In this article, we will be discussing the use of trend lines in binary options trading. By understanding how to use trendlines in binary options trading, you will be able to make more informed decisions when trading and better understand the market conditions.
What is a Trendline You Ask?
A trendline is a line drawn over pivot highs or under pivot lows on the market (Forex, Stock, Binary Options, or Crypto trading charts) to show the prevailing direction of price.
Simply put, trendlines are a visual representation of support and resistance levels.
Why Use Trendlines?
Trendlines are ideal for analyzing market movements on directional trading.
By plotting a trendline over past pivot highs or lows, traders can identify where the market is likely to reverse or breakout to prepare adequately for whichever scenario.
Trendlines are also ideal for determining when a trade is worth taking. By understanding where the market is likely to respond, traders can make better decisions about when to enter and exit a trade.
As you continue reading this article, you will learn more about trendline trading and specifically, how to use trendlines in binary options trading.
This post also discusses some of the benefits of using trendlines in everyday trading with ideal examples of how trendlines work in binary options.
How Does a Trendline Work?
The idea of using a trendline while trading binary options is to get the overall direction of the market before deciding to either trade up or down.
As a binary options trader, you can draw these recognizable lines on your chart by connecting a series of prices together to tell if either the market is trending upwards, downwards, or sideways.
Should the line be horizontal and below the price then you should duplicate it and move it to the top of the price to form a channel as shown in the image below.
Doing this will help you know when to buy and when to sell an asset.
You can buy when the price bounces on the support trendline (line at the bottom) and sell when the price bounces at the resistance trendline (line at the top).
Conversely, you can buy when the price breaks out at the resistance level and shows patterns of continuation and sell when the price breaks out at the support level and shows signs of continued decline.
Note: – price breaks and bounces on trendlines also work upward or downwards trendlines.
How to Draw Trendlines in Qx Broker
Drawing a trendline in Quotex is as easy as creating a new account on Quotex.io. It does not take time and it is also simple and straightforward.
Regardless of if you are using a phone to trade, a laptop, or a tablet, you can plot a trendline on the charts in these simple steps.
Step 1: Login to Quotex
Depending on the method you used for registration, you can use Facebook, Apple, VK, Gmail or Email to access your account.
Step #2: Change Chart to Japanese Candlesticks
Quotex has 4 different chart types. Namely: –
- Bar chart.
- Japanese candlestick chart.
- Heiken Ashi chart.
- Area chart.
All 4 chart types show important data that can be used to make trading decisions but Japanese candlestick charts is preferred because of the extra details it gives in price action that the other 3 do not.
You can shift between the four charts by clicking on the charting tool in the bottom left corner of Quotex platform.
Step #3: Plot Trendline on Chart
You can draw a trendline on the chart by first clicking the “drawing tool tab” in Quotex and picking a trend line.
Next, identify pivot highs or under pivot lows on the market and drag the trendline to connect them.
Connecting these pivots will result in a recognizable line that is either rising, falling, or sideways.
If the trendline is rising, that’s an Uptrend. if the trendline is downwards, that’s a downtrend and if the trendline is sideways then that’s a ranging market.
How to Use Trendlines As Support And Resistance Levels in Quotex
When drawn correctly, trendlines connect pivot highs or under pivot lows. When they connect pivot lows, these trendlines are considered to be areas of support.
Trendlines connecting pivot highs on the other hand are considered to be resistance levels.
What are support and resistance levels?
‘Support’ and ‘resistance’ are terms for two respective levels on a price chart that seem to limit the market in a particular area.
Simply put, a support level is a price point at which buyers are willing to buy assets. A resistance level on the other hand is a price point at which sellers are willing to sell assets.
While the support level is where the price regularly stops falling and bounces back up, the resistance level is where the price normally stops rising and dips back down.
When prices break through a support or resistance level, it indicates that buyers or sellers are stronger than at previous points and that the market is likely to continue moving in that direction.
