In binary options, finding the right entry point is just as essential to successful trading as correctly predicting what will happen in the market. If you predicted the price direction correctly but invested too early or too late, your prediction will be worthless. This article will show you which entry points you can use, and help you find the right entry point for your trading strategy.
1. Trading the breakout with the right entry points
The completion of a formation and the crossing of a trend line are significant events many traders have to react to. As a consequence, there will be a large number of orders. Some traders are going to close positions that contradict the signal the market has just given them. Other traders will open new position into the direction the market just indicated.
As a result, there will be a strong price movement in the direction of the signal. This strong movement is called the breakout. Whenever the market breaks out of a pattern or through a trend line, this is a great investment opportunity you can use as an entry point.
Breakouts occur in a number of events:
- First of all, there is the price in a trend breaking through the previous point 2. This one of the most common events used traded with breakout trading strategies.
- Secondly, there is the completion of a formation, such as continuation or reversal formations.
- Thirdly, the breaking of a trend line will create a breakout.
As soon as you see a breakout occurring, you can invest in a High / Low option in direction of the breakout. Make sure to choose an appropriate expiration time and you have a good chance of winning this trade. If you can find a Touch option with a reasonable target price, you can make an even bigger profit.
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2. Trading the pullback
Even a breakout will happen in form of a trend. This means, after the breakout has moved strongly for a while, the market has to go through a consolidation period to generate new momentum. Since the breakout was a very strong movement, you can expect the consolidation to be relatively strong too.
After a breakout occurred, you can therefore start looking for signs of a reversal and use them as entry points as well. This reversal is very likely to happen and is called the pullback. If you see the pullback, you can invest in it with a High / Low option. If you can anticipate the range of the pullback, for example by using percentage retracements or Bollinger Bands, you might be able to win a Touch option.
3. Trade the movement after the pullback
After the market has built enough momentum to continue in direction of the breakout, the pullback will stop and prices will resume direction. You use this movement as an entry point as well. Since the market will probably not move as quick as the breakout itself, trading a Touch option is a little more risky in this case. You can, however, trade a High / Low option with a lower element of risk than in the breakout. Since the pullback has already happened the market has now become more predictable and less erratic, which should benefit you chances of finding the right timing.
4. Anticipating the breakout
Some traders find it easy to predict when a breakout will happen. These traders can invest in a Touch option or a High / Low option before the breakout actually happened, which enables them to get better conditions.
5. Trading the gap
When the market leaves a gap in a stock’s price, this gap is likely to close. You can look for such gaps in the market and invest in options that predict the closing of the gap.
6. Creating entry signals with technical indicators
A quick and easy way to generate entry signals is the use of technical indicators. Technical indicators are plenty, and so are the possibilities to use them for entry signals. Still, one of the most common uses are a two moving averages, a quicker moving average based on fewer periods, and a slower moving average based on more periods. Every time the quicker moving average crosses the slower moving average upwards it generates a bullish signal. Every time the quicker moving average crosses the slower moving average downwards it generates a bearish signal.
Using candlestick formations and momentum indicators for better timing
Candlestick formation can provide you with short term indications about future price movements. Some traders use candlestick formations to find better entry points. They use candlesticks, for example, to determine how far a breakout will move, or when the pullback will stop.
Momentum indicators can provide you with similar insight to the momentum left for a movement. You can use them to predict the energy a movement has left to continue in its original direction.