Understanding Support and Resistance Levels can have a great impact on the way you trade. Understanding support and risistance levels or areas , as some people like to call them, will give you greater confidence in placing future trades. So, what are support and resistance areas/ levels ?
In short, support and resistance levels are a concept that the movement of the price of the currency pair, commodity or stock will stop and reverse at certain predetermined price levels, which will be recognisable by the previous multiple of touches of price without a break through of that level. ( as in the picture above ).
Also understand that a resistance line can become a support line once it has been broken through and the same for a support line that can become a risistance line once the price has broken through it.
In regards to trading binary options I tend to use the one minute chart for a five minute trade and a five minute chart for a fifteen minute trade, trading both, trend and pullback using the the one minute chart to trade the pull back and the five minute chart to trade the trend continuation.
To find the support and resistance lines you simply only have to look at the last high and insert a horizontal line at it’s highest point, scroll back through the chart to see if this area has been a turning point for price previously ( usually it would have been ) and now do the same for the most recent low, inserting another horizontal line at it’s lowest point. You now have basic support and resistance lines, obviously you will refine these lines the more you learn about and use them. You can leave these lines on your charts as future references as the price will no doubt pass through these areas again.
So, lets say the trend 0n a currency pair is heading in the downward direction on a one minute chart and the next candle is bearish ( heading down ), hits your resistance line and bounces back up, this is a good indication that a small reversal/ pullback is about to happen, if the next candle is bullish ( heading Up ) I would use this candle as a confimation candle and place a ” CALL ” trade for five minutes at the close of that candle.
Using the same senario as above, but instead of the bearish candle bouncing back up off your resistance line, it passes down through it and the next candle is also bearish ( heading downward ), I would use this as a confirmation that the trend is going to contiue downward, and I would place a ” Put ” trade for five minutes at the close of that candle. The same applies to the five minute chart with fifteen minute trades.
And obviously for an up trend you would do all ths but vice versa.
As always use your Demo Account to test and refine the use of this stratergy.