Binary Options can use Pivot Points Just as Well
Today we're going to discuss one of the most common technical analysis indicators which is called the Pivot Point. Pivot points are price levels of significance and many traders use this to predict market movement over the course of the trading day. These pivot points usually indicate a trend for the asset you are trading and in this case we will be talking about the EURUSD and the GBPUSD. Certainly when prices are above certain pivot points you have a bullish market at the time. If the prices were below pivot points then you would have a bearish market at the time.
We’ve always liked support and resistance areas no matter what time of day or time frame we use when trading currency. Although we like breakout trades, we definitely like to fade the fake out of a trade that’s about to break a resistant or support area. Just like in Forex trading or any trading for that matter, binary options work the same way. Although, you may find yourself in a much different situation with use of expiration times, price levels will all still be the same and you can base your trades off of that.
Here is a small calculation of how you can determine the pivot point in the market you are trading. It’s pretty simple to come up with these pivot point prices.
P = (H + L + C) / 3 – this determines the actual pivot price of the trading.
R1 = P + (P − L) = 2×P − L – Resistance One
S1 = P − (H − P) = 2×P − H – Support One
H=High – L=Low – C=Close P=Pivot – R1=Resistance1 – S1=Support1
The calculations above allow you to determine the first level of support, the first level of resistance and the daily pivot point. Don’t let this math calculation scare you. The best part about using charting packages these days, is you can have these pivot points placed on your charts automatically using a little bit of code that can be created for you. Most of these things are downloaded for free and we provide them on our site as well.
How do Pivot Points Work With Binary Options?
Pivot points in binary options work the same way as if you are trading Forex on the spot market using a Metatrader account or any other brokerage account. We like to look for these levels based on the time of expiration that are coming up in the near future. Most currency pairs have 5 min., 10 min., 15 min., 30 min., 60 min., and so on. If you’re watching a charting package like Metatrader Trader 4.0, you can have the pivot points plotted using a built indicator. Once you’ve established your first area of support and resistance, you can then monitor the price as it moves closer to each level. I found the best time to trade these levels is the first attempt to break through the pivot point, support or resistance lines. Any time after that the currency pair will have the power to break through much more easily. Although these levels can still work for your reversals or fades. When it tries to go through the second time, we usually like to use those key levels of new resistance and support. What this means is, Resistance one, now becomes support and Support one now becomes resistance. The pivot point itself will always play both sides depending on the location of the price. So if the market were to push through one of these levels pretty significantly, an attempt to break these again going the other direction would be a good place to place another trade on the binary option market.
Binary Option Trading Examples Using Pivot Points
Below are a couple of examples of recent trades that have occurred on the binary options market using a Metatrader 4 platform. Most binary option brokers use tick charts so it makes it a bit more difficult to explain support and resistance without these free charting packages.
We are currently looking at a 1 minute EURUSD chart (Figure1). Although it is zoomed in currently at this time the euro has moved up drastically over the past 12 hours. The blue line is the pivot point. Going into this trade we knew that anything that hit this blue line would either completely break through it or fade and come back down. As the euro was moving up quite quickly we were eying the blue line as an entry point on a binary options tick chartand 24option. Although we had to monitor the expiration time, we knew we could enter the trade if it fell before the entry expiration time occurred. As you can see the euro spiked to the blue line at 17:52, which is 11:52 AM Eastern standard Time. This gave us at least 3 minutes to get into this trade. With an expiration time at 18:00 hours you can see where it closed. It closed out 8 pips below this line giving you an excellent trade. Even if you were to get in a couple minutes after, you still had a winner.
The next chart is of a GBPUSD 1 minute chart (Figure 2). As you can see by looking at this chart the pound dollar moved up to the blue line around the same time as the EURUSD did on the chart above. The only difference with this one is it stayed above the line for over two minutes. When using the platform you have less time to enter the trade on the pound dollar then you do with the euro dollar. In this case 17:53 might’ve been too late to get into the trade, but most likely there was an entry point. Sometimes you have to be quick. Having said that, if you were able to get in the trade, the option closed at 18:00, which had dropped down seven pips. Seven pips below that line gave you another winner on the GBPUSD. Although we don’t have a chart listed, about an hour later, a similar occurrence happened and worked the same way with a similar result. The GBPUSD also moved up between 19:00 hours and dropped nearly 15 pips before the expiration would’ve occurred. In this case you had three opportunities to trade one minute pivot point entries this morning on the GBPUSD.
This is what makes pivot points in binary options so exciting. Although you might not find the right timing for your entry, if you do find one you can trade you’re in good shape for a solid trade. The best part about pivot points using the Metatrader platform is, you can have these lines posted every day for you using an indicator which can be found free at http://www.forexnewstrader.com. It’s not like you need to plot a formula every day and find the resistance and support all the time. Having this done for you can allow you to have it on your chart constantly. Sometimes the price of the