As you read along to improve your knowledge and skill at binary options trading, you will repeatedly hear the words trading tools being used over and over. The reason for this is you need a means to decipher all the technical charts, market forces and other nuances that go into being able to make successful binary options trades. One recurring theme you will come across often is the use of trend lines as a major basic tool for interpreting technical charts so you will be able to make prudent binary options trades.
As was stated, trend lines are one of the most used and most basic market analysis tools, but make sure you don’t confuse the word basic as meaning less important or insufficient; there may be no important and effective tool when it comes to successful binary options trading.
A lot of Traders are skilled at applying trend lines to form diagnostic opinions of market patterns, this makes them less likely to need to rely on other technical indicators in the market that are harder to interpret and use. Trend lines are excellent for learning and identifying uptrends that show prices going higher with less downturn and downtrends that show prices getting lower with less upturn. Once you learn how to use trend lines, you will have no problem easily spotting these types of price trends. That is what makes the use of trend lines so critical in your analysis for making trades.
Trend line interpretation is also very useful to determine current market sentiment. Market sentiment is very important and useful when you combine it with your other technical analysis and can be the driving force behind a persistent trend. When you have a good indication that market sentiment is trending very strong in one direction, it only makes sense to place your binary options trades along the lines of this strong trend.
You must also take into consideration that strong market sentiment can also be an indicator that a trend reversal is about to place. The stronger the sentiment, the more likely that the latter will take place; so place your trades using shorter time frames with strong market sentiment.
Proper trend analysis is critical to being able to predict future price movement. Trend lines in and among themselves are not indicators; they are more or less boundary markers for traders optimism and pessimism of what is currently taking place in the market.
It also helps you as a trader to know how trend lines are drawn. If you are not aware of how trend lines are drawn than you could easily misinterpret what they are trying to tell you on regards to price action.
For a bullish trend (uptrend) you will start by identifying the lowest low then proceed to draw a line that crosses through the next higher low. You will continue to plot your line this way until it reaches the end of the time frame you are concerned with. For a bearish trend (downtrend), you will do just the opposite and start by drawing a line from the highest high to the next lowest high and so on.
Once the trend line has been drawn, the next step is to be able to identify whether the trend is described as being an inner or outer trend. Most traders consider an inner trend line as a good indicator that momentum and sentiment can shift at any time under rapidly changing conditions. Outer trend lines are seen more as a boundary for price that the trend will have a hard time breaking. The use of inner and outer trend lines will help you find the right strike price for your binary options trade.
So being able to identify and use trend lines is critical to successful binary options trading.
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