Trend lines are one of the basic tools for trading in all markets. But even though trend lines are basic, they remain one of the most important and effective tools a binary option trader can use. The trader who learns how to use trend lines for shaping a diagnosis of the market patterns is likely to rely a lot less on the many technical indicators that are commonly used. Let’s explore trend lines further.
An uptrend is a situation in which the prices keep getting higher highs and also higher lows. A downtrend occurs when there are lower highs and lower lows.Trend lines help the binary option trader find the condition of the sentiment in the market. In fact, we can restate what a trend is in terms of sentiment. It can be viewed as a persistence of sentiment. When the trader determines that the sentiment is strong, the binary option strategy that makes sense is to go with the sentiment. If the trader determines that the sentiment is very strong, the choices
are more difficult.
A very strong trend may be a prelude to a continuation of the action; however, it may also be a contra-indicator that the price is ready to reverse.We can see that the power of trend analysis is its ability to project into the future.They are,in fact, sentiment maps that define the boundary between optimism and fear.Many beginning traders don’t know how to draw a trend line and as a result misjudge the price action. To ensure that you know how to draw a trend line correctly, let’s review the key steps involved. First, we present the steps in drawing a downtrend line . Second, we present the steps in drawing an uptrend line .
The trend lines need to only connect the candlestick lows or highs and not the candle bodies. Figure 5.10 shows an incorrect drawing of the lines.Beyond understanding how to draw trend lines, the trader needs to be able to detect whether there is an outer and an inner trend. The presence of an inner trend line indicates a shift in sentiment and momentum and should be an alert that conditions are changing fast.
The trader can also use the outer trend line as a boundary where the price will have difficulty in breaking. So finding an outer and inner trend line helps locate the right binary option strike price .A useful exercise is to profile the trend conditions. Try to answer the questions: Is the price above or below the day trend line in the intended direction of the trade? Is the 50-day moving average in agreement with the trend direction? Is the 21-day moving average above or below the 50-day moving average?