In trading binary options, pivot points can be valuable in determining when to enter into a PUT or CALL option position. The Pivot Point Bear Strategy has been designed in order to capitalize on down trending markets. Let's see how this is possible.
The Pivot Bear Strategy in Trading Binary Options
To understand how to apply the pivot bear strategy in binary options trading, one must first understand what pivot points are. Pivot points are technical indicators that help to identify the prevailing market trend across different periods. The point is a derivation of the average of the previous day’s price points.
Technical analysts use pivot points to identify the support and resistance levels in a prevailing price trends. The first support and resistance levels are arrived at by monitoring the price movement of an asset starting from the pivot point to high or low price points of the previous day. The next support and resistance levels are arrived at by applying the entire range of high and low price ranges.
Essentially, traders use pivot point to identify potential changes in price movements. As such, traders expect the prices to continue with an upward trend in a bullish market when the prices of an asset are trading above a specific pivot point. On the contrary, in a bearish market when the prices of an asset are trading below the pivot point, traders typically expect the prices to continue with the downward trend.
Applying the pivot bear trading strategy
Understanding the potential future price movements of an asset is important to be able to successfully trade binary options. The main objective in using the pivot point bear strategy is to leverage a downward price trend in a bearish market.
As a trader, you would use pivot point levels to map out the price movement changes and to monitor the volume of downward price movements. Across different periods, you will be able to observe the downward trend in this bearish market. The inverted hammer candlestick pattern will come in handy in confirming the downward price trends. With the pivot point as a threshold, there is a strong indication of a bearish market if the start price of the candlestick is trading below the said threshold.
The pivot points are therefore useful in identifying the predominant market trend and as an indicator that traders can use to determine when to enter or exit a market. The pivot bear strategy is particularly applicable in a bearish market where the asset prices are trading below the pivot point and are on a downward trend.
Using this strategy can be helpful in taking advantage of potential price reversals as price trends approach resistance or support levels. It is important to note that although pivot points are valuable in identifying potential changes in price action, they should only be used as short term, daily indicators and are not a reflection of future price trends over a long trading period. As such, it is best to keep your trades within a short period because price trends becomes harder and harder to predict in the consecutive time frames.
In trading binary options, pivot points can be valuable in determining when to enter into a PUT or CALL option position. Using pivot points, you can identify a bearish market and enter into a PUT option position to leverage the downward trend as prices continue to trade below the pivot point.
Pivot Point Bear Trading Stategy - A Summary
Goal: Capitalize on down trending market
- Use pivot point levels to plot the movement of price changes
- Use the “inverted hammer” candlestick pattern as an indicator of bearish conditions of the market
- If the opening price of the opening candlestick is below the threshold represented by the daily pivot point, you can be fairly sure that the market is bearish and price trends downwards.