• Category: Strategies

Increase Your Odds By Trading On The Breakout

Many binary options strategies are based on support and resistance. A very basic binary options strategy that traders use to trade using support and resistance is they buy at support and sell just before the resistance level. Learn here how to increase your odds by trading on the breakouts.

 

Increase Your Odds By Trading On The Breakout

Say you have your eyes on the price movement of a particular asset. One moment, you could be in the money and the next moment launches you into an out of the money situation. Many traders find themselves in the money and out of the money almost concurrently especially when there are no solid fundamental indicators that can help to formulate a profitable trading move.

An efficient yet underutilized way to increase your in the money odds is to keep track of resistance and support breakouts. Breakout patterns are especially helpful when there isn’t much in the way of significant financial news or fundamental data to base your trading decisions.

support resistance

What are support and resistance areas?

In chart analysis, support areas are those where prices have tended to increase in the past. An increase in prices is indicative of a possible increase in market demand. Resistance levels define areas of price decline and are indicative of a decrease in market supply.

In other words, the resistance is a price at which sellers tend to enter an asset and the support is a price at which buyers tend to enter an asset. There are numerous ways to determine support and resistance. One basic way for identifying support and resistance is by analyzing the chart to see were the price hit a particular level multiple time without breaking it and retraces back (as you can see in the figure).

This is just the ideal scenario — the market is constantly in flux and what you anticipated may not play out as planned. What happens when there is a support breakout or resistance breakout?

  

Applying the breakout strategy

Watching for breakout patterns is a particularly useful technique for determining the best time to take a call option position or a put option position. Breakouts essentially signify changes in the market dynamics; they can show you which direction the price movement of an asset is moving.

So, when there are major price declines in the support level, a trader would typically take a PUT option position. At the same time, in a bullish market, prices are likely to increase causing a resistance breakout. At this point, it would be appropriate for a trader to take a CALL option position for an underlying asset.

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