Trend lines are one of the most simple and timeless indicators, used to project future support and resistance based on price history. They are called trend lines because they form when a line can be drawn connecting price areas when price pivots at multiple points.
For an uptrend, price first makes a low, the begins to climb higher. The retracements become a series of higher lows, thus making it a higher trend; and the series of lower highs may be connected by a line showing the trend. This is important because the angle of the price action is often repeated; and when price retraces back to the trend line, it is often an area of support. Or, if that support is broken, that violation could signal a trend change, and the line could potentially become resistance.
When it comes to a downtrend, price makes a high, then a series of lower highs that become connected by a trend line, in turn offering an area of potential support or signaling a trend change.
Trend lines are easy to learn and are an indicator in the purest of forms. They can be implemented by anyone with access to charts.
The four-hour bar chart above of the EUR/USD currency pair shows that the market has made a series of higher lows, thus resulting in a trend line. However, a nice trend line of resistance has also formed as this market’s orderly uptrend is producing healthy retracements.
Binary options can be a great tool to use with trend lines because they give traders a yes/no proposition as to whether price will close above or below a certain strike price, at a specific time. Therefore, traders who believe a trend line will be support may buy a strike at the line, or alternatively sell an option for resistance at a lower trend line.
The binary option table below is significant because many of these option strikes coincide with where the trend lines are on the chart above, or where they or may be when that price level is reached.
Trend lines and binary options also work great together with targets. Using the example of the chart above, traders who think price is going lower could use the lower trend line to decide that 1.0675 would be a good target, where a binary strike happens to be. On the other hand, traders who think price is going higher might use the upper trend line to decide on a suitable target at 1.0790, just 15 pips above the 1.0775 strike.
These brief examples demonstrate just a couple of ways in which trend lines may benefit binary options traders. Binary traders have access to CFTC-regulated binary options on several instruments with multiple expirations time-frames, making the possibilities unlimited.
Note: Exchange fees not included in calculations.
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