Financial markets have for a long time been premised on the idea of following trends. Any experienced trader or investor will recall a time when they have had to observe the market trends before trading a certain asset. Trend trading has also been widely used as a binary options trading strategy. But before we get to how you can learn to master this skill, we should begin by explaining what exactly is meant by trend trading strategy.

What is a Trend?

The meaning of the term trend in the context of financial markets is not any different from the basic meaning of a trend. It basically refers to the general direction taken by something over a certain period of time. As an option trading strategy, trend trading implies tracking the dominant direction in which the price of your underlying asset is moving over a particular period of time.

Trends in binary option markets can either be short term or long as the direction of the prices shift. Subsequently, you will often hear of trend references such as uptrend or downtrend. An uptrend basically means that the prices are rallying for a given period. On the other hand a downtrend is where the pattern shows a series of falling prices. It is however important to note that not all markets tend to exhibit steady trends. In some instances, the markets will take an erratic motion with the prices having no particular steady direction.

How to Identify Trends

Bearing in mind the constant fluctuations in prices, how could one possibly track and benefit from a market trend?

The important element to always have in mind is the continuity of trends. Once a price has taken a certain direction it will be highly likely that this price will keep on moving in that direction and not on the opposite direction for some extended period of time. Even though the price might have several pullbacks, it tends to get back to its general direction eventually. This persistence of trends is what you as a trader should be looking out for.

 

The process of identifying trends often makes use of the basic commodity price charts. In the price charts, you will find lines drawn along the actual commodity price movement. These lines indicate what are referred to as moving averages. Different trading companies will make use of different types of moving averages but the most common are the Simple Moving Average and the Exponential Moving Average. Though they might sound technical, they are all indicators designed to calculate the rate of the average price change for a given period, say five, ten or twenty days. The difference is in the technical approach taken in calculating the average rate of price changes.

 

How to Use the Trend Trade Strategy

After you have picked the moving average indicator to use, you need to observe the general direction in which it is flowing. This direction determines the kind of binary option trade to make. For instance, if the indicator shows that the price has been on an upward rally, then you should make a Call purchase. If on the contrary the indicator shows a falling trend in the prices, you should select a Put.

Being able to observe the trend of the prices however does not guarantee that you will make profits from your trade. The key element in this trading strategy is timing. From observing the trend, you should be able to make the right move at the right time. Remember that markets are volatile and you can make your move when the price is experiencing a bump in its trend. The trend trading strategy will yield best results if the markets have been on a steady trend for a long time. In addition you should note that trends usually tend to experience some volatility upon release of crucial news affecting the financial markets.

You therefore need to select the right time-frame for your binary options trade. By analysing the price charts, you can tell how often the price changes deviate from the trend and by how much. Based on this analysis you should be able to tell if the market is too volatile for a profitable trade at the moment. The key advantage of trend trading as a binary options strategy is that you can benefit from both price hikes and drops provided you make the right prediction.

 

Can You Spot the Trends on a Real Time Trading Chart?

 
 
 

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