If you draw a trendline on the charts in Quotex, the line that touches most pivot lows is the support level. Conversely, you can draw a trendline that touches most pivot highs as shown in the image above, and that will be your resistance level.
Types of Trendlines
There are three main types of trendlines: ascending, descending, and flat.
Each has its own specific use case, so it’s important to know which one is best for your trading strategy. Let’s take a look at each type of trendline and how to use it in binary options trading.
a). Uptrend/Ascending Trendline (higher lows)
As mentioned earlier, an uptrend or ascending trendline is a trendline drawn touching higher highs and higher lows consistently in a chart.
This is how an uptrend will be represented in the charts.
b). Downtrend (lower highs)
A downtrend occurs when the price of the underlying asset falls consistently below a resistance level.
In binary options, downtrends can be identified by the appearance of lower highs and lower lows. When the price of an asset falls below a resistance level, it is said to be in a downtrend.
When identifying a downtrend in binary options, it is important to keep in mind the following points:
- The asset may have experienced several lower highs and lower lows over time; this indicates that there is likely a trend present.
- If the price of the asset has fallen below multiple support levels and resistance levels, then it is likely that there is a strong downtrend present.
Here’s how an ideal downtrend is presented on the chart.
c). Sideways trend (ranging)
The sideways trend is one of the most popular trading patterns because it offers traders a lot of opportunities for profit.
When the price of an asset moves between two defined points (horizontal trendlines), it is said to be in a sideways trend.
This horizontal price movement is also called up or down.
In binary options, sideways trends often provide traders with better opportunities for profitable trades than either up or down trends.
To identify a sideways trend, first, make sure that the price has moved between two defined points on a chart.
Once you have identified this pattern, look for indicators that suggest that the trend is continuing. Some indicators you may want to watch include moving averages, MACD lines, and Bollinger Bands.
If the trend is continuing, pick the trend line under drawing tools and join pivot highs and pivot lows on the chart to create a visual representation of support and resistance levels.
You will trade up when price bounces at the support level and sell when price bounces at the resistance level.
When to Draw Trendlines Quotex.io
One of the most common questions traders ask is when to draw trendlines in binary options. The answer, as with most things in trading, depends on your own individual trading style and strategy.
However, there are some general trends you should aim to follow when trading binary options.
1) When a security or asset is trending upwards, it’s generally worth following the trendline upward. When a security or asset is trending downwards, it’s generally worth following the trendline downward. Depending on the direction of the asset, you can draw your trendlines to aid you with entry and exits.
2) If a security or asset is making an isolated move (ie., not part of a larger trend), you may want to disregard the trendline and trade based on your own analysis and intuition.
However, if a security or asset is moving within a larger trend and appears to be consolidating/resuming its previous uptrend/downward trend, then it’s generally worth following the trendline.
3) Keep in mind that Trendlines are only guidelines – they’re not hard and fast rules that will always apply in every situation. As with all financial analysis, use your own judgment when drawing trendlines and trade accordingly!
Trendline Signals in Quotex
Trendlines can help you identify areas of value in a chart. These areas can either be areas of support or areas or resistance.
Once you have identified these levels and depending on if you want to trade bounces or breakouts, you will get your signals.
An example of a trendline signal for trading reversals is to open a trade when the price reaches either the trendline support or trendline resistance and bounces.
You can confirm the validity of the bounce with other indicators or just by using price action.
On the other hand, you can trade breakout signals by waiting for the price to break either the support or resistance levels. You can confirm the validity of the break by waiting for a retest before you trade.
Trend lines are a powerful tool that can help you make better investment decisions in binary options. I hope you have read this post to this point because then it means you have learned a great deal.
Do you have any question about trend lines? Feel free to leave at on the comments and I will gladly reply shortly.
Ps: – If you don’t have an account in Quotex, create one here. Also, use our promo code “JOON” for 50% bonus on deposits above $100.
Happy trading and see you on the next post.