support and resistance Binary Options 2020

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Trading Guide: Support and Resistance Trading with Binary Options

One of the first things many forex traders learn when they start out are the definitions of support and resistance

The support/resistance trading strategy is used for both short and long-term binary trading. With it you take into account historical levels that a certain currency, stock, commodity or index has reached and reversed from.

To be able to understand this strategy, one has to know the definitions of support and resistance. The first is defined as a historical level that a certain price has previously been unable to fall below, or a position that a lot of buyers enter. For resistance levels it’s the opposite – a level that the price reaches, but regularly falls down from, as more traders start selling it.

In order to take advantage of how this style works, there needs to be some knowledge of charts and how to read them. This starts with selecting the most suitable chart type such as Japanese candlesticks, bar, line etc. After this comes the establishiment of previous patterns and occurrences of the price reaching a certain level and then backing off it. These need to be found over a long enough period (for turbo trades this can be looking at 30 minutes or a full hour back and further increases with the longevity of the binary option that is being traded).

There is no preset number of these occurrences that can fully guarantee profitability (just like there is no single trading strategy that guarantees success), this would have to be determined by traders themselves.

After identifying the levels the next most important thing is entering the trades at the correct moment. This would be when the price reaches the respective support or resistance and is believed to be on the verge of reversing, or has already begun doing so.

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Binary options traders have adapted the strategy to turbo options that last several minutes or seconds. They have been popular in slower markets, where timing has an even greater importance as the window of opportunity can last several seconds. This would be between the close of the US stock markets and the open of the Australian one. During this time, binary option brokers still offer currency trading for the most popular pairs, albeit not on the shortest types of options.

Hourly and daily trades are also possible using this strategy. This would almost always fall within the most active hours, as the largest number of testing support and resistance levels happens then. Other factors such as news, announcements and economic data come into play here and traders use them to confirm stronger levels on which they can trade.

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In the above example you can see a recent four-hour chart of USD/CHF with two buying signals and three selling ones, indicating the currency pair was moving in a range for this period – the most suitable ground for support/resistance trading.

The strategy as a whole has to be based on previous research that provides some assurance that the levels will not only hold the current price direction, but also make it reverse. There are no general guarantees that this will happen, as each new situation comes with a multitude of other factors. Regardless, some traders have come to appreciate the relative simplicity the strategy offers when it comes to deciding the timing and direction of their trades.

Understanding Support and Resistance

When you begin trading using Technical Analysis (TA) and reading TA news and outlooks, inevitably you will hear about support and resistance (S&R). S&R are basics concepts of technical analysis, but are crucial elements within many traders strategies. Unfortunately, S&R is not often fully understood even by experienced traders. Below we look at what support and resistance are , and the major forms they can take, such as Horizontal, Diagonal, Historic and Predictive.

Support, or Support Level, is a price at which buyers tend to enter an asset (stock, currency, future, commodity, etc). If a stock, for example, is falling and buyers enter the stock repeatedly near a similar price, pushing it higher, this would be a support level. In essence, support is like a floor, supporting the price. If the price drops below a support level, then support is broken. If the level isn’t broken, then support has been (re)confirmed or “support held.”

Resistance, or Resistance Level, is a price at which sellers tend to enter an asset. If the S&P 500 futures, for example, are rising and sellers enter the futures repeatedly near a similar price, pushing it lower, this would be a resistance level. Resistance is like a ceiling, resisting a rise in price. If the price rises above a resistance level, then resistance is broken. If the level isn’t broken, then resistance has been (re)confirmed or “resistance held.”

Most commonly discussed is horizontal support and resistance. A horizontal is a specific price, or a price area, which has supported or resisted price movement beyond it. Figure 1 shows an example of horizontal support and resistance.

Figure 1. EUR/USD 15 Minute Chart

Source: Oanda – MetaTrader

The price moves higher and stops near 1.3039; sellers enter and this now becomes a resistance level. This is confirmed a couple days later. Support kicks in near the 1.2970 region on a couple occasions as well. Eventually the price rallies and breaks through the resistance area.

