Trend lines have been a staple for technical analysis for many years. After the horizontal support and resistance lines, the trend line is perhaps the second most important concept in technical analysis.
Today, we are going to take a look at a simple binary options strategy called “Trend Line Touch,” that uses the support and resistance concept around trend lines to pick winning options trades.
Preparing the Chart for Trend Line Touch Binary Options Strategy
In order to successfully apply the trend line touch strategy, you first need to learn to draw trend lines properly.
Drawing trend lines are easy. During an uptrend, connect at least two successive bar lows, where the second low would be higher than the first low.
Similarly, during a downtrend, you can connect to bar highs, where the second high would be lower than the first high. Very easy!
Here is an example of uptrend line and downtrend line on a single chart!
How to Trade with the Trend Line Touch Binary Options Strategy?
Basically, uptrend lines represent potential support zones and downtrend lines represent potential resistance zones.
But, we do not want to “guess” if the trend line will hold the price or not. Hence, after you draw the trend line, you should wait for the price to touch it, and then resume the prevalent trend.
During an uptrend, wait for the price to come back and touch the uptrend line. Once the price gets rejected around the uptrend line, place a CALL order the moment it penetrates the high of the bar that touched the uptrend line.
In the chart above (orange horizontal lines and a tick), you can see whenever price resumed the trend by penetrating above the last bar high, it hardly goes below the low of the bar that touched the uptrend line.
In contrast, during a downtrend, whenever the price came back to the downtrend line and then penetrated the low of the bar that touched the trend line, the price hardly ever comes back to penetrate the high of the bar that touched the trend line. So, in a downtrend you should place a PUT order when the price penetrates the low of the bar that touched the downtrend line.
It goes without saying that the trend line touch binary options strategy works best during strong trends, both uptrends and downtrends. Hence, it would work best when there is a higher probability of the market to trend, especially during the London and New York trading sessions.
Also, please note that there is a higher chance to win with this strategy when the price penetrates the high (during uptrend) or low (during downtrend) of the bar that touched the trend line, within the time period of the chart. For example, if you are trading on the 5 minute chart, the price should penetrate the high or low within 5 minutes or with the next 5 minute bar.
Have you tried applying this strategy on a demo or live account with any of our recommended binary options brokers? Please leave us your feedback in the comments to share your experience with our readers.
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