a bad trade. We’ve already covered the importance of strategies and the skills you will need in order to become a good trader in another section. In this one, we will talk about the breakout strategy.

What is a breakout strategy?

In the periods of stagnation on the market, prices begin to consolidate on certain positions. These positions tend to form levels of support and resistance. When the price can’ fall below a certain level, then we call that level support. In quite the same manner, when the price can’t go above certain levels, we call that level resistance. The levels of support and resistance are pretty obvious in charts.

When the price of an asset touches the level of support or resistance but doesn’t break them, we say that the price is testing them. When the price manages to break levels of support or resistance, then we are talking about a breakout. The breakout generally needs to be confirmed in the long run because sometimes there are “fake-outs” but in general a breakout in either direction signals the forming of a new trend.

Traders who use the breakout strategy wait for a breakout to occur and enter a position early in the new trend. Once the new trend is formed, the former level of support or resistance (depending on where the price broke out) becomes the opposite of what it used to be (which we call a reversal). For example, if the price broke the resistance levels in an upward direction, then the previous resistance level becomes the support level for the new trend. If the price broke downwards, then the previous support level becomes the resistance level for the new trend.
Rectangle with entry up and breakout up

In order to use this strategy, the trader has to carefully follow the charts and price fluctuations in order to spot the breakout. Once he see the support or resistance being broken, he is ready to enter a position. The problem with this strategy in the 60-second binaries’ real m is that it cannot be confirmed right away. Usually the confirmation that we have a breakout in normal trading comes from the price closing higher than the level of resistance or lower than the level of support. Nonetheless, the strategy can be used because we don’t really need to confirm it in the long run.

We need it to be there for the next minute. Once the price breaks in either direction, it will immediately try to return to the level before it was broken but will probably be rejected. We still need to wait for a bit to see how persevering the price is. If it doesn’t get back to the previous levels in two attempts, this is where it’s a good idea to enter the trade. If the price broke upwards, then you place a call bet and if it went downwards, you place a put bet. The fact that it didn’t get back to previous levels indicates that breakout is persistent enough. Keep in mind, though, that there is still a chance that the price returns to the original boundaries in the third attempt. This is the risk of the strategy because of its short-term nature.

A few tips

Many brokers today give you the opportunity to observe past trends in order to make up your mind of how you want to invest. There are also tons of independent tools, apps and sites online. All you have to do is find them. It would be a good idea to learn how to read candlestick chats because they’re widely used.

Money management is important. You should risk more than 5% of your capital on a single trade. Follow this rule and you will significantly cut your losses. Also, before you actually start trading your own money, try out every new strategy using the demo. This way you won’t risk your own money and in the same time you will find out how well you know the strategy, in reality.

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