How to Place Binary Options Breakout Trades Using Pivot Points

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Breakout Trades

Binary Options Breakout Trades Using Pivot Points

Binary options trading success is based on making the right calls on price direction. If a trader can correctly predict where price will go, then it is very likely he will make a trade that will be in the money.

One of the ways this can be achieved is by being able to predict price breakouts. This leads us to ask the question: what really is price action, and what determines the behaviour of price action at any given point in time?

The concept of price action is simply a depiction of the activity of traders in a particular market. Traders are in the market to make money. If they see something that will present itself as a market opportunity, they will put their money in the market to make the trade. At this time, we will see prices moving in one direction or in the opposite direction. If traders see nothing to convince them of an opportunity, they will sit on the fence and do nothing. At this time, the price action will hardly go anywhere except just trend sideways.

Fortunately, the binary options market helps us to trade the price action, whatever that may be. Unlike in forex trading or other markets where you need the market to be in motion to make money, you can actually make money in the binary options market even if the prices of the underlying asset stay still.

In today’s lesson, we will explain a scenario that occurs when the market is in motion; the breakout. Breakouts occur after periods of price inactivity. They occur when traders get a hint of an impending market event that will affect the value of an underlying asset, so they take position in order to make money from such movements. One way of determining this is to look at the behaviour of the price action at the key levels of support and resistance.

Before we get an upward break, prices may have tested the resistance level multiple times, with the points of retracement getting progressively higher. This indicates buying pressure. When we see this, this is a signal that prices will breakout upwards.

The reverse is also the case for downward breakouts. Support levels will be tested repeatedly with points of retracement getting progressively lower, signifying selling pressure.

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At other times, the buying or selling pressure may already be in such forceful effect, that the price action just rams through the key levels. Look at the chart below:

The pivot points show the support and resistance levels. We can see that R1 has been tested several times, and prices do not get back to where they started for the day at S1 before going back up. This indicates buying pressure which eventually breached R1. Price then tested R2 several times, but retracements never get back to the central pivot (marked purple) which was the previous retracement point. This shows increased buying pressure and we see this manifest as a bullish candle that eventually breached R2 all the way to R3.

If I was to trade this on the binary options market, I will do this in three ways.

Trade 1

I would trade the In/Out binary options trade, betting that the trade would end outside the S1 – R1 range, with a one week expiry.

Trade 2

I would also trade the Rise/Fall variety, betting that the price of the EUR/USD will rise above the R1 point, setting a 72-hour expiry.

Trade 3

I would trade the Touch/No Touch trade, betting that prices would touch a point somewhere between R1 and R2, for a one week expiry.

The lesson here is that pivot points are an indispensable tool for binary options trading and if you can use them to watch price action at key levels of support and resistance, you will make good trade calls most of the time.

Pivot Points for Binary Options Trading

One of the biggest challenges with trading binary options is determining where prices of the underlying assets are likely to reverse direction. For example, the price of gold might be going through a downtrend, reflecting bearish sentiment, but reverse suddenly to climb to a new record. How can you, the binary options trader, take advantage of that reversal? And how can you protect yourself from price reversals that might otherwise expose you to major losses?

For many traders, the solution is to use a pivot points trading strategy.

What are pivot points and how are they leveraged by seasoned traders to make profitable price predictions? We’ll explain below. What follows is a brief tutorial on how to trade binary options with a pivot point strategy. We’ll start with a quick synopsis of how they work and the core reasons market veterans use them. You’ll then learn how pivot points are calculated, and how to put them to use when trading binary options.

How Pivot Points Work: An Overview

If you listen closely to accomplished traders, you’ll hear them mention points at which they expect the price of an asset to make a distinct move in a particular direction. They’re usually talking about pivot points and their respective support and resistance levels. Traders use them to help predict price movements, and thereby decide where to take profits on their trades or limit their potential losses.

A pivot point is a price level that reflects a possible turning point (or pivot) in an asset’s price action.

For example, if gold is experiencing an uptrend and reaches its pivot, that might signal the uptrend is nearing its end. Conversely, if the price of gold is going through a downtrend, reaching its pivot point might indicate the bearish price action is losing steam.

Pivots can also signal the beginning of bullish or bearish sentiment in an asset. For example, if the price of gold opens the day high and drops, crossing its pivot point could mark the start of a major downtrend.

