What is trend trading? Trading with trend binary options
Traders use a variety of trading strategies, advisors, chart patterns, and the like. All these instruments differ in trading style, working timeframe, specifics of financial assets and other characteristics. But one class of trading strategies stands out due to its ease of use and consistency in generating profits! We are talking about trend systems for following the market. Over the many years of the existence of Forex and stock markets, this approach remains effective, delighting speculators with the ease of analysis.
But how to trade correctly with the trend? After all, not everyone makes money using this class of strategies? What's the secret? The material below will tell you how experienced Forex professionals perceive and take advantage of the trend.
Working with a trend
To begin with, we should define a trend as a dominant force in the market. Let's give an example. If the price of EUR/USD falls throughout the month, regularly updating its lows, then with a high degree of probability we will conclude that it will continue to decline, moving along the downward trend. It is not difficult to determine an upward or downward trend even without available tools in the form of indicators or graphical constructions.
The classic upward trend is accompanied by an update of local minimums and maximums, each of which is higher than the previous one. For a downward trend, it’s the other way around—the lows and highs decrease sequentially.
It is generally considered safe to enter on a pullback when the stop loss is short and the profit potential remains high. Exit from the trade occurs when the price breaks the level of the last local support for an uptrend or resistance in the case of a downtrend. These rules are simple and understandable, which is why, when developing an automated trading system, the first advisor was the one who trades independently according to the trend.
Preliminary testing stage
Below are guidelines that are important to follow to get the expected results when trading Forex. You need to start by testing your chosen trading strategy. For some reason, some traders believe that having understood the rules, it is necessary to immediately rush into battle, but this path leads to disappointment in 9 cases out of 10, although the trading approach used can be really effective!
What's the matter? According to statistics, two reasons lead to drainage. The first is psychology, since when trading there is a flurry of emotions that interfere with making the right decisions, and this makes any strategy a waste. The second is insufficient analysis of the tool and working conditions. Each trading approach needs to be adapted to a specific asset and time period.
Therefore, when using a set of rules for following a trend, you need to first test them by choosing one asset and time frame. Then you need to check the history of the last 100-1000 situations when the chosen strategy would give an entry signal. Then they carefully study how events would develop - how many times the stop was triggered, where it is necessary to take profits, etc. Having carried out such an analysis, the trader begins to feel the correct entry into the market at the level of intuition, and emotions stop interfering, provoking premature exits from trades or pulling the “moose”. "
Selecting one asset
A beginner applies the chosen strategy to a large number of trading assets, and this is wrong. This seems like smart diversification, but thinking this way is a serious misconception for several reasons.
1. It is psychologically difficult to track several transactions at once. Stress levels skyrocket when trading intraday. In 8 cases out of 10, trying to keep track of everything at once will interfere with the proper follow-up of a good deal and lead to nervous strain.
2. Trading assets in financial markets are linked. Therefore, entering in the direction of a growing trend, for example, in the euro and pound, is simultaneously incorrect due to the fact that there is a direct correlation between these trading instruments, which means that an unsuccessful transaction will most likely result in a double stop. Because of this, at first they do not think about diversification, but focus on one asset.
3. Each financial instrument has a set of specific parameters and reactions. If you work and study one chart for a long time, then soon such special moments will become easily distinguishable. Therefore, it is important to become an ace in trading one asset, and, already in this state, try to master others. This will give maximum benefit when working with the trend.
Selecting time ranges
If you follow the trend correctly, success in the form of profit will definitely come. But the trend is different from the trend, since the same trading asset can grow on the daily chart and fall on the 15-minute chart. Therefore, it is important to decide in advance on the choice of timeframe and not be distracted by other time periods, as this interferes with the assessment of the overall picture. You can use the global trend in an attempt to reduce the risks when working on smaller time frames, but in practice it is easy to see that this does not provide much benefit.
For Forex traders who combine trading with their main job, it is optimal to choose daily or weekly time periods. Here the stops will be long, but the profit potential starts from a thousand points.
Those who want to devote themselves to trading can try intraday trading, since the trend following system allows you to make good money even on M1.
Linking news and trade
Before you trade profitably with a trend, you need to determine that this approach is based on technical analysis, which has its advantages and disadvantages. In contrast to technical analysis, there is fundamental analysis, which states that a trend is born and receives confirmation when strong economic values are released. There is a rational grain in such conclusions, so you need to know how to react to the release of news that is known in advance thanks to the economic calendar.