As a very basic guideline, when the price moves through resistance it is a positive sign as it shows the price is making headway higher. When the prices moves through support it is a negative as it shows the price is progressing lower. For more on breakouts see Improving the Odds When Trading Intra-Day Breakouts.

If an asset breaks though support or resistance, but then shortly after crosses back through it in the opposite direction, this is a warning sign the breakout was false, and is called a false breakout.

A horizontal support or resistance level/area is static, but with a diagonal the level is dynamic and will change over time. The most common form of diagonal support or resistance is created by a trendline. A line is drawn between a price low and a higher price low, or a price high and a lower price high, and then the line is extended out to the right to create a trendline. In this case it is not a specific price that brings in buyers or sellers, but rather the dynamics of the trend.

Figure 2. AUD/USD Hourly Chart

Source: Oanda – MetaTrader

If the diagonal is upward, the trend on that time frame is up. When the diagonal is down, the trend is down. It is important note though that there may different trends occurring on different time frames. As a general guideline, when the asset price bounces up off the trendline this is positive. It breaks below the trendline it is a warning signal of potentially further weakness. In a downtrend it is negative if the price can’t rally through the trendline, but if it does then it is warning the trend may turn up. For more on this topic, see Beginners Trading Concepts: Using Trendlines Effectively.

If an asset breaks though support or resistance, but then shortly after crosses back through it in the opposite direction, this is a warning sign the breakout was false, and is called a false breakout.

When traders refer to support or resistance, typically they are referring to historic price action to determine the level. This is especially true with horizontal S&R. We are looking to the past to see where price has struggled to rise above, or fall below, a certain threshold. These levels can help to determine entry or exit points or can used to create strategies. Diagonal S&R levels has a historic element, since we need at least two price lows or highs to create a trendline. The trendline though also has a predictive property, since it can be extended out to the right and therefore provides a rough estimate of where the trend may go in the future.

Less common, but arguably more valuable, is predictive S&R. Trendlines are one from of predictive S&R, since the line extends out to the right and may support or resistance price movement in the future. Horizontal S&R may also be predictive as the price may continue to struggle to get through these levels in the future.

Traders also use other tools to determine where future support or resistance may develop. Such tools include Elliott Wave analysis, which uses wave patterns to determine where a price is within its overall trend. This information can then be used determine when the trend may reverse or continue on its course. Fibonacci retracements are another common tool. You may hear someone say “Expect support at the 50% retracement level.” While there may no horizontal or diagonal support at this level, many traders believe that markets correct and advance in Fibonacci numbers, and therefore use these numbers to predict where the market is likely to tucker out because it hits support or resistance.

These tools are beyond the scope of this article, but if you are interested, researching and understanding these tools and trading concepts can add another element to your trading.

Most traders think of support and resistance in terms of a set price, such as described in the Horizontal S&R section. There are other forms of S&R though, which include diagonal–such as trendlines–as well as predictive S&R which require the use of more complex tools. Use support and resistance to determine strength or weakness; if an asset is dropping through support levels, it is weak. If it is rising through resistance levels it is strong. If an asset breaks though support or resistance, but then shortly after crosses back through it in the opposite direction, this is a warning sign the breakout was false, and is called a false breakout. Before trading always have a game plan: Creating a Trading Plan

Support and Resistance Strategy

The support resistance strategy is one of my favorites.

Maybe being a FOREX trader explains why is this one of the strategies that I use most often in Binary Options. I especially use it if the market is in a neutral trend and during the off-hours when important news that can create volatility and sudden changes in the direction of the market will not be emerging.

The support and resistance strategy is very used in the Forex and Stock markets with very interesting results.

There are several automated trading systems (algorithmic trading) that are developed using the support and resistance strategy as their trading basis.

