Trend Line Trading Strategy
Trend lines are one of the oldest, most basic and most reliable technical indicators available to binary options traders. As a strategy they are used mainly by forex traders, but their use is just as applicable to binary options trading. Trend lines are formed by connecting the lowest lows in an upward trending graph or the highest highs in a downward trending graph.
What is the Trend Line Strategy
The Trend Line Strategy is a good place for new traders to start their trading careers. It is the simple connection of troughs to see if there is an upward trend or peaks to see if there is a downward trend.
For a trend to be established there have to be at least three troughs for a bullish trend and three or more peaks for a bearish trend.
Once the trader thinks a trend has been established and is likely to continue, given prevailing market sentiment and other analyses and intelligence, the trend line is used to identify entry and exit points for trades.
To place a trade in a bullish market, the trader must wait for the price to drop back towards the trend line. When it touches the line and show signs of turning to go back up again, a trade is placed.
To establish an exit point, trend lines or areas of support or resistance are used to see where the price is likely to turn and go down again.
Why This Strategy Might Suck
Used on its own this strategy is possibly too simple to be totally reliable. Without backup from support and resistance areas or EMAs setting entry and exit points can be a hit and miss affair.
Another weakness is that only using two peaks or two troughs to indicate a trend can lead to false indications of trends and where to establish entry or exit points
Why This Strategy Doesn’t Suck
The simplicity of this strategy makes it easy to understand and use as long as the trader remembers that he must use information from other sources to backup the indications that he might get from the trend lines. The use of one line to find a trend means that there is not a lot of information to process and angles to consider. The trader can get a good idea of how the underlying security is behaving without a lot of clutter which makes trend lines one of the more robust indicators if you want to trade without too much research and analyses.
Trend lines are possibly the best place for new traders to start getting an understanding of the markets, to start placing their first trades and to start profiting from their trading. Trend lines are also a good way to compare the behaviour of stocks across different time frames and to spot fake entry and exit signals.
My Last Thoughts on the Trend Line Trading Strategy
Using trend lines to base a strategy on is a sound idea, but gives very basic information to form trades. The strategy, by itself, lacks confirmation from other indicators. It is a good idea to use at least two other indicators for confirmation and to support your trading ideas with thorough research and a good knowledge of the markets you are trading.
For new traders, the simplicity of a Trend Line Strategy will give the beginner a good feel for trading and enable him to build confidence and experience. Using the strategy with longer time frames and other indicators like MACD and Stochastics will help the trader identify optimum entry and exit points for his trades.