Trends are an invaluable ingredient to your trading. Your success as a trader with binary options greatly depends on your ability to recognize trends and draw the right conclusions from them. Still, learning about trends is not always easy.
Many expressions seasoned traders use to explain trends are hard to understand for newcomers to the trading scene. In this article, we will therefore explain the most used expressions about trends you have to know. You will learn to understand what they mean, and therefore be able to understand trend-based trading strategies better and become a better trader.
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Trend terminology in binary options trading
Bearish: Falling prices, the asset gets cheaper. In a bearish trend, or a down trend, overall prices fall over a long period of time, only interrupted by short periods of rising prices. A bearish movement describes a shorter period of falling prices without being significant interrupted by rising prices.
Bullish: The exact opposite of bearish.
Intact Trend: When a trend is moving at the correct side of its trend line and creating point 2s and 3s in the right direction it is considered intact. This mean, you can draw valid predictions from this trend and trade those with binary options.
Point 1, 2, and 3: The defining points of a trend. Point 1 symbolizes the starting point. In a bullish trend, each new peak is considered a point 2, each new low a point 3. For bearish trends, the roles are reversed: The lows become point 2s, and the peaks point 3s.
Reversal: Generally describes a turn in price direction. If prices were rising, they will fall now, and vice versa. In a trend, the movement from point 2 to 3 is considered the reversal, since it moves against the main direction of the trend.
Strong trend: An intact trend, rising or falling relatively fast.
Trend line: The connection of the main point 2s. Each trend has a main trend line, and a number of smaller trend lines that indicate short lived trends that stray from the main trend line in the direction of the trend. After these smaller trends are over, the price will usually move back to the main trend line.
Valid trend: See intact trend.
Weak: A trend that shows first signs of fading. One sign could be the trend crossing the trend line, without breaking the last point 3. In this period the trend is still valid, but weak. As a trader, you should be careful with drawing predictions from it.