Binary Options With More Price Action

Something I didn't talk about in my last post was the type of market the asset is in. The asset will either be ranging or trending. In a ranging market, price stays within certain bounds. Take a look at the example below.

1min EUR/GBP from 10am-1:35pmest, from freestockcharts.com

For the whole three hours, price doesn't really move all that much. Lows are close to the previous lows and highs are close to the previous highs. If you were trading this period, you would trade puts at the top of the range and calls at the bottom of the range. A good general rule is to only trade the top 5-10% and bottom 5-10% of the range. As you can tell, there's ranges within the ranges. Generally only trade the bigger range unless the range has permanently shifted up or down. Remember that the asset won't range forever. The hardest part about trading a range is trying to figure out when the asset will break the range. There is no simple answer, but things like relatively large candles very close toward support/resistance lines, a general movement toward the higher or lower part of the range, and the amount of time the asset has been ranging can be signs that a range is breaking down. Assets usually don't range for more than 2-3hours.

The second type of market is a trending market. A trending market is where the highs and lows get higher or lower(depending on if it's a uptrend or a downtrend). For binary options, trending markets are better to trade than ranging markets. You use the same method of connecting previous lows and highs but instead of horizontal lines, the lines are at a angle. Also similar to ranging markets, there are wider channels of support and resistance and narrower channels of support and resistance. The only major difference in trading binary options is don't trade against the trend on most uptrend. If it's a very weak uptrend, then you can probably get away with trading against the trend but it's a lower probably of winning trade. Take a look at the example below.

1min GBP/JPY candlestick chart, freestockcharts.com

The 5-10% rule can apply to trending markets as well, meaning you would only trade in the 5-10% of the top or the bottom of the trend. That's the basic of trading binary options using price action. Next post on when to enter trades.