Day traders must monitor the publication of important economic indicators and the speeches of the heads of central banks. This is due to the high probability of strong price impulses, which sometimes reach several hundred points. It is optimal to be outside the market at such moments in order to reduce the likelihood of force majeure, but in the case when the news strengthens the trend, intraday profits can be colossal. Therefore, as an option, move the stop loss closer if the deal is already in the positive zone and hope for the best. If a trading operation is in a slight minus or near zero, then it is better to close it before the news comes out.
For those who trade on daily and weekly timeframes, it is permissible to ignore the news release. This is due to the fundamental thesis of technical analysis, which says “Price includes everything.” Therefore, in order not to complicate the strategy, it is enough to follow the rules of trend development, focusing on reference points and indicators when deciding whether to hold a position or close it.
This position of day traders is supported by a lot of examples when the news gave a strong impulse against the trend, but after a few hours the situation leveled out and the trend continued. And a couple of hundred points for those who analyze trends on daily charts is a modest distance that should not be paid too much attention to.
Influence of authorities
Trend strategies are more dependent than others on external sources of information. It is not difficult to guess what emotions overcome a trader when authoritative sources like Bloomberg and CNBC confidently state that the trend for such and such an asset is confidently upward/downward, especially when a position is opened against the specified direction.
If you look at the results of surveys of traders and study statistics, you can see that such “expert opinions” bring a fair amount of confusion into the minds of currency speculators, which leads to worse results. Therefore, we remember that this is an outside opinion and use such advice only in cases where the timeframe and instrument coincide, but not always, since a tested strategy is a guarantee of profit and you need to focus on it.
As for the opinions of analysts on volumes, waves, etc., it is not recommended to take their advice seriously, but rely on your own conclusions, which will help maintain peace of mind and give the chosen strategy the opportunity to prove itself.
Bottom line
It is not difficult to select and test a strategy, it is not difficult to find entry points by determining the potential of a transaction, but success does not depend on this. The key to it is discipline, the ability to wait, not deviate from the rules and follow the rules of risk management. Only if this basic knowledge is observed, occasional losses can be ignored, and trading brings profit on an ongoing basis.
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All trading strategies in foreign exchange markets are divided into two main categories - trend and counter-trend. As practice shows, the best results are achieved precisely when using strategies of the first type. The fact is that countertrend strategies are more risky, although they allow you to get more significant profits from trading. When working with such trading systems, you cannot be completely sure that after 2-3 months of trading you will not lose your deposit due to a series of unsuccessful transactions. After all, counter-trend strategies have one significant drawback, which trend trading does not have - binary options are bought in directions opposite to local and global market trends.
Trend trading strategies are more reliable. They allow you to achieve stable (but not necessarily high) profit rates and systematically increase the size of your deposit. Which of them are the most popular and effective? And how to use them correctly? You will learn about this from this article.
How to visually determine the presence of a trend in the market?
To effectively use trend trading strategies, you must be able to correctly determine the directions of global and local trends. To do this, you need to study the charts of the currency pair on different timeframes. And if at several intervals (for example, on H1, H4 and D1 at the same time) there is a stable trend in one direction or another, you should look for entry points only according to the trend. If the market is flat and you cannot clearly say in which direction the currency pair is moving, it is advisable to choose another asset for trading, where the trends are more pronounced and obvious.
How to determine a trend using technical analysis tools?
There are also several ways that allow you to determine the current trend with 100% reliability.
Method number 1: price channel. To build a price channel, you need to connect several adjacent highs and lows on the chart with lines. An example is shown in the figure below.
Method number 2: lines. If the Moving Average line (preferably with a period of at least 50) is located below the chart, and the price does not break down, then there is a stable upward trend in the market. If the moving average is located above the chart and the quotes are gradually decreasing, this indicates the presence of a bullish trend.
Click on the picture to enlarge
Click on the picture to enlarge
Click on the picture to enlarge
How to trade with the trend using Moving Average lines?
Binary options traders use various strategies to trade with the trend, based on the use of the Moving Average indicator. They are divided into three main categories:
- At the intersection of lines. Two or three moving averages with different periods are plotted on the chart (for example, 34, 55 and 89). When they intersect with each other and all together begin to move in one direction, you should buy binary options in the corresponding direction (“Higher” or “Lower”).
- At the breakdown of the MA line. If the price breaks the MA line from bottom to top, then touches it again (retest the line) and continues to rise, you can buy binary options in the expectation that prices will move in the same direction. The same applies to a breakdown from top to bottom. This strategy can be used only if there is sufficient evidence of a trend movement. If the market is flat, such strategies will be ineffective, because Breakouts of moving average lines will occur without subsequent retest.
