Trading with the trend or following the trend is one of the simplest and most profitable ways to trade binary options. Any experienced and successful binary options trader will advise you to identify and take advantage of all the profitable trading opportunities by keeping a track of price trends and its direction over a period of time. But there are many traders who will say just the opposite. While there might be a tug-o-war about whether to trade with the trend or not, the situation becomes confusing for new traders. Let’s get into a detailed analysis of whether trading with the trend is a profitable reality or a devastating myth for traders.
Understanding the Mystery of Trend
There are many trading strategies that garner myths around them simply because traders do not know how to use them well. And when they fail, they give up on the idea of trading with that strategy. But all the trading strategies offer the opportunity to earn if they are used properly.
Similarly, most trend traders fail with trend following strategies. This is because unlike other strategies, for a trend following strategy to be implemented properly, one must first learn to identify trends. If you get it wrong at the identification level, the rest of the trade is not going to fetch you any benefits. Thus, if you can analyse the price chart and identify the trend prevailing in the market, you can enter profitable trades.
Many traders who go short or traders who go long with their trades fail to take advantage of the trend that captures the market for a period of time. For example, when a trend is long-lived, it is not necessary that all traders must trade long. Rather there are a plethora of trading opportunities with short-term trades as well. On the other hand, traders who choose to use long expiry time periods must keep patience after analysing the market well. This is because a trend repeats itself and in long run, they can magnify their earnings through their knowledge about the market.
However, many traders suggest that when you are trading in a dynamic market like binary options, short-term trades are the best way to make the most of it.
How to Use the Trend to Trade Successfully?
Traders must use basic price charts to identify the trend prevalent in the market. The price chart shows both the current price movements and past price movements together for a better comparison. Most of the reliable binary brokers offer such basic price charts to their traders. They also offer advanced charts which a trader can switch to after s/he has gained some experience in identifying a trend at a basic level.
In a basic price chart, the movement of price is traced through a line that moves up and down along with the actual price movement. The price movement shows the trend from the movement it makes over a period of time.
When there is an uptrend or the prices are moving upwards, you can select call positions for trading binary options. Similarly, if there is a downward moving trend, put position is the right choice. Time selection is important because most trends do not live longer.
Another point to consider is that all trends are not solid. This means if you see a slight pullback in prices when the prices were staying up, it doesn’t necessarily mean that the trend is changing. New traders using trend strategies must not react to all pull backs or trend reversal signals. Before taking any action, the trend reversal must be confirmed through market analysis.
Trading with the Trend Using Candlestick
Trend based trading is highly effective for binary options traders. But to use this magnificent strategy to its full potential, you need to combine timeframes to validate predictions and confirm reversals. Binary traders can use trend analysis, prices charts, resistance levels and candlestick formations to trade better with the trend.
Candlestick formations are useful for binary options traders as it helps in clearing out all the noise in the price movement. To trade with the trend, you must use a daily, weekly or even hourly candlestick chart. An hourly price chart will provide a more detailed view of current movements of price. Hourly charts confirm the trend prediction shown in the daily and weekly charts. Before you enter a trade, you must see a 5 minute price chart to check which option you must select based on current price situation.
Trend trading is more predictable and less volatile than swing trading if traders can analyse the market well. The success of trading with trend lies is predicting the time period for which the trend will last and using the right option. Thus, it will be right to say that trading binary options with the trend is not a myth but a reality which ensures profitability.