Support and Resistance Strategy for Binary Trading

March 6, 2014 7:55 am

Binary Options Trading StrategyWhere the breakout strategy required you to identify levels of support and resistance and then wait for a breakout point, the support/resistance strategy will require you to identify them and then utilize pattern within the levels. How can you do that? Read on and find out.

What is the support/resistance strategy?

The support/resistance is a short-term strategy that helps you utilize the levels of support and resistance to your advantage. How is this possible? It’s pretty simple, really. Once the price tests the support/resistance, it tends to go in the opposite direction. This is where you enter the trade – right after the price has tested the levels. Of course, this doesn’t guarantee anything, but it leaves you with a nice chance of winning.

60-second binaries are fast-paced trades so you need to be quick about it and not let yourself fall in a pattern of just waiting and looking at the charts because you might miss the moment and enter the trade in a wrong time, when the price is ready to reverse directions again. You need to be really quick in order to utilize this strategy in order to improve your chances of winning. Speed isn’t everything, though. It’s also important to study the charts and establish previous patterns before you decide to enter a trade. The more information you have, the more likely you are to be successful.

What do you need to know in order to make this strategy work?

The required skill set here is pretty much the same as the one required by the breakout strategy. You need to know at least basic technical analysis. You will have to read charts, so you need to be familiar with the type of chart your broker is using. The most popular today are the candlestick and bar charts and they are the ones you should utilize because they show you lots of information and make it easy to establish a support and resistance level. Of course, you also need to know what support and resistance are and how to establish them.

When the price can’t go below a certain level, we call that a support level. In order to establish support, the price has to consistently be unable to breach that level. In the case of support, it’s the same, but the price can’t above a certain value. Once more, this phenomenon has to be observed several times in order to establish it.

The best thing about this strategy is that it gives you a great chance of success if you’re quick enough. Usually when the price tests the level of support/resistance (which means reaching it without breaking it), it goes in the opposite direction, which is when you should enter the trade. You need to be quick, though. Enter too early and you may hit it right when it tests the level, which means that it will be at its highest/lowest and you will lose (unless you’ve made the right call, which is not likely if you screwed up your timing). Enter too late and you may hit the reversal when the price had changed direction, gone up or down, and now is reversing it again.

It’s important to note that levels of support/resistance are established when there are relatively small price movements. The price will move between the support/resistance levels and these movements can be quite fast, albeit insignificant in the long scheme (because there is little trading of the underlying asset, the price is stable in the long run which means that these fluctuations aren’t relevant for long-term investors).

What this means is that you need to be precise and make quick decisions, as well as enter trades at the right time. The safest time to enter is right after the support/resistance has been tested. This is when the price is sure to be in the opposite direction at least for a little while. If its tested the support, then place a call trade because it’s likely to go up. If it’s tested the resistance, place a put because it’s likely to go down.

In order to minimize the risks, you shouldn’t trade more than 5% of your capital. All in all, there is no such thing as a “sure strategy” so you need to always be prepared for the possibility that you will lose.

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