Trend Following Binary Options Strategy

Trend channels are a highly useful technical assay and trading tool. Trend channels are piece of cake to draw and provide trade ideas and entry signals, with the proper strategy. Here I'll show you lot what these technical tools are and a simple and useful trend channel binary trading strategy.

Trend Channel

A tendency aqueduct is two lines that run forth 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 blueprint, and if the lines are moving away from each other, this could be a broadening wedge. These are different patterns altogether, then ideally we want the trendlines running pretty much parallel to each other. Figure ane shows a trend aqueduct in General Electric (NYSE:GE) stock. The lines are pretty shut to parallel with each other, and the lines are touching nigh all the major price peaks and troughs.

Figure one. Tendency Channel – Full general Electric Daily Nautical chart

Cartoon a Trend Aqueduct

A trend channel is a guideline, therefore, I prefer it to run forth multiple high and low points, instead of running forth only the extreme high and low points. I like this method because usually markets don't motility in perfect trend channels anyway. Rather, the toll may move only in a higher place or below information technology before reversing grade and heading dorsum to toward to the other side of the trend channel.

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

Tendency Channels Trading

Trading trend channels, when y'all notice them, involves a surprising simple strategy. The beginning step is to notice a trending asset. Then focus on assets which are moving in a relatively rhythmic way, such equally General Electric in figure 1. Once the trendline are drawn the price seems to gravitate toward these lines; moving into the vicinity of the line and so reversing class.

Most traders make an error in that they jump into trades too soon. They presume the toll will stay within the trend channel, but as figure 1 showed frequently the cost will overshoot the trend aqueduct resulting in a loss or a poorly timed trade. Another problem is that traders wait for the toll to bear on one of the trendlines before ownership (lower trendline) or selling/shorting (upper trendline). As figure 1 showed though, markets don't move perfectly and it is highly improbable that the price will movement right to the trendline and so reverse.

The following trend channel trading strategy takes care of these 2 problems. Information technology requires that you're patient and let the market determine when you lot brand your trade, and not the other way around.

Trend Aqueduct Trading Strategy

The rules for trend channel trading are uncomplicated. Once you've institute an asset you desire to trade and drawn your trendlines, await for the toll to motility toward 1 of the trendlines.

The simplest trades are when the price comes very shut to i of the trendlines, or the cost moves through it. When either of these scenarios occurs, every bit before long as you come across one bar moving in the reverse management (back toward the opposite side of the trend aqueduct), take a position.

For example, if the price is dropping and comes very shut to the lower trend line look for the price to start moving higher (toward the upper trend channel line). When information technology does, take a long position (buy call). Aforementioned for if the price pierces one of the lines. For example, if the price rallies slightly above the upper trendline, scout for the same reversal pattern. You want to encounter the price opposite, for at least one bar, and when it does y'all take a short position (buy put).

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

Figure ii. Trend Channel Trading Examples – General Electrical Daily Chart

When the price doesn't accomplish ane of the trendlines the strategy tin still be used, just with a few cautionary notes. If you are going to merchandise reversal signals inside the trendlines, ideally these signals should occur within about 2% of one of the trendlines.

Effigy 3. Trend Channel Trading inside the Channel

Figure 3 shows an example where the price didn't achieve the upper line, but was notwithstanding 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 ways the price must reach at least 24.25 (24.75-0.50) in guild 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 reach 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 near the trendlines.

Exiting

If trading binary options your exit is direct forward: exit two to 3 bars after your entry. For example, if y'all are trading on a five infinitesimal nautical chart, you lot'd want to choose an expiry that is roughly ten to 15 minutes away.

If trading traditional markets such as forex or stocks, get out your position at 70% of trend aqueduct. For example if the trend channel is $3 wide and you go long near the bottom you'd exit at $3×0.70=$2.25 from the low of the range. Figure iv shows an case of this, equally well every bit where to place a terminate loss. A finish loss should be placed below the recent swing low for long trades, and in a higher place the recent swing high for short trades.

Figure four. Trend Channel Trading Leave Point

Final Word

If the trend aqueduct is up, ideally focus on long trades which will position yous in alignment with the uptrend. If the trend is down, ideally focus on short trades which will position yous in alignment with the downtrend. Also, watch for reversals that occur near the trendlines, and don't worry about what happens toward the center of the tendency aqueduct. Don't presume a reversal will occur. Instead, expect for the price to "bounce" off a trendline for at to the lowest degree 1 bar before taking a trade.