- On the rebound from the MA line. During strong trend movements, the Moving Average lines provide support and resistance to prices. If there is a steady upward trend in the market, then at the moment when the price touches the indicator line, you can buy binary options “Higher” (and vice versa - for a bearish market).
The figure shows entry points based on signals from a strategy that works to rebound from the moving average line. As you can see, 14 out of 16 signals turned out to be reliable.
The price repeatedly bounced off the moving average and continued to move up. Almost all binary options purchased in the “Higher” direction brought profit to the trader. And only twice the signals of this strategy turned out to be unreliable (marked with red zones). At these points, a false breakout of the Moving Average line was observed.
How to trade with a trend inside a price channel?
Trading strategies within a price channel are quite profitable and effective. If you see that a certain trading range has formed on the chart in an upward or downward direction, you should mark its upper and lower boundaries with lines. When the price approaches the lower generative line of the channel, you can buy “Higher” options. If quotes approach the upper limit, you should open short positions (“Below” options).
Take a look at the picture. Yellow areas indicate points where rebounds from the channel boundaries occurred. The vertical line marks the point after which it is possible to build a channel using three points (two maximums and one minimum). The three touches that were observed to the left of this line cannot be traded, since at that time the trader does not yet know that a price channel will form. And only after the channel was built at three points, it was possible to buy binary options. The four dots to the right of the vertical line indicate signals that would bring profit to the trader.
Please note: if the price touched the lower line of the channel and you bought “Higher” binary options, then the next transaction should be the opposite (to buy “Below” options). You should not open two transactions of the same type in a row. The fact is that if quotes reached the lower line of the channel, bounced off it and began to decline again (before reaching the upper limit), then this signals an upcoming breakdown of the channel downwards. In such cases, trading is not recommended.
Rules of money management when trading with a trend
The rules for risk and capital management in trend trading are more “soft” than when using counter-trend trading systems. If in the second case you could risk no more than 1% of the deposit on each transaction, then when buying binary options in the direction of a global or local trend, you can risk larger amounts. After all, the number of profitable transactions in this case will always be higher than unprofitable ones (provided that there really is a strong and pronounced trend in the market). It is advisable that the amount of each bet does not exceed 2-5%.
We invite you to watch a video with an example of using a trend trading strategy
Do you want to learn how to trade with the trend, but don't know where to start? Read this article to understand the principles of trend trading.
In this article I review a piece of a trading strategy that a subscriber sent me.
What you see above cannot be called a trend. This is movement; lumbago; a decline, but not a trend. A trend is a wave-like structure in which extreme points replace each other, forming a consistent price increase in one direction.
Moreover, trends are the movement of microflats (flats) in the direction of the trend.
Trend Analysis
“Analyze the strength and weakness of a trend using projection.” The projection does not work quite effectively. It will be much more effective to use price momentum and price depth in your work.
Money management
“Your position size should not exceed 1% of your account.” Too much. At the initial stage of trading, I would do differently:
Getting 20 stops with a trading strategy is quite problematic. If you comply with the risks specified above, you will spend this amount for half a year, no less. The main thing is that you have this amount.
Learn to control yourself while trading, without going beyond the given risks. There are brokers where you can set a “stop limit”, upon reaching which access to trading is closed. Check with your broker to see if they provide such a service.
“You can change the size only if the size of the deposit allows, the risk in the transaction will still be no more than 1%, a profitable week should confirm the correctness of the decision made.” If you are an intraday trader, a week is too short a period. A month is a longer period of time, after which you will be able to confirm or refute the correctness of your decisions.
Crisis management
Afterword
This time we have discussed with you another comprehensive trading strategy. If you are a beginner trader, this TS will be enough for you for the first 3 years. In any case, you definitely won’t lose money.
The main thing in trading is not to lose money. Don't chase quick profits. Focus on systematic, long-term work, take risks, and then, sooner or later, you will succeed.
This article is only part of a larger analysis. Look.
The goal of every trader is to increase capital and achieve stable income. The key to successful trading in binary options is a properly selected strategy and trading tools. Beginners and professionals very often prefer to analyze market entry points along a trend line. How does a trend form and work? What signals does the trend provide to the investor and what does it affect? This is a broad topic, which we will explore in this article.
