BO204 Lesson – Best Market Types for Binary Options Trading Video & Transcript
Welcome to Binary Options 204: Market Types. For me personally, these videos are now getting very exciting. In Binary Options 100, I taught the very basics of financial markets, and binary options. But now, in this Binary Options 200 series, I’m starting to demonstrate trading tools, and trading concepts that help us to profit from financial markets. One of the things I love about financial trading is learning, applying, and profiting. And in this video, I’m going to show you how to apply what we’ve learnt in the last couple of videos to do a support and resistance, to determine market direction, and how to trade and profit from financial markets.
To start off with, let’s look at market types. This is very basic stuff, price trends, and uptrends, or downtrends. When it ranges it moves in a sideways direction. We can use what we’ve learned in the last two videos about support and resistance– more specifically, horizontal, dynamic, and trend support and resistance– to identify and trade these market types. Being trending markets, and ranging markets.
If you haven’t watched Binary Options 202, and 203, please do so now, as this video will be so much more beneficial if you view those videos. Both market types can be traded, it doesn’t matter if price is ranging or trending. Both of these markets can be traded for profit. And what I’m going to show you in this video can be used as part of a very basic, but very reliable trading strategy. And after this slide, the rest the video is going to be shown on real-life price charts.
I think we’re getting to the point now, in this series, where demonstrations on slides is not going to be adequate. We need to look at raw price data. And what I’m going to show you in this video can be reliable for both day trading, and swing trading time frames. Let’s look at some price charts, and I’ll show you how to determine market type by using a variety of supports and resistance we have learnt so far in this Binary Options 200 series.
This is a 15-minute chart of the EUR/US Dollar. First of all, let’s look at the different market types that conform during different training sessions, or different times of the 24-hour period. The EURUSD is an interesting pair. The Euro is heavily traded during the European, or London session. And US Dollar is heavily traded in the New York, or US session. Between London and New York, there’s only a five hour difference. So, their night hours do overlap.
What’s interesting on smaller time frames is, during night hours– when there’s lower frequency of Euros and US Dollars being traded– price goes very quiet, and can generally range. Just looking at this recent price data in front of me, you can see very quickly– without looking at the times at the bottom of the chart– when were the night hours, and when were the day hours. Here is a typical day of EURUSD trading. You can see price is very volatile.
And here’s another day of trading. You’ll notice that during the night, here, and here, price is very quiet. And when price is quiet– on the overnight session– price typically ranges. If we take the overnight of the 27 of February, and zoom in, we have a very clear range. Price is moving up and down between two tight areas of support and resistance. I thought I’d share that with you, as it’s something we haven’t covered yet in either of these Binary Option series.
Depending on the currency pair, price can range in an overnight session. So, how can we use the support and resistance– covered in the last two videos– to determine market type, and trademark type? Well, let’s look at dynamic-supported resistance first, because that’s one of the easier ways to determine how price is behaving. Let’s zoom out. And let’s add a moving average to our chart, and let’s have it at the period of 21.
So, how can we use this moving average to determine how price is behaving? Well, quite simply, if the moving average is up, there is a strong, bullish bias, and price generally moves on the upside. When the moving average is moving heavily down, price is generally falling on the downside. And when the moving average is moving in a sideways direction– when we don’t have a strong moving average decline, or incline, such as here– that act as a signal that price is ranging.
It’s important to know that indicators are lagging, and a moving average is a lagging indicator. So, even though the range starts here, the moving average doesn’t start to straighten out until about here. Let’s continue with this moving average, but let’s use a higher time frame chart. Let’s look at a daily chart.
So, this is a daily chart of the EURO/US Dollar. Our moving average is moving strongly on the downside, and price is downtrending. We have the same here, and price is moving on the upside as the moving average pulls back. Here, the moving average is moving in a sideways direction, and price is ranging. So, that’s one way we can identify the price behavior, or market type.
In our previous video, we talked about trend, support, and resistance. So, how can we use trend support and resistance to determine or identify how price is behaving? Let’s get rid of this moving average, let’s go back to our 15-minute chart, and look at this price data again. Whenever there’s a price reversal on charts, I think it’s important to mark that price reversal, as we can use it at a future time, for potential area, to open a binary option. And I’ll go more into detail about this as this video goes on.
