CHANNELS

Binary option traders have many technical analysis tools at their disposal, one of which is the identification of price channels. Any asset’s price can travel in a channel, and this occurs when the price waves are neatly contained within two straight-line boundaries, just as the water of river is contained within its banks. Price channels can trend in a direction–up or down–or they can move horizontally on the chart, resulting in no net price change for a long period of time.

To identify and draw a price channel on a chart, look for a series of price waves that are all roughly the same size. Draw one trendline that connects all of the wave troughs together, and one trendline that connects all of the wave crests together. The two lines form the channel, or the ‘banks of the river’.

If the channel has an up or down slope on the chart, it has identified a price trend and binary options traders can use the channel by projecting the lines into the future to predict where price will be. Sloping channels are best combined with above/below binary options trades. If the channel has no slope and proceeds horizontally into the projected future, traders can surmise that price will not change significantly in the near future. Non-sloping channels are best combined with no-touch binary options that require price to stay in a specific range for the trader to receive her return.

Successful traders carefully watch for channel breakouts. When price breaks out of an upward sloping channel to the downside, this can signal the beginning of a downtrend. When price breaks out of a downward sloping channel to the upside, this can signify the beginning of an uptrend. When price breaks out of a neutral channel to either side, it can mean the beginning of a trend in either direction. Binary option traders should carefully examine price channels to determine the proper strategy to use.