Concept and types of trend
A trend line is a vector that displays the movement of a quote over a certain time period. This concept is figurative, since the exchange rate of a currency or financial asset does not constantly move towards growth or decline. Due to the constant influence of external factors, the quote at a certain stage moves up, then down. The depth and frequency of fluctuations in the price line are directly influenced by news, events in the global economy, and the play of large investors. Therefore, a trend is schematically depicted as a line connecting extreme highs or lows.
Basic rules that are directly related to the trend:
- exchange rate activity is unstable, the trend line will change;
- at any point on the graph there is a high probability of the course continuing to move in a given direction;
- The greatest income is received by investors who take into account the strength of the trend;
- playing against the rules is very risky, it is better to accept the situation as a fact.
In the foreign exchange industry, there are two main categories of trends: direction and duration. The first group is classified into three types: upward, downward, sideways trend. A growing or bullish trend is a stable growth in the price of an asset, each subsequent point of the chart is higher than all previous ones. At this moment, it is profitable to open contracts for the purchase of assets.
The downward (bearish) vector is formed directly opposite to the upward one. Each subsequent stage of the trend turns out to be significantly lower than the previous one. At this stage, traders prefer to sell options. The price movement along a specific horizontal corridor in trading is called a side trend or flat, consolidation. The quote fluctuates, but with low frequency and within a narrow framework.
An important indicator in trend trading is the selected timeframe. The speed of trend change or its constancy directly depends on what interval the trader will trade. For example, on a five-minute interval there is a bearish trend, on a half-hour interval it actively turns into a bullish one, and after twenty minutes it turns into a flat.
If you trade options according to a short-term scheme, the probability of a change in the direction of the quote movement is very small. When an investor plans a long-term trade, a variety of price changes are observed on the chart. It is worth noting here that in terms of the strength of the trend on the weekly chart there is a predominance in comparison with the hourly and even more so the minute.
Education mechanism
The schedule is formed under the influence of a complex of factors, according to a certain pattern. Almost every trend goes through four phases during its existence: origin, development, saturation, completion.
The formation stage is the moment when active investors enter the market. They open many deals to acquire financial assets. Horizontal fluctuations with numerous breakouts are formed on the chart. Trading at this time is dangerous due to countless false signals. After buyers become saturated and the trading situation stabilizes, an active trend begins to form. It enters the stage of development or accumulation.
The distribution and saturation phase is characterized by active dynamics of the quote. It will move in an upward or downward trend. The main feature is that the rate is constantly changing, gradually increasing or falling. The chart is formed by a set of impulsive or short correctional waves. Some active players freeze positions, while others begin aggressive trading.
The final stage is the phase of completion, the end of the trend. This period is characterized by a peak price position. Most traders set stop losses at breakeven and begin withdrawing money. The graph is presented in the form of various figures, the frequency of which is associated with user activity.
Beginners mistakenly think that after the end of a trend, a new one, diametrically opposite in direction, must certainly open. This is not entirely true. After the peak moment is overcome, the quote enters a wide trading range. It is very difficult to predict her behavior.
Trend Determination
How to determine and correctly depict a trend in binary options? Trend lines are actively used in technical analysis. To teach how to accurately and correctly determine the direction of price movement, it is worth acquiring minimal knowledge of the market situation. Each trader builds a chart according to his own principles, but based on the advice of professionals.
Most often, two or three peak maximum or minimum points are used to construct a vector. It is important to understand that the trend line will not be alone in the figure; next to it there will be smaller trends with different directions. The drawn main line often crosses support and resistance levels, which indicates the end of the trend.
An upward movement represents a support level, which is indicated by the line of the minimum values of an uptrend. The resistance limit will be the wave connecting the tops of the bearish trend. A successive combination of lows and highs will form a horizontal price corridor.
Options trend trading is based on four fundamental principles:
- The accuracy of trading signals directly depends on the size of the time scale. The larger the selected segment on the chart, the more reliable information the trader will receive from the analysis. A line constructed with a daily forecast will be more accurate than the dynamics in a few minutes or an hour.
- The duration of the analyzed trait is also very important. The further the trend goes, the more informative the graph. If we take a period of fifteen minutes, the investor will not be able to clearly predict the situation for the next hours. Such a picture will be one-sided, with false signals.
- When constructing a trend line, it is recommended to use a large number of touches. The more often the price comes into contact with the trend, the more stable it is. When the quote bounces off the chart three or more times, the investor confidently opens a trade in the given direction.
- The strength of the trend is visually determined by the angle of inclination. The faster the trend moves in comparison with the base horizontal, the stronger it is. A large tilt angle is always an indicator for opening a obviously successful transaction. A flat trend will show weak impulses; it is advisable to wait for brighter dynamics and only then enter the market.
