Trend lines are one of the most important indicators that can help traders make money with binary options. To understand how to draw a trend line and draw the right conclusions from it, there are a number of things you have to know.
Of course, you can create any trend line you think is right and draw it into a price chart. There are, however, a number of rules when creating text book trend lines.
These trend lines guarantee you three advantages:
In an uptrend, there is a simple three step process to draw a trend line:
In a downtrend, the process is somewhat similar:
This simple three step process will give you a first idea of where the trend will go and how fast it will get there. You can use it as a first indication of what you can expect during the near future. It will, however, not be a definite prediction that will be valid for the entire trend.
As the market evolves, you have to come up with a number of different trend lines. Some events will make the market pick up momentum and make the trend move quicker, others will the market move slower and make the trend move slower. In both cases, you have to adjust your trend line.
A trend will continuously gain and lose momentum, which leads to different trend lines. There will be a number of smaller trends in the main trend that move at a faster speed, and sometimes the entire trend will slow down.
A trend line remains valid, until it is broken. Should the market accelerate and leave a slower trend line for a while, this trend line is still intact. After the market breaks through the faster trend line, it will likely return to the next slower trend line.
After a while, however, one trend line will emerge as the most accurate. This is the main trend line. In a long lasting trend, you will find that the trend will stray from this trend line a number of times, but usually get back to it after every period of accelerated movement.
For a binary options trader, it is important to understand that the breaking of a steeper trend line does not necessarily mean that the entire trend is in trouble. If there is a less steep trend line, most of the time, this less steep trend line will pick up the market. Therefore, trend lines work much like resistance and support levels: If one level is broken, the next trend level becomes the trend line to watch.