What our options experts think about the Trend Trading Strategy
Any professional trader can confirm that trading against the trend is a “road to nowhere.” At the same time, there is a proverb “the trend is our friend”, which confirms the fact that we should make friends with the trend. That is, you need to trade exclusively in the direction of the trend.
There are two variants of determining the trend direction:
So, the opened terminal and the schedule of financial asset are before us – it is the currency pair GBP/USD, which we took as an example.
Next, we choose in the toolkit of the terminal a tool “trend line” and draw it through the support line of the price chart.
With this line we determine the direction of the trend movement.
Rules for opening transactions with the trend
We have a drawn trend line, according to which we have determined that the trend is up, and it means that we make a transaction only for purchase. However, when is it the time to make a transaction? It is logically to enter in the price rebound from the trend line upwards. However, in the history of quotes everything looks nice, but in reality it is difficult to determine when this rebound has occurred. To confirm a rebound occurred, we need to use additional means (a classic oscillator Stochastic).
As you can see, the oscillator along with the price is in constant motion, and confirms to us the moments of price rebound from the trend line.
When to enter the transactions?
A trader should enter the market with a binary option when the price of the asset has touched our trend line and the Stochastic indicator has fallen into oversell zone and reversed and began going beyond this zone upwards. This moment never better suits for a transaction to purchase.
As you can see on the screen, in all cases, a real rebound from the level was confirmed by Stochastic indicator. That is, the price was on the trend line, the indicator reversed and went up, and at this time we make a transaction with a binary option and after a while we get a profit.
How to choose a financial asset?
To trade with the trend we can choose any financial asset, which at the start of trading has a strongly pronounced trend tendency.
Time of expiration
For this type of trading pick up classic binary options, options RANGE and ONE-TOUCH, with expiration dates of 6 hours and 12 hours. Approximately such periods are necessary for the asset price to reach the strike levels in the profit zone.
The size of the transaction in trend trading should not exceed 5% of your deposit size to exclude the unexpected drawdown. Thus, if you have a minimum deposit of 200-250 USD, then the transaction size must be no more than 10-15 USD. An additional factor that will play into our hands will be an increased amount of payments for Range and One-Touch binary options, which during one transaction can make out 50 USD of net profit of every invested 10 USD, which is more than excellent result.
- Traders can collect their position as the price moves in the selected direction.
- The strategy is safe and has excellent prospects.
- Trend usually helps to take even those transactions which were made not at the opportune moment.
- Working with the trend, we can enter additionally, maintaining the level of financial risk or even reducing it.
- Psychologically it is much easier to move in a certain direction, than, looking for a reversal point, expose the capital at risk.
- Very often novice traders are trying to buy an option on their alleged lows or highs of the whole trend movement, and ultimately get only losses. It is a very common situation among beginners, trading in binary options, and usually it leads to the deposit drain.
- Existing methods of determining the reversal point of the trend are very imperfect. So a trader can easily miss the time of the trend change.
- Significant amounts of stop-losses.
That’s all for now. Got any questions? Just ask the expert!