Trend Lines Strategy
The trendline strategy has come a long way for trading in general with great success. Being one of the simplest strategies that can also be applied in trading binary options with great success.
For some reason people completely dismiss this strategy as it seems so simple, so it doesn't mean to be profitable. They tend to look for more “sophisticated” and complicated type strategies, believing that such “sophisticated” strategies can be more profitable.
While the trendline strategy may be something you've seen as a basic 101 strategy, it shouldn't be underestimated when it comes to accuracy or profitability. Keeping in mind that if this strategy is applied correctly, this basic principle of trendlines may surprise you.
Definition of Trend Lines
A trend formed by the movement of the prices of an asset has successive tops and bottoms. Trend lines should be plotted on the chart following these points. You should look for a sequence of distinct tops or bottoms, so that the reference points are not too close, and the more points the line passes, the better. The non-disruption of this trendline by the price line confirms the continuation of the price trend. A breaking of a trendline is a sign of weakness in the price trend and the probability of its reversal is high.
The support trend line indicates the lowest price levels that have been reached in a trend.
The resistance line indicates the maximum levels. Therefore, when these trend lines are drawn, prices are expected to remain within the limits established by them.
When the price line drops to a support line and goes back up again, we say support has been confirmed. When it rises and reaches a resistance line and then falls again, we say that the resistance has been confirmed.
Trendlines are also a great visual representation of support and resistance, they can also form a price channel when we have upper resistance, and bottom support, diagonal lines that meet the indicated criteria. Trendlines is a simple and widely used form in technical analysis. It is important to note that trendlines are part of the negociação of support and resistance.
Applying the Lines of Tenancy Strategy
As we can see in Figure 1, the support line is indicated in blue color, while resistance is drawn in red.
These lines not only act as points where we expect the price to break out, but also help us to identify the current market trend. For this strategy to work, the market must be trending in either direction.
During an uptrend we would have to look to buy a buy contract as soon as price reaches our support trend lines. The opposite is when executing a buy trade.
Referring to Figure 2, we would expect the price to touch the upper resistance line while we speculate that the price will continue in a bearish direction.
Alternative Trading Option
Depending on market conditions you can also use Boundary, Touch up / down and no Touch up / down options.
Tendencies smaller ones can be identified within a larger trend. Although it is not a recommended strategy for short term options that can be used successfully. This will be used by experienced traders to capitalize on minor price movements.
Trend Lines Strategy Summary
The trendlines strategy is an entry level strategy. This does not mean that the strategy is discarded, as professional investors use it with great success.
The requirement for using the strategy is that the market must be in a trend, which in theory only happens about 1/3 of the time. This requires patience to wait for the right conditions to be met, but when used correctly it can yield massive profits.
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