Anyone who trades binary options is aware that reading a technical chart is not an easy task, especially for those who are new to the financial markets, and price action is definitely one of the most difficult indicators to predict correctly. One method that traders use to see the price action more clearly is to use what is referred to as “pivot points”. These are able to make analysing technical charts for a chosen asset a lot easier.
Pivot points are trading indicators which represent an excellent way to measure market trends across a specific time period. Usually, they are calculated by taking the daily highs and daily lows as well as the daily close of the chosen asset based on its previous trading session. The pivot points are able to be altered by observing various previous time frames. The hourly chart will show data from the last hour, while a weekly chart will use data from the prior week etc.
Once your pivot points have been established, they can be used to help a trader to determine the action of an asset’s price. It is generally assumed that when an asset’s price trades above the pivot point, the market for that specific asset is showing a trend towards a bullish market, and conversely, if an asset’s price trades below the pivot point, the market is said to be in a trend towards a bearish sentiment. Being aware of how the price action will move is vitally important in the trading of binary options, and an accurate price action forecast will assist a trader in making a great profit across a short time period.
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Pivot Points and Support and Resistance Levels
One way in which Pivot Points can be used is to define the levels of support and resistance. In a lot of cases, the levels of support and resistance can be calculated by using the pivot’s price level and then marking the difference between the low or high prices observed in the prior session. Should the price break through once of these areas to either the upside or downside, the next support and resistance levels must be calculated by utilising the price distance between the low and high of the prior session, with an upside break of the initial resistance or support level targeting the secondary level of resistance or support. Once an asset’s price rises above or moves below the level of support or resistance, it is possible to determine the directional bias, and as the pivot area is itself the key price region, it can be expected that the asset’s price will make a sharp move once the level has been breached.
Pivot Points as a Short Term Indicator
While pivot points are a useful tool in gauging the directional trend of the market, it is key to be aware that they are usually considered to be a short term indicator. This means that it is essential to ensure all trades are kept to the same time frame, as the time frame which follows will make it more difficult to predict price activity. If this rule is followed, pivot points are excellent indicators that help a trader to determine the place to execute a put or call trade.
If you are lacking success in your binary options trading, you should try adding pivot points to your analytical charts, or observe any pivot points which are already there more closely. They could be an essential indicator to help you to stay in the money and earn a better profit from your trades.
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- Financial market trading system with a hierarchical coevolutionary fuzzy predictive model. Huang, H., Pasquier, M., & Quek, C. (2009). IEEE transactions on Evolutionary Computation, 13(1), 56-70.
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