Support and Resistance Binary Options Trading Strategy

Identifying major Support and Resistance levels is one of the most crucial issues of technical analysis.

 

What is Support and Resistance?

■ Support levels are the historical price levels which an asset or an index has shown difficulty falling below. At those levels a lot of traders tend to buy the market (Enforced Demand).

■ Resistance levels are the historical price levels which an asset or an index has shown difficulty break through. At those levels a lot of traders tend to sell the market (Enforced Supply).

 

Support & Resistance Timeframes

Traders have to be always aware of the close support and resistance levels of their trades, no matter their timeframe.

■ Short-Term Support & Resistance (one day to one month)

■ Mid-Term Support & Resistance (one month to one year)

■ Long-Term Support & Resistance (one year to several decades)

Support & Resistance levels are not changing as Oscillators, Trend-lines etc. Support & Resistance levels are usually characterized by stability over time.

 

 

How Support & Resistance Levels are Formed?

Support & Resistance levels are basically psychological levels of demand and supply. The more times an asset / index has proved unsuccessful in breaking certain price levels the stronger the perception of the existence of certain support / resistance on these levels.

Chart: Support Levels

Chart: Resistance turns into Support

 

Designing a Support & Resistance Strategy for Trading Binary Options

Support & Resistance trading strategies aim to take advantage of the enhanced demand and supply found on major support and resistance price levels.

Implementing the Support & Resistance Trading Strategy

If the price of an asset is testing an important support or resistance price level the only thing you have to do is to trade it on the exact opposite direction.

■ If the price of an asset is testing a major support level then you buy a Call Option (↑)

■ If the price of an asset is testing a major resistance level then you buy a Put Option (↓)

Trading Strategy’ Confirmation

Confirmation comes from a significant increase of the trading volume at certain price levels.

Using the Right Timeframe

The most crucial step in order to implement this strategy is to identify accurately support and resistance in the correct timeframe. If you try to trade short an important long-term support or resistance you will probably fail. You must trade the right support or resistance in the right timeframe. For example if you trade 5-minutes High/Low options you should use support and resistance on a short-term chart.

How you can Define Important Support or Resistance

The best charts to define support and resistance are the candlestick and bar charts. Either you will find major support and resistance using the world wide web or you will form support and resistance tables yourself. You need to study historical charts in order to establish the right support and resistance by yourself. You will have to be aware about the basics of technical analysis.

Support and Resistance on EURUSD

Here is a table with EURUSD support and resistance levels. I have published this table in one of my other web-sites, TradingCenter.org. I provide you these levels for educational purposes only.

Table: EURUSD Long-Term Support & Resistance 1991-2013

PRICE LEVEL

IMPACT

YEAR

1.6000-1.6040

VERY STRONG

2008

1.5151

STRONG

2009

1.4941-1.4971

STRONG

2011

1.2425-1.2426

STRONG

Several years

1.2310-1.2370

STRONG

Several years

1.2100-1.2140

STRONG+

PERIODIC PIVOT (H/L) 1.21305

1.2035-1.2040

AVERAGE

2012

1.1603-1.1604

STRONG-

1992

0.8200-0.8230

VERY STRONG

2000

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The Safest Way to Trade Support and Resistance Strategy

The safest way you can trade via this strategy is when a major support or resistance level has been already been tested. That means that the price of an asset has already reached a price level and begun to move in the opposite direction.

 

Fast Response on Trade Execution

If you trade Turbo Options using a Support & Resistance strategy you must be very fast. Usually when the price of an asset tests a support or resistance level it moves to the opposite direction in great speed. Therefore you need to be quick in order to enter in the right price level and maximize your likehood of winning.

Price Ranges formed between Support and Resistance

Usually the price of an asset ranges between the first important support level (down-limit) and the first important resistance level (upper limit).

 

 

Support and Resistance deriving from Round Numbers

Round Numbers are traditionally influencing demand and supply in every market. It is a pure psychological factor with proven impact. Round numbers are rates with many zeros at the end. For example 1.3500 EURUSD, $50, $100, $150 levels for a share or a commodity. The price of any financial asset tends to find it difficult to break through round numbers at ones. Usually round numbers provide stable support and resistance levels. Note that you must gain experience on particular assets in order to evaluate the effect of round numbers on those assets. For example in Forex Trading, usually the rate of a currency is breaking 50 pips a round number before moving to the opposite direction.

This psychological impact is incurred also in Middle numbers:

■ Round Number: 1.3400, 1.3500

■ Middle Number: 1.3450

 

Support and Resistance deriving from Moving Averages

Moving Averages consist a very popular technical analysis tool. Moving average is the average price of a traded asset during a certain period.

Example with 200 days Simple Moving Average

The 200-day moving average of an asset is deriving if we sum all the closing prices of the past 200 trading periods and divide the result by 200.

Common Moving Averages

The most commonly used moving averages are the Simple Moving Average (SMA) and Exponential Moving Average (EMA). The most common periods to use a Moving average are:

■ 34 Trading Period

■ 50 Trading Periods

■ 200 Trading Periods

Moving averages form a constantly moving curve that may be used either for support or resistance levels.

 

Support and Resistance Strategy -Bottom Line

Trading binary options via the use of important support and resistance can prove profitable. The crucial issue remains how accurate and fast you will be able to apply this strategy. If you are a beginner choose definitely to test the strategy on a practice account. Furthermore as in case of every other strategy don’t risk too much in a single trade. Do not put more than 5% of you balance in any particular trade. The market can always surprise traders no matter how much professional and talented they are.

 

 

Support and Resistance Strategy for Binary Trading

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