If you have spent any time reading about financial trading then you will no doubt have come across references to the trend. The trend is the directional basis in which financial markets move and is considered to be one of the most important factors when identifying future market moves.
Analysis of the trend is used by all styles of traders. It can however prove particularly powerful when combined with binary options trading methods. The ability to identify whether a market will move higher or lower when combined with the Call and Put digital contracts available in the world of digital options can make for a simple strategy from which the individual can earn high profits.
Trends basically refer to the dominant direction that the price of an asset has moved over time. This is driven by a strong momentum and demand from either buyers or sellers in the marketplace. It is commonly observed that once a trend is in place, it is more likely that it will continue than break down. In most trading approaches it is assumed to be better to always trading in the direction of the trend in order to gain the backing of the market. This not only lowers the potential risk, it also gives a greater chance of the opportunity proving successful.
When analysing an asset it is important to realise that trend can exist across all different time periods on the chart. While trending on higher time-frame charts will determine the overall direction that the price of an asset will move over time, many shorter term instances will also exist. These will be the result of price rallies and short term changes in sentiment towards the asset. What this means is that it is possible to trade both long and short term strategies using these signals.
As the trend signals the direction in which a market is most likely to move, it provides a power indicator which can be used to create basic binary option trading strategies. If the market has been moving higher, then a ‘Call’ option contract can be used to profit. Similarly if the price is heading downwards then the binary trader can make use of ‘Put’ contract to capture the move. When trading in this way the ‘Intra-day’ market trend should be the focus of the trader. However results can be improved by keeping a close watch on the wider market picture and dominant direction that the market is moving.
There are many technical indicators which can be used to identify the trend of the market. The most common of these is known as the ‘moving average.’ This indicator is plotted onto the chart and is able to calculate the market direction by using a basic mathematical calculation. This takes into account the preceding daily price movement of the asset to provide a view of the average gain of the price. By configuring the parameter settings it is possible to find out the direction that the price has been moving over a set number of preceding days.
One way that is often used to capitalise on this movement is to find opportunities by waiting for a low time-frame moving average to cross one from a higher time frame. Once this happens it is taken as a signal to enter the market in the direction that the cross occurs. Essentially this provides a signal that the near term market direction is gaining increased momentum.
Trading with binary options brokers provides a modern and easy way in which to speculate on the price movement of assets. Unlike many methods of trading you only have to forecast a higher or lower movement in price to earn a high fixed return. For this reason they are particularly suited for use with strategies which can identify strong market momentum. By predicting whether the market will finish higher or lower, simple strategies for binary options can be created which exploit the use of the trend.
Guest Post provided by Phil Moore. Phil is a full time trader and investment contributor for the website BinaryOptionsProfits.net. You can visit the site now by going to http://www.binaryoptionsprofits.net.