Support and resistance levels are used in conjunction with pivot points. They define levels at which the price of an asset is expected to have difficulty crossing. For example, if gold falls through its pivot point at the beginning of a downtrend, its price is expected to stabilize at the first support level. The level acts like a test. The support may hold or give out completely, at which point the price may continue falling.

Resistance levels work similarly but in an opposite fashion. For instance, the price of gold may cross through its pivot during a major uptrend, but slow as it reaches the first resistance level. Here again, the level is a test. It may hold or it may be breached, both outcomes of which send different signals to traders.

Now that you know how pivot points work with binary options, let’s take a quick look at the reasons traders rely so heavily on them.

Four Main Reasons Pivot Points Are Used By Binary Options Traders

First, pivot points, along with their support and resistance levels, are relatively easy to calculate. That makes them very convenient to use.

Second, they are flexible in their application. Pivot levels can be used with stocks, currency pairs, commodities, binary options, and nearly any other financial instrument with trading activity.

Third, they tend to be accurate. The price movements that pivot points are supposed to signal tend to occur as expected. That alone makes them a valuable tool for technical analysis.

Fourth, pivot points are leading indicators of price action. To appreciate why this is important, consider moving averages. They signal bullish or bearish price trends based on what has occurred during the last 5, 10, or 30 (or whatever number of) days. They lag the market. That means the signals often arrive late, making it difficult to take advantage of them.

With pivot points, traders can watch for certain price levels to be reached as indicators of where prices are headed. In other words, the pivots lead the market, and are thus easier to leverage.

How Pivot Points Are Calculated – How Do You Determine Where The Pivot Point Is?

There are several methods used to calculate pivot points and their support and resistance levels. The most popular method is the 5-point system. In addition to the pivot, 2 support levels and 2 resistance levels are calculated.

The data usually come from the previous trading day. However, it’s worth noting you can also calculate the various price levels based on weekly or monthly data. Here are the formulas with definitions for the variables listed below:

Pivot Point = (pdH + pdL + pdC) / 3

1st Support Level = (PP x 2) – pdH

1st Resistance Level = (PP x 2) – pdL

2nd Support Level = PP – (Res1 – Sup1)

2nd Resistance Level = PP + (Res1 – Sup1)

PP – pivot point
Res1 – 1st resistance level
Res2 – 2nd resistance level
Sup1 – 1st support level
Sup2 – 2nd support level
pdH – previous day’s high
pdL – previous day’s low
pdC – previous day’s close

As you can see, the math is simple. It is useful to see the formulas used to calculate pivot points, so you can better understand how they are derived from past trading activity. That said, there are plenty of online pivot point calculators you can use to crunch the numbers for you. Or, you can create a simple spreadsheet into which you plug the previous day’s data to generate the current day’s price levels.

Pivot Points Trading With Binary Options

How can you incorporate pivot points into your binary options trading strategy to improve your results? First, realize that breaks in upward or downward trends often indicate price action for the rest of the day. This is particularly true if the breaks move the price across the pivot point.

For example, suppose gold was trading yesterday at a level above today’s pivot. Let’s also assume the price opens above today’s pivot point, but drops below it during early trading. This break signals potential bearish price action. It’s a good time to either take your profits or short the underlying asset, profiting from the fall.

Let’s now suppose gold was experiencing an upward price trend yesterday and opened below today’s pivot point. Let’s further suppose its price crosses the pivot. This could indicate the end of the bullish price trend. The price may continue surging toward the first resistance level, but could just as easily reverse direction. Taking profits may be a good idea.

It’s also possible to use the areas between the first and second support levels and first and second resistance levels (respectively) as markers to execute trades. For example, suppose gold has crossed its first resistance level during an uptrend, but is having difficulty crossing its second resistance level. This might indicate that the price is about to crumble, plummeting past the day’s pivot point. It may thus be a good time to take profits and/or short the asset.

Suppose the price of gold, on a major downtrend, has dropped past the first support level. It has not yet pushed through the second support level. Here, there may be an opportunity to profit from a pending bullish price trend.

How Reliable Are Pivot Points With Binary Options?

