Support and resistance inbinary optionsstrategies
Support is a price level below which an asset or a currency pair fails to fall. So, in a way Support is the floor and Resistance is the ceiling and the area between the two is the room. Both the parameters will move between these two levels unless a breakeven is reached in any one of the directions.
Support and Resistance offer the traders numerous clues about how to trade in the market and ways to survive losses. Being one of the most popular technical analyses, it is very simple to comprehend. The rationale behind the Support theory is that as the price becomes closer and closer to Support, it becomes cheaper and cheaper.
Now, from the point of view of sellers, the deal becomes less and less lucrative as the price has fallen so much. Sellers will find that the deal is of no use, thus forcing buyers to outdo sellers and this scenario will prevent the price from falling below the Support.
Situations may arise where the price may go below Support and sellers can overcome buyers. This kind of behavior will reveal that inclination towards selling is more than buying. The rationale behind Resistance theory is that as the price comes closer to Resistance level it tends to be higher and higher making sellers more likely to sell their products.
However, as the prices rise so much buyers will be less inclined to buy and hence another situation where sellers will outdo the buyers will be created. Here, the price will be prohibited from going upwards. Just like Support, Resistance may also not hold its ground in all situations. In this case, the price will move in one direction or another. If nothing spur traders to trade, market activity drops, and the price will not move at all. When trading binary options, the trader can make money even when the price of the underlying asset is not changing at all.
This is not possible on other markets, in particular — Forex. Price movement should exist if the trader wants to make a profit in the foreign exchange market. If the market is inactive for some time, the case of breakdown that occurs during the news may change the value of the underlying asset.
Traders seek to make profit and select a position. This situation can be determined in the following manner — in order to analyze how price behaves at key levels of support and resistance. Before the price breaking up, the price can test the resistance levels at this point and kickback points will approach the level of resistance.
As a result, we can assume that the cost increases by traders. If this happens, it means that soon we can expect the breakup. The same situation with breakdown - the levels are constantly testing, kickback points are lowering. Before the price breaks the level, it can test the resistance level at this point several times with kickbacks each time getting closer to it.
This situation indicates that buyers always raise the price. When we see this, it will be a signal to the fact that the breakdown of the resistance happened.
Break of the support level are similar. Support levels will be tested repeatedly, and the point of rollback becomes lower and lower, indicating the pressure of bears. In such cases, the pressure of sellers or buyers can be so strong that the prices just break through key levels and continue moving toward breakdown without stopping.