Price action, defined as the movement of price over time, is often analyzed by traders in retrospect to price changes in the recent past. Used as a trading technique that allows a trader to evaluate the market and make subjective trading decisions based on the recent and actual price movements rather than relying solely on technical indicators, price action characterises an assets price movements.
To adopt a price action strategy, a binary options trader will consider, historical data and past price movements including trend lines, price bands, swing highs and lows, levels of support, resistance and consolidation including price patterns such as breakouts, volatility and reversals.
Most suited to short to medium term trading, price action strategies most often use support and resistance levels as a basis of the strategy in combination with price and candle patterns. Techniques such as trading with (or against) the trend as well as identifying whole numbers and old trading levels can also formulate a price action strategy.
Price action strategies can be categorized as counter-trend, trend following or breakout.
Counter-trend binary options strategies are based on rebounds from support and resistance levels or key reference points. Generally used by swing-traders, a counter-trend strategy assumes that a current price action trend will stop-and-reverse and when it does, attempts to profit from that reversal.
To identify key price action reference points, binary traders will engage technical tools such as Fibonacci retracement patterns, moving average, pivots and/or Bollinger Bands as well as whole numbers and old trading high/low levels to signal reversal points.
Double Zero Strategy
Also known as a Round Number strategy, trading double zeros is a highly effective price action strategy and binary option traders of this strategy are able to effectively trade ‘in-the-money’.
Considered to be a natural level of support and resistance, round numbers on price charts such as AUD/USD parity and Dow Jones 17,000, are considered important physiological barriers to traders whereby prices tend to bounce and reverse.
Research suggests increased price activity occurring at double zero levels typically occurs because of a natural human tendency to gravitate to numbers that are a factor of 10 and therefore cluster entry and exit orders around round number (or double zero) levels. As a consequence, increased buying (or selling) activity at double zero levels means buyers (or sellers) outnumber the counter trade and consequently price rapidly rises (or falls).
How to trade a Double Zero Price Action Strategy
A binary options double zero strategy can be applied to any tradable asset which exhibits moderate price action volatility. However FOREX markets are considered those with the highest probable outcome.
To identify a high probability setup; in the first instance, a trader should scan the market for markets currently trading at or close to double zero levels. Once the identified market approaches double zero, a natural support and/or resistance levels is formed and a trade setup is signaled.
On the downside, when price action levels reflect (or bounce) off a double zero level a pin bar (large wick and small body) is created. Acting as a naturally occurring level of support, a Call trade is placed on the open of the following candle in anticipation of a bullish price reversal to the upside.
Conversely, when price action levels bounce (or reflect) off a double zero level a pin bar is created. Acting as a naturally occurring level of resistance, a Put trade is placed on the open of the following candle in anticipation of a bearish reversal to the downside.
For price action binary traders the reversal signals are confirmed on the upside and downside trade by the long wick on the bullish and bearish pin bars. Further, for a high probability setup a binary options trader should execute the strategy only on the first bounce off of the double zero support or resistance level. This is because it is usually the strongest reversal and most profitable bounce. Further, once the level of orders is insufficient to affect the support or resistance level that level will eventually break.
Responsible money management ensures that the losses don’t mitigate the profits.