Resistance or support is a basic indicator that all binary options traders need to know. Although this is a simple indicator, its performance is great. Join me to learn more about resistance and support to know why it is trusted by traders around the world.
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What is Support and Resistance?
Support is the price level (zone) where traders expect the price to bounce back higher. Here, the bulls dominate the bears. Most traders will open UP options when the price enters the support zone.
Resistance is the price level (zone) where investors expect prices to fall lower. In this zone, the bears are in control of the bulls. Most investors will open DOWN options when the price enters the resistance zone.
Principles of Support and Resistance
Support and resistance are price zones, not specific prices. That’s why many traders misidentify them. Since then, they might give incorrect trading decisions in Binary Options.
Strong support is the zone where prices cannot get through to continue to decline after touching many times.
Strong resistance is the zone where prices cannot break through to continue to increase after many times of entering.
What is Break Out and Retest?
Break out is when the price breaks out of the resistance to continue rising or breaks out of the support to decrease lower.
Retest means after breaking out, the price returns to the level it just passed to test again.
For example,
The price breaks out of the resistance zone to continue rising, then it retests the zone it has just broken out of. Here is a very safe entry point following the break out price trend. According to normal price action, the retest point is likely to gain momentum for the next powerful bounce.
Conversely, the price breaks out of the support zone and then returns to retest that zone.
Resistance will become support when the price breaks out and retests. This is called the transition zone between Support and Resistance.
Specific examples when the price breakouts and returns to retest
When the price of the EUR/USD pair failed to fall below the lowest low, it formed a support zone. After many times of touching, the price broke out of the support zone. It then returned to retest the level it had just broken out of and prepared for a clear downtrend.
The resistance appeared when the price failed to surpass the highest peak of the GPB/USD pair. And the next time it touched the resistance zone, it successfully broke out. Prices then returned to retested the level it had just broken to form an uptrend.
How to trade binary options with Support and Resistance
For accurate binary options trading with support and resistance, you should identify them correctly. Then redraw with the graphical tools available on the chart to get a better look.
How to open a binary option in the support zone
Conditions: A 5-minute Japanese candlestick chart. The expiration time of 5 minutes.
Open an UP option: The price breaks out of the resistance zone and retests that resistance which has converted into support.
Explanation: The price breaks out of the resistance zone and begins to retest the level just passed. Right at that point, it is the safest entry point following the trend of the Break Out price.
How to open a binary option in the resistance zone
Conditions: A 5-minute Japanese candlestick chart. The expiration time of 5 minutes.
Open a DOWN option: The price breaks out of the support zone and returns to retest the level which has converted into resistance.
Explanation: The price breaks out of the support zone and begins to retest the level just passed. At that point, it is reasonable to open a DOWN option following the Break Out trend.
How to open a binary option at the support zone combined with RSI indicator
Conditions: A 5-minute Japanese candlestick chart. The expiration time of 5 minutes.
Open an UP option: The price enters the support zone, and the bullish RSI divergence appears.
Explanation: When the price enters the support zone, there is a high probability that the price cannot continue to decline. At that time, the bullish RSI divergence indicator appears, signaling an imminent price increase.
Things to note about Support and Resistance
– Support and Resistance are stronger when prices often react there.
– Support becomes resistance after being broken out and vice versa.
– When support is broken, a downtrend usually appears right after the price retests.
– When resistance is broken, an uptrend will show up when the price retests and creates momentum to continue the trend.
– Combine with candlestick pattern at resistance and support to increase accuracy.
– Do not use the support or resistance level when there is news of strong fluctuations in the price that is out of control.
So I have introduced you to resistance and support. They are the most basic indicators in Binary Options trading. Familiarize yourself with trading using these levels. Simultaneously, combine them with high accuracy candlestick patterns to increase the winning rate to the highest.
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The post What Is Resistance And Support? How To Trade In The Safest Way appeared first on How To Trade Blog.
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