Learn how to identify trend in trading binary options

learn how to identify a trend

How to recognize a trading tend?

When people first start out trading – regardless if they are trading stocks, bonds, or binary options – they want to hit the ground running. Many of your first trades will be made based on your enthusiasm for this new adventure. Enthusiasm is great, and coupled with an understanding of how trading works enthusiasm will get you very far. With that in mind, let’s get down to the nitty-gritty of how to be a successful binary options trader. The first step is to learn how to identify trend in trading. Once you’ve become adept at marking trends then you can start trading with the trend strategies we’ve outlined such as ‘The Bandit’ and ‘The Big Ben’.

What is a ‘trend’ in the financial markets?

There are many different definitions of the word trend. There are fashion trends, political trends, and market trends. In this article I’m specifically dealing with market trends. (If you are still wearing Reebok Pumps, I can’t help you, sorry.)

A market trend is simply the general direction – up or down – of the market or the price of an asset. The asset can be a stock, index, commodity, currency pair, etc. Trends can be identified with anything on the market. If you can identify a trend in binary options, you will be miles ahead of amateur traders, and will be much closer to earning real money. Marking a trend begins to get more complicated when you realize that trends can vary in length – short term, medium term, and long term.

Once you’ve marked the trend, you’ll have a better idea of the market direction and how to use trading trend indicators. Should you trade with or against the trend? Whatever direction you decide to go, the key is to have discipline to wait for the right setup and not jump the gun on a bad trade when a good one is right around the corner.

How to identify trend in trading.

Identifying a trend in binary options is an easy process. Below I’ve broken down the rules you need to follow to recognize trading trend reversals and trading trend indicators.

4 simple rules for how to recognize a trading trend

  1. Follow the series of highs and lows – If you are looking at a naked chart, a chart with no indicators, you can easily see the direction of the trend. If the charts shows an upward trend the upper end of each subsequent candle are higher and higher. Also, the lower end of each subsequent candle is higher than the candle previous. If the chart displays a downward trend, the upper and lower end of the candle will get lower and lower with each subsequent candle.As for a horizontal trend, the upper ends of each subsequent candle will hover around the same price. The same is true for the lower ends of each subsequent candle.In order to confirm a trend, you should see a least 4 pivot points, two for the upper ends and two for the lower ends.
  2. Mark the trend line – For a linear line you should have at least two points of contact. That means the trend line should cross at least two candles at their lowest or higher point. However, because we are marking a trend in binary options, you need to make sure there are at least 3 points of contact. In general, the more points of contact there are on your trend line the stronger your trend line is.
  3. Identify the trend – Almost all your trends will be either an upward trend or a downward trend (there are also horizontal trends). Recognizing the trend is key to trading with the trend strategies that will cause you to earn high returns. If you find an upward trend, the trendline will be marked below the chart (candles or linear). This type of trendline is referred to as a support line as it supports the upward trend. Usually when an upward trend hits the support line it will bounce back up – it is supported by the trend line. When the trend finally breaks below the line, it is a signal for traders to purchase a PUT option.
    Alternatively, if you find a downward trend, the trendline will be marked above the chart. This type of trendline is referred to as a resistance line as it resists the price from going above the trendline. Generally if an asset on a downward trend hits the resistance line it will be pushed back down. When the price of the asset breaks above the resistance line, it is a signal for trades to purchase a CALL option.
  4. Choose the right moment to trade – Marking the trend is the first step, but you won’t be able to succeed with trading with the trend strategies if you aren’t disciplined enough to wait for the right setup. To get a good feel about market sentiment, start with a zoomed out picture of what is happening. For example, take a look at a daily chart. If you there isn’t an obvious trend on the daily chart, try looking at a 4 hour chart. It doesn’t matter if you are trading stocks, indexes, commodities or currency pairs, only once you’ve recognized a macro trend can you move on to trading within your favorite time frame. I prefer 15 minute and 5 minute time frames. After zooming down from a daily chart to a 15 or 5 minute chart, you should once again mark the trend and wait for a breakout.

Below are example charts that show the above 4 simple steps in action for each of the possible trends.

An example of a support line (upward trend):

identify trend up

An example of a resistance line (downward tend):

In the above graph you can see the resistance line in green. It has three points of contact with the breakout point indicated with the yellow arrow.

In the above graph you can see the resistance line in green. It has three points of contact with the breakout point indicated with the yellow arrow.

An example of a horizontal trend:

identify trend horizontal

In this example of a horizontal trend, you can see that the upper and lower ends of the candles hover in the same general area. The breakout point in this graph is indicated by the yellow arrow.

Now that you know how to identify trend in trading, practice unstill you get it right with a demo account.

Best of luck,

Albert Caprioli