Binary options is simple: standard support/resistance levels. Part 2.
- VFX Blog
- For beginners
As mentioned in the first part, building levels is a creative process, and each trader sees their own path on the same chart. But there are also standard methods of how to make money on binary options that can be used to determine support/resistance, which give a stable profit on any trading asset. The most popular are the following:
Pivot Point
The calculation is made to the maximum/minimum and the opening/closing of the previous period. As practice shows, the price in the Pivot zone makes sharp fluctuations, and the trend can completely turn around. Three calculation algorithms are used:
• Classic. The reversal level is determined by the sum of the last high, low, and closing price and then divided by 3. Three auxiliary support/resistance levels are also calculated;
• Camarilla. The method was developed by trader Nick Scott in 1989 and, unlike regular Pivot, works well on intraday trading and M15-H1 timeframes;
• Midpivots. Option for M1-M10 timeframes. Gives a lot of false free binary options signals, so additional confirmation is required.
During the trading day, the price may cross the Pivot Point several times and it is far from certain that this will be the beginning of a new trend. You need to look at the coincidence with the levels of the higher timeframes, data from technical indicators, real binary options signals and configure the calculation period for the characteristics of the asset.
Fibonacci correction levels
Named after the mathematician Leonardo Fibonacci who created the numerical sequence, in which the following number is the sum of the previous two, with the ratio of 1,618 to the previous value.
A breakout or rebound from Fibonacci support/resistance gives a reliable signal of continuation or reversal. The methods of use in strategies are described in detail in literature and on specialized sites, so we will not dwell on them in detail.
Murrey Levels
When trading in financial markets, the trader first analyzes where the price will go, and the question of when he will overcome the calculated levels is not so important. But the time factor is also important, especially when trading futures and binary options with a fixed maturity (expiration), which is accompanied by strong movements in the spot Forex market.
The first strategy based entirely on the time factor was Gann's theory, which predicted market movement using "price-time squares" and many related factors from the phases of the moon to the position of the constellations. Only Gunn knew how to do this, and for everyone else in the exact binary options strategy, his method was extremely difficult. Murray's mathematical levels simplify this process and allow you to trade without any extra "mysticism".
Used 8 intervals (levels), called by the author "Octave":
• [4/8]. Balance calculation level, from which it is best to open positions. If the price is fixed higher, it will be strong support, lower - resistance. It is especially important to ensure that the breakdown is correct and to receive confirmation from binary options signals live.
• [8/8] - [0/8]. The main range from which a reversal or correction of the current trend can begin. The reliability of the level increases if they are in the same zone on different timeframes. There may also be a fairly long period of consolidation before a breakout or rebound.
• [7/8] - [1/8]. If the price stops in these zones, we expect a strong pullback to the balance line. When a breakout occurs, the movement will continue to [8/8] and [0/8].
• [6/8] - [2/8]. Strong levels of correction from oversold zones. Strong top binary options signals often appear on them.
• [5/8] - [3/8]. In this range, an asset spends at least half of its trading time. Murray believes that the market is in a state of uncertainty, and if the price nevertheless breaks through the borders, then most likely it will not come back.
If the chart moves within the range of more than 10-12 bars, look for an opportunity to open the opposite position, otherwise, we add to the trend.
• [-1/8] и [+1/8]. “Extreme” levels of support and resistance, the breakdown of which may mean the end of the current trend. But, as statistics show the best binary signal provider, it is also very likely that this is just a correction and the movement will continue.
• [-2/8] и [+2/8]. “Final” support/resistance, and if the price breaks through these levels, the movement will continue to the side of the breakdown and with strong movement can lead to a redraw of the “Octave”.
Examples of binary signals software strategies with support/resistance levels:
• VfxAlert strategies for beginners
• Moving averages as the best strategy on a binary option for newbies;
• Strategy Pathfinder − we trade flat and reversals;
• 5 minutes options with Everest strategy;
Using support and resistance levels in binary options
The main task and at the same time difficulty of any strategy that works from price levels is to determine the truth of breakdown of "equilibrium point". When the breakout does occur, the price will start a new or continue current movement with a low probability of returning to previous values. In the opposite situation, when chart deviates from level, you can enter a correction or stay out of the market, expecting a strong movement.
If the price makes several false breakouts (retests), this means that level is really significant and the market needs to make significant efforts to overcome it. And as always, the rule works: larger timeframe, more reliable signal.
Characteristics of a "true" breakdown:
• The breakdown candle closes much higher / lower than the level and is better if it does not completely touch it, including shadows;
• Most binary options guides believe that on all trading assets, the signal becomes more reliable if the distance from the level to the closing price of the candle is not less than the average volatility of the asset over the past 3-5 periods;
• There is no reverse movement of at least 3-4 candles after a breakdown - we can assume that the chart finally broke through the price level. For medium and long-term options, control period should be at least 2-3 hours.
When confirming volumes, even tick volumes, we should monitor the dynamics of their changes before, during retests, and immediately after the breakdown. Without their sharp increase, support/resistance levels are not so and represent the following speculative bursts of market makers and false binary options trading signals.
Let's move on to false breakdowns. This is the exit of quotes beyond the level, followed by a rapid rollback to the original values for 2-3 candles. There is a classic “herd” instinct of small players who are trying to make money at the end of the trend or do not understand the real balance of forces without conducting an analysis in the binary trading platform. Therefore, transactions end in a loss, just like for market makers
It is after several false retests and breakouts that medium - and long-term trends are formed, and the initial support and resistance levels of Murray, Fibonacci or Pivot are formed. Experienced traders may try to open small binary options “against the crowd” for such short-term impulses.
Characteristics of false breakouts:
• It is necessary to find trends and levels primarily on long timeframes relative to the current one. For example, there is a strong movement on hour, and when switching to smaller intervals, breakouts begin to be observed, then we can assume speculation to "squeeze" small players.
• Look at the chart for patterns formed simultaneously with breakout/reversal: "Doji" candles, "Head-shoulders", "Double Bottom/Top", at the key a point of which there is always an accumulation of open interest. This is where the main mass of false breakouts due to conflict of interests of buyers/sellers, triggering short options and other force major returns market;
• For medium- and long-term strategies and binary options Forex signals, make sure that the breakout price is higher / lower than the previous day's close;
• If support/resistance breaks through when there is a divergence, for example on the MACD, it is almost always a false breakout.
Let's summarize: no matter what strategies are used or auto binary signals, all traders should be able to find and use support/resistance levels correctly. They show the “hidden” mechanics of the market and provide an opportunity to make money where others receive only losses.