You would have probably heard the word trading tools being used over and over again as you read along to improve your skill and knowledge at binary options trading. The simple reason for this is you need methods and means to successfully decipher market forces, technical charts and other nuances that go into being able to successfully trade binary options. One constant theme you will always have to deal with is using trend lines as a yardstick for interpreting technical charts to give you a better idea how to make successful trades.
As one of the most basic and commonly used market analysis tools, trend lines are a very important tool in every trader’s arsenal. It is crucial not to confuse the word basic as representing insufficient or less important; there are quite a few tools that is as important as trend lines in the binary trading arena.
A lot of smart traders are adept at applying trend lines to form diagnostic opinion of market patterns. The use of trend lines makes them unlikely to rely on other technical indicators that are much harder to use and interpret. Trend lines are great for learning and pinpointing uptrends that signals price going higher with less downturn and downtrend that signals prices going lower with less upturn. These types of trends would be a lot easier to spot once you learn how to use trend lines. This is why the use of trend lines is crucial in your analysis of market trends.
To determine market sentiments, trend lines interpretation is also very useful. Market sentiment is very useful and crucial when you combine it with other technical indicators and can be the driving force behind a sustained trend. It makes perfect sense to place your trades in the direction of a strong trend when you have a very good indication that market sentiment is trending very strong in that particular direction.
It is also important that you take into consideration the fact that a strong market sentiment can be an indicator that a trend reversal is about to take place. The stronger the sentiment in one particular direction, the more likely it is that a trend reversal will take place, so place your trade using shorter time frames with very strong market sentiments.
Trend analysis is also very important to being able to forecast future price movement. Trend lines in and among themselves are not market indicators, they are boundary markers for traders pessimism and optimism of what is currently happening in the market. Knowing how to draw a trend lines is one of the most important things you must know as a trader. You could easily misinterpret trend lines regarding price action if you do not know how trend lines are drawn.
For an uptrend (bullish market) you will start by pinpointing the lowest low then proceed to draw a line that crosses through the very next higher low. You should continue to draw your line in this manner until it reaches the end of the timeframe you are targeting. For a downtrend (bearish market) you will have to do the opposite and start plotting your line from the highest high to the nest lowest high and so
The next step is to identify whether the trend is described as an outer or inner trend, once the trend lines have been drawn. Most experienced traders consider inner trend as a pointer to the fact that sentiment and momentum can change at any time under a rapidly evolving condition. Outer trend lines, on the other hand, are seen as a boundary for price that the trend will likely have a hard time breaking. Both the inner and outer trend lines are to help you pinpoint the right price for your binary options trades. So your ability to identify and use trend lines are crucial to successfully trading binary options.
Cover Image via Barbara Braman