Trading Rules
Trend trading on binary options is like a financial pyramid. Traders who are the first to open positions on the market receive good profits due to the activity of subsequent users. The trend line shows the direction of movement of the exchange rate and serves as the basis for predicting the success of the contract and the percentage of profitability.
To build a trend line, it is advisable to choose the most accurate support points. Peaks and troughs are the basis of the indicator-less method of constructing a trend. Indicators installed on the broker's trading platform also come to the aid of the trader. The most commonly used moving averages are MACD.
It is necessary to clearly define the time frame. You should not analyze weekly charts if you plan to trade intraday. The user will waste effort and time because the analyzer works differently for short and long periods.
The second important point is the choice of financial asset and trading session. On popular currency pairs the trend of exchange rate changes is most pronounced, but on rarely used trading instruments it is somewhat more difficult to predict the movement. It's better to trade options that are clear than to risk losing everything because of one wrong move.
Let us describe step by step the investor's algorithm for trading binary options based on the trend:
- selection of a trading session, financial asset;
- determining the direction of the trend (upward, downward, flat);
- calculating the duration of correctional waves by analogy with the previous trend;
- the transaction is opened after a clear formation of a trend line following the passage of a correction for an expiration period equal to the duration of the correction;
- The duration of the contract depends on the trader's expectations and the activity of the quote; it is always advisable to advance the stop loss when approaching the take profit.
Professionals advise to beware of opening trades if there are no pullbacks on the chart for a long time. There is a 90% chance that this phenomenon will occur in the near future. You cannot trade without being sure of the strength of the trend. It’s better to double-check ten times and calculate your moves than to lose everything at once. It is advisable to avoid trading if the chart shows abnormal, unpredictable movements in the exchange rate.
Trend trading strategies for binary options
Strategic decisions on conducting trading operations with binary options are made according to the individual tactics of the investor. Important selection criteria will be the size of the starting capital, free time for trading, and expected profit. Beginners prefer to play on a strong trend, while professionals actively use reversals and rollbacks to multiply their finances due to increased risks.
A popular trend trading strategy for binary options is popular among traders, based on opening trades in anticipation of pullbacks. It is obvious that the quote does not always clearly and unconditionally follow the given direction; there are minor fluctuations in the opposite direction.
First, the user forms support and resistance levels on the chart. The signal for options trading will be the third touch of the support line rate in an upward trend. A similar principle is used in a downtrend. Since the probability of the price returning to its previous position after a rollback is quite high, the client receives a decent profit.
The simplest tactic for trading binary options is to follow the direction of the trend. If the trend is upward, contracts are opened for an increase, and if the trend is downward, for a fall. Everything here is logical and simple. It is important to avoid opening trades when the price is moving along a narrow corridor. The only option for obtaining benefits through the price channel is to fix the points of contact between the support and resistance levels.
Very often, professionals use strategies based on the Moving Average indicator. If two or three moving averages on the chart intersect and move upward in the same direction, it is recommended to open a trade at this rate. The trader will take a similar action when the price line breaks through the chart from the bottom up, touches it again and moves up. Often, investors trade on rebounds, when the price periodically touches the moving average or bounces off it.
According to statistics, trading on takeovers brings quite high profits to traders. It is important to continuously monitor the live chart and eliminate all minor fluctuations in the quote. You should not trade on news releases, since the risk percentage increases many times over. Only professionals with a very clear and reliable strategy can cope with such psychological pressure.
The main mistakes of novice traders are impulsiveness. Immediately after detecting a pair of candles in the expected direction of the rate movement, the user draws a trend line and enters the market. Due to haste, the contract will close at a loss in most cases. Therefore, it is important to wait for at least two more figures to appear, confirm the trend with other indicators, and only then start trading.
Trading binary options along a trend line is one of the simple, straightforward methods. It is ideal for beginners and professionals. It is important to be subjective about the picture displayed on the charts, to deeply and in detail study the behavior of the asset in the market environment. It is advisable to exclude emotionality, passion, and impulsiveness, then trading will move forward with confident steps. An additional percentage of success will be added by strict adherence to the rules of the chosen strategy.
During the experiments, we came across the fact that the “Trend Trading” strategy does not work on all trading platforms. In particular, we were unable to implement it on the Olymptrade and Dukascopy platforms. We don’t know why this happened; we attribute it to the technical features of charting. At the same time, “Trend Trading” works great for brokers
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