Thursday, January 9th, 2014 by Michael Freeman
Let’s face it! Relying on fundamental analysis alone to extract strong market signals from financial data and news can be as challenging as searching for a ‘needle in a haystack’. Not every day a CEO of a top leading company sales his/her shares back, Apple can’t introduce a new product to the market every day and unfortunately companies can’t release a corporate earning report every day. Wouldn’t it be easier to predict short term trends if we had strong market signals every day? Fundamental analysis is very important because we don’t want to miss out on obvious trend changing events that can affect the financial assets we trade but since most of us don’t possess ‘inside information’ , identifying strong market signals can be challenging. In fact, in most cases the news just breakout and we learn about the trend shifting events after they already happen, these Bullish and Bearish events are represented by a price breakout on our binary options price charts. As an alternative to full reliance on fundamental analysis, it’s important to integrate chart-analysis to our daily routine and focus our efforts on the price action tools that are available to us such as technical analysis indicators and chart setups. These tools can help us identify short-term market sentiments that affect the movement of price. One of our biggest enemies as binary options traders or any day traders, is the “break out monster” that lurks in the dark and literally comes out of no where. Let’s explore this phenomenon.
Break Out Strategy In Practice
In order to understand what a break out is and how we can identify it when it happens, we must understand the concept of ‘Support and Resistance”. Defined in simple words, a break out occurs when the asset’s price shifts away from the boundaries of the support and resistance points. Support level is the lowest expected price level. Once the asset’s price reaches the support level, price is expected to bounce back up. Resistance level is the opposite of the support level. Once the price of the asset reaches this level, price is expected to reverse unless price had already exceeded minor price fluctuations or “noise” , the price will continue to rise until it reaches a new support level. A break out occurs when price escapes the limits of the support and resistance levels. Break outs are not limited to a specific time frame, market or an asset type and can be analysed on different time charts.
Unexpected Break outs and Proper Response
So what triggers breakouts? We know that an unexpected price movement, above or below the support and resistance levels, can occur when a Bullish or a Bearish market event takes place, is happens suddenly and causes the price to break out. Trading during a break out can be tricky since we’re dealing with a completely unexpected price movement. break outs can continue for more than an hour and in this case they indicate a downtrend or an uptrend, enabling us to take advantage of the momentum and ride the trend while it lasts.
Try researching for a good break out strategy and you won’t find targeted, instructive information on the topic and this is because it is generally not safe to trade during a break out. If anything, I would use it as a signal to step back and wait until the asset’s price settles again within the boundaries of support and resistance levels. In a previous article I reviewed the Fence Trading Strategy with Bollinger Bands, which can assist you with identifying the resistance points and trade based on a predicted range. This unique Fence Trading Strategy allows you to double the potential profit while minimizing the risk.
Thank you for reading the article on Break Out Strategy for binary Options. Learn more about Indicators and Charts and make sure to checkout the latest Binary Options Strategy video on my YouTube Channel.