Support and resistance levels are key areas in which asset prices may vary dramatically. In other words, it is likely that with a decrease in price of an asset, sellers will stop trading at the support level. This will lead to a drop in prices. If we talk about the cases in which the price increases, it is likely that the quotes will affect customer behavior – they will fall due to the fact that many people will stop trading.
Forming the zones of support and resistance
Support and resistance zone may be formed as follows:
- Psychological motives: traders use prices that are at the nearest zero values. Quotes are landmarks of profits for traders, which leads to the formation of areas of support and resistance. Examples are the quotes ending with 00, such as as 1.5000, 93.00, 1.4300 and so on.
- Reference points: calculated daily, based on the maximum and minimum indicators of the past day. They may also form the basis for support and resistance. The trader may have to make independent estimates or identify reference points automatically.
- Recent highest and lowest points: the zone in which the quotations occasionally reached highest and lowest levels. These can be used as good indicators for support and resistance. Recent indicators will allow to make a reliable forecast.
Now that you understand what influences the support and resistance, we can demonstrate how these levels are used on the market of binary options trading.
Use of support and resistance in trading
When trading binary options, the best way to determine resistance and support zones is to use pivot points and zones in which quotations had previously reached the highest and lowest marks.
Usually, automatic calculations are used to identify these zones. The resulting information can be used by traders for the following types of trades: Call / Put and Touch / No Touch.
Trade options of the “border” type
This type of trade involves the support and resistance zones. In situations in which the quotes for assets are in points opposite to market expectations, you can use the Call option (quotes are near the support area). If the quotes are near the resistance zone, the Put Option is used.
Sometimes you need to make a difficult choice when the market forces the quotes to pass through key levels. Therefore, the safest and most reliable decision for a trader is to wait until the key indicators overcome key points.
Since quotes usually float until until they reach key support or resistance markers, the price, located near these levels, can be used for trading type Touch. If the quotes move away from these areas, you should use the No Touch bet.
The second component of such trade is to set the end date. Typically, a time schedule is used to calculate the time it will take to ensure that the asset value has reached a certain level. And, based on the schedule information, you can enter your date. It’s only natural that to be successful in this form of trading you need experience, that’s the only way you can make accurate predictions.
«Borderline» type trading
Automatic calculation of reference points is the best option to trade «borderline» using indicators of support and resistance. Pivot points are above and below the market price. They can be used to determine the limits to trade “at the border”.