TRENDLINES

The key to successful binary options trading is the ability to predict the direction that an underlying asset’s price will move in the near future. There are various technical analysis tools available to help a trader do just that. One of the most basic is the trendline. Identifying and following a trend in progress is one of the most time-tested and reliable methods of determining where an asset’s price will go in the short-term. The trendline is the primary method of identifying a trend.

A quick look at any price chart–whether it’s a chart of a stock, commodity, currency pair, or market index–shows that price moves in waves complete with crests and troughs. Sometimes these waves move in a general upward trend, with subsequently higher troughs and crests. Sometimes the waves move in a general downward trend, with subsequently lower troughs and crests. The best way to trade in the direction of a trend is to use a trendline.

To properly draw a trendline, first identify the direction of a trend. An uptrend will have a series of higher troughs in the price waves. Draw a line that connects the bottoms of the troughs together. Project the line into the future, then anticipate that the asset’s price will bounce up from the trendline the next time it comes down to touch it. An uptrend has a series of lower crests in the price waves. Draw a trendline for an uptrend by connecting the tops of the crests together. Project that line into the future, then anticipate that the asset’s price will bounce down from the trendline the next time it comes up to touch it.

The best types of binary options trades to plan using trendlines are above/below trades. After all, trendlines tell the trader when price is likely to turn in the direction of the trend; any analysis tool that helps predict direction enables binary option traders to set their sights on the specific price goals required by above/below trades.