The most important thing to remember when using a pivot point strategy with binary options is that changes in price action are not written in stone. In other words, there are no natural laws dictating an asset’s price based on its pivot points and support and resistance levels. Pivots are crossed without major changes in price movement every day; support levels deteriorate; and resistance levels can shatter as an asset continues to press its bullish run. The only rule is that there are no rules.

Having said that, experienced traders have learned to use pivot points because they are effective and reliable. They are reasonable accurate, easy to calculate, and therefore remain a critical tool for technical analysis. If you’re not currently using them in your binary options trading strategy, now is a good time to start.

Pivot points can be used in many types of trading and are one of the more popular tools in technical analysis of the market. By understanding how to calculate pivot points and how they can help you in purchasing binary options, you will have yet another tool at your disposal to help you become profitable.

What Are Pivot Points?

Pivot points allow traders to easily look at the day’s market conditions to make predictions about when to invest. They have become a commonly used tool by investors. They are based on information from the previous day’s conditions and thus have increased reliability.

Calculating Pivot Points – How to Calculate Pivot Points

Investors are concerned mainly with price points including: opening point, closing point, high point and low point. These points are taken from the previous day along with 2 support and resistance points and put into predetermined formulas to find where a pivot point will be for the current day. For a beginning investor, there are many available software programs that will automatically plot pivot points for you; this saves the hassle of entering data into equations on a regular basis.

Why Are Pivot Points Typically Used?

One of the main reasons that pivot points are a favored method of prediction among investors is due to the fact that since the information they provide holds true for the entire day, time and effort is not wasted in recalculating. Pivot points can be calculated on a daily, weekly or monthly basis depending on how the information will be used. Additionally, support and resistance levels are quite easy to understand and can be seen visually on a chart, thus investors find pivot points to be easy to learn and useful especially during options with a short time to expiry.

Using Pivot Points With Binary Options Trading

After determining the pivot point for a day, traders can use this information to help them choose where to enter the market with a binary option. Pivot points are often marked as a horizontal line on a candlestick chart, depicting where there is likely to be a shift in the market. This can be used with binary options, as you are then able to make a prediction that whichever asset you have selected to trade will or will not reach this level. This can be done in the form of a call or put binary option, depending on where the pivot point lies and how the asset is currently behaving in the market.

Additionally, you need to make sure that you have enough time to enter whichever binary option you choose. If you enter too late, it could mean the difference between being profitable or not. Since pivot points are merely a prediction based on the previous day’s trading behavior, it is important to understand that any asset, particularly more volatile assets often exhibit behavior different to what is predicted by the pivot points.

As you become more familiar with binary options, you will begin to see the trends in the market that support these pivot points. You will start to get better at predicting when the best time is to enter into options and what assets are best used with this strategy of investing.

7 Binary Options

Those of you that trade binary options know that reading technical charts is not a very easy thing to do, especially if you are new to binary option trading. Price action is one of the hardest indicators to predict accurately. One method used to see price action more clearly is to take a look at what stock analysts call ‘pivot points’. Let’s take a closer look at these and see how they help make technical asset analysis easier.

Pivot Points are indicators in trading that are a good way of measuring market trends over a set time frame. They are usually calculated by taking daily lows, daily highs, and the daily close of an asset based on a previous trading session. Pivot points can be altered by looking at different previous time frames. An hourly chart uses data from the previous hour; a weekly chart uses data from the previous week, and so forth.

Once you have established your pivot points, you can use them to help you determine price action. It is typically assumed that when an assets price is trading above a pivot point, that the market for that asset is trending toward a bullish sentiment; conversely, when an assets price is trading below a pivot point, then it is said to be trending toward a prevailing bearish sentiment. Understanding how price action is going to move is critically important when trading binary options. Accurate price action forecasts can help you make a lot of money in a short period of time.

Although pivot points are a great tool when it comes to gauging directional trends in the market, it is important to note they are generally considered short term indicators. Because of this it is also important to make sure all of your trades are kept within the same time frame because the following time frame will make price activity far less predictable. If you stick to these rules then pivot points can be great indicators to determine where to place PUTS or CALLS.

So if your binary options trades seem like they are a little off from getting you into the money, then try adding some pivot points to your technical charts or looking at the ones that are already on there a little more closely. They may just be the key indicator that starts to put you consistently in the money and earn you more profit on your binary option trading.

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