Let’s zoom in. And mark trend support and resistance, or reversal of pushes and pullbacks. If we start off with this overnight session, and get a horizontal line, price pushes, it comes back, there’s our reversal. We’ll mark that area with a line. Price comes down, and it pulls back. Price goes up, it comes back down, we have another reversal. Let’s mark that area. Price comes back down and reverses, on this same area, as the previous pullback and push.
This is our first signal that price could be ranging. Our confirmation is when price goes on the upside, and reverses at the same area of the previous push, and pullback. We now have a confirmed range, and price continues to move between the support and resistance for a number of hours. As mentioned in previous video, the best way to trade any he support and resistance level, is to identify the support and resistance, and then look for a signal.
And throughout this video, the signals we will be looking for, are pin bars. And here is our signal to place a put option. We have a pin bar on the resistance, or at the resistance level. We could have opened a put option, and price fell on the downside. Marking trend support and resistance can also work to identify trends, not just ranges.
Let’s delete these lines, and carry on marking trend support, and resistance. Price comes on the downside, and it reverses. We’ll mark that area like so. Price goes on the upside, it pushes, and it reverses. We have another area to mark.
Price comes on the downside, and then reverses. Once again, we’ll mark that area. As prices moves on the upside, it breaks this previous resistance. And that’s our confirmation that price is trending, and price moves on the upside, and is uptrending. But we can use horizontal support and resistance to identify, or determine if price is going to range, or trend.
If we mark our support on daily chart range, once the support level is broken, price falls heavily on the downside, and price downtrends. Sometimes there are false breakouts and ranges, such as at the top of this range. And sometimes price can break out of a range, and form a new range. We have the support becoming the resistance of the range, or if we have a breakout of resistance, that becomes the support of the new range.
But more often than not, when price breaks out of a range, price trends. If price breaks out of the resistance, we have an uptrend. If price breaks out of the support, we generally have a downtrend. And as mentioned, you can have false breakouts, and price can continue to range. Obviously, all trading concepts and techniques are not fail proof. But more often than not, it is the case that price will trend when it breaks out of a range.
So, there are a few ways to determine if price is downtrending, uptrending, or ranging. It’s important to know that price can range within a trend, or trend within a range. If we stick with this daily chart, and zoom out, we obviously have a clear downtrend. A push, a pullback, a push, a pullback, and then our final push. But price is ranging between this pullback and push– or retracement, and rally.
What’s my advice to trading trends and ranges using support and resistance? My advice is to mark any sign of support and resistance. Whether it be channel supports and resistance, trend support and resistance, or horizontal support and resistance– mark everything, and then look for signals on those levels. Let me demonstrate this further.
Price is clearly downtrending on this daily chart. We have a push on the downside, and then this retracement, and we start going for that other push. Once this pattern is formed, we can create a potential channel resistance. Using the trend line, we can join these highs together. We can also mark a support at the end of this rally on the downside, and retracement.
Price comes on the downside again, there’s no signal that the support is going to hold. But we do have a signal that the support has now turned resistance. We have a pin bar. We could place a put option, and price falls on the downside. Price pulls back in this area, we can now mark this as a support. Price comes on the upside, this resistance is no longer needed. You’ll see that price continually ignores this potential support and resistance, so we can delete that. We have a new support here, and here.
This supports is held, price goes on the upside, comes back down. We have a number of pin bars on this support that could be traded. We can mark on a resistance. And we also can use a channel resistance to link this high, and this high– like so.
As price comes back on the upside, after bouncing off this support, we have a pin bar, or a doji candle. On both of these resistance levels, a signal to open the put options, and price falls heavily on the downside. And the possibilities are endless with knowing about trend support and resistance, dynamic support and resistance, and horizontal support and resistance.
For example, if we get rid of these horizontal support and resistance lines, we could use our trend resistance we created by joining these two highs, to create a trend support. If we duplicate the line, and join it onto our first low, we have a pin bar, followed by an engulfing candle. And price moves on the upside.
In this video, we really covered the basics and strengths off technical analysis. And this is what I love about trading. And this is how we can analyze price charts, and use them to speculate where future price is going to be. And if we can do that with high probability, then we make profit. As this series continues, I will continue to go into great depth of technical analysis. How we use it to determine what price is doing, and how we use it to determine where future price is going to be.