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  1. Each platform has its differences. If you try different platforms you may find those more suitable to your trading style.
  2. Each broker has his own payouts that keep changing during the day. If you want to open a trade and one offers 60% and the other 80%, you will choose the one with best payout, no?
  3. Sometimes the brokers close some assets, if you have just one account and you want to trade on that asset and it is closed, you will LOSE that trade, no?
  4. If there is an issue with your Broker’s platform, or they are updating it you’re not able to trade, unless you have another account with other broker.
  5. Deposits and withdraws. Brokers keep changing the deposit and withdraw methods, imagine you need cash fast and your withdraw system is closed at that moment on your broker, what do you do?
  6. Each platform has its owns indicators and trading tools, imagine you found a new stratey and it does not work on your broker because it uses an indicator that your broker does not offer.

Below you can find our main trader suggestions on brokers:

The support and resistance strategy should be used with the following criteria:

1 – Neutral Trend

When the market is in a neutral trend, typically, it is because it is not moving much and the lowest point is bounded by a support or resistance and the highest point is bounded by another support or resistance.

Usually, a neutral trend occurs during the hours when there isn’t important breaking news and during low volatility hours. Or simply when the market volatility is decreasing or the market is awaiting important news. In the image below you can see a neutral trend.

Trending Upwards ( Bullish ) | Trending Downwards ( Bearish ) | Moving Sideways ( Correction )

2 – Platform

In order to use the support and resistance strategy you must have a platform installed on your computer. I use the MT4 platform that is widely used in Forex by most Brokers. Simply open a Forex demo account at a Forex Broker and then download the platform software. It is completely free.

3 – Time Bars

The frequency that I use for the support and resistance strategy is 15 minutes. Each candle/bar lasts 15 minutes.

You can even try the 5-minute candle or some of the longer ones like the 30 minutes and one-hour candles.

You should match the bar/candle time period on the platform to the trade’s time period.

Thus, if you use a 15-minute bar/candle, open a 15-minute trade. It is important to do several experiments because the effectiveness of this strategy varies from asset to asset.

Some work best with smaller time intervals, while others work best with larger intervals. Some of the assets that work well with this system are USD/CHF, EUR/USD, EUR/CHF, USD/CAD.

4 – Support and Resistance

The support and resistance are the prices of an asset where there is a resistance to surpass that value.

There are indicators that calculate the daily support and resistance for each asset type.

The distance between the support and resistance varies from day to day and is related to the existing variations on each asset on the previous day.

Normally the pivots, the daily support, and resistance are calculated at midnight, local time for the Broker.

When the market is in a neutral trend, normally the support and resistance prevent the price from surpassing the values; the price reaches the value, and then drops or rises back.

This situation sometimes lasts the better part of a day, which allows for a lot of trades with a high percentage of profitable trades.

5 – Indicators

I use a paid indicator that calculates the pivot, the support, and resistance using the Fibonacci system.

For those who want to try this strategy and open an account with one of the Brokers that I recommend on this site, I will send the Indicator free of charge.

Then you just have to add it to the platform.

How to use the Support and Resistance Strategy:

Once you have the MT4 platform installed on your computer and the indicator that I offer, you only have to identify whether the given asset is in a neutral trend (see image at the beginning of the article).

Use the 15-minute bars/candles (or another of your choosing).

When the price of the asset is hitting a resistance you should trade a PUT or Low. Because that price “prevents” the value from continuing to rise and it is likely that on the next bar/candle the value will fall.

When the price of the asset is hitting support you should trade a CALL or High.

Because that price “prevents” the value from continuing to fall and it is likely that on the next bar/candle the value will rise.

Please note that this strategy works during hours that important news is not breaking.

To keep abreast of breaking news use this site. Adapt the site’s time to your computer’s time so that when high-impact news breaks (with the red icon) you are not using this strategy. In this situation, you can use this strategy.

So that the entry (opening of the trade) is the most perfect possible, in addition to the support and resistance indicator, you can use the Stochastic Oscillator to assist you on the points of entry.

When you see that the price is close to reaching a resistance or support, look at the Stochastic indicator and check if it is being overbought or oversold (above 80 or below 20).

If this happens, the likelihood of success increases even more.

Below is an image that shows a little of what was explained about the support and resistance strategy.

If you have any questions or suggestions about the support and resistance strategy do not hesitate to contact me or leave your comment below.

Best Binary Options Brokers 2020:

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