Binary Options: Strategies for Directional and Volatility Trading

CHAPTER 10

Technical Trading Strategies with Binary Options

Technical analysis is the art of forecasting the future price of a trading instrument based on historic price. Typically, technical traders use price charts to conduct their analysis with the x-axis being time and the y-axis being price. See Exhibit 10.1.

EXHIBIT 10.1 Gold Daily OHLC Chart

When trading an underlying instrument, you are typically trying to forecast direction. One of the great aspects of option trading is that you don't necessarily have to forecast where an instrument will go, but you can simply forecast where it will not go.

There are certain technical principles that focus on areas where an instrument will not go. Once again, with the use of options you can speculate on such future conditions.

One of the great advantages of binary options is that you can speculate on volatility without having to fear that you will lose more than you put into the trade.

SUPPORT AND RESISTANCE

One of the most popular and simplistic technical trading methods is using the theory of support and resistance. Support is a level that an underlying asset has previously had difficulty penetrating to the downside. The theory behind support areas on charts is that, typically, when price hits support, it stops and then reverses direction, moving higher.

Resistance is the exact opposite. Resistance is a price level that an underlying ...