Price Channel Breakout Strategy for Binary Options

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For a considerable period now, traders from various pats of the world have been using binary options trading strategies that focus on breakout. The main idea behind these strategies is to identify the range or price level that a current price will probably ‘break through’ as it approaches the trading range. As such, you need to identify the probable breakout level, anticipate for it and enter the market once the direction of the breakout has been confirmed.

The Theory behind Binary Options Breakout Strategies

An effective breakout trading strategy entails two main aspects. The first aspect is identifying a more appropriate breakout level. The stronger the chosen level is, the more likely a trader will be to experience a strong move. As such, you should come up with comparatively strong market levels (break points’). Some of the levels that have proven to be more successful are the ones that have previously offered resistance/ support.

The other critical aspect for the breakout strategy to work is the market momentum; to succeed, you require sufficient momentum in the market. In this regard, you need to trade during periods of low liquidity or towards the end of the market. This is when the market volume is stronger; hence more likely to succeed. The other critical aspect in this regard is timing. Timing the expiry of your trades well will allow you to avoid whipsaws and pullbacks that may arise due to the break.

Entry Signal

As complicated as breakout trading may sound, it is actually simple. All you need to carry out this trade is a simple chart. In this regard, you need to come up with an entry signal. With the char, you should search for the possible break levels, the point at which the market is likely to enter a new price range. If the asset price goes beyond this point, we assume that the break has occurred. As such the momentum will continue pushing the price in the break direction. As such you should open a trade after the break has been confirmed and make the prediction in the break direction.

Timing the Trade

While predicting the correct breakout point may be rather simple, it may be a bit hard for traders to ascertain the price of an asset at the expiry time of the open trade. For trades using CFD’s Spread Betting or Spot Forex trading, this should be comparatively easy. This is because such traders can identify the levels to take profit or book pips along the way. However, you need to be very careful while trading the High/Low binary options. Specifically, you have to be precise on how strong you expect the move to be and your preferred contract expiry time. The main guideline here is that the higher your timeframe is, the more likely it is for the move to stick.

An Example of a Breakout Trading Strategy

Currency pairs tend to have more opportunities for breakout trading, as compared to other binary options assets. Additionally, currency pairs present the levels of volatility required for breakout trading. As such, we will focus on currency pairs in this example. Suppose you are trading the GBP/USD currency pair and the chart shows that the pair has been trending within a certain range for a particular session.

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You need to identify the top of the trading range of the currency pair. This is the level that, if broken should lead to plenty of follow up momentum at that particular time. With this in mind, you can safely open a trade.

However, you need to ensure that you establish market levels that will see a strong momentum after the break. This momentum should be able to push the price in the direction of the break by the expiry time.

Key Considerations

  • Come up with levels where you think large stop orders will build up. This will trigger and accelerate the move as the price is pushed towards the levels by the momentum. This way, the price will be propelled into a new trading one, away from the breakout level.
  • In addition to adhering to correct timing, you also need to identify the right market to trade. As mentioned earlier, currency pairs are more volatile; hence better suited for breakout trading. This is because this strategy requires an asset that presents a significant amount of movement over the set time frame.
  • You should avoid anticipating for the break too early; hence fail to wait until it confirms.
  • Defining the breakout level will be influenced by the type of asset you are trading and the length of the trading period.

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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.

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.

Стратегия MBFX Breakout

Стратегия MBFX Breakout – стратегия, для поиска точек входа, направленных в сторону трендового движения цены, рассчитанная на турбо опционы сроком экспирации в 3 минуты.

Риск-менеджмент

Торговля ведется фиксированной суммой, не превышающей 5% от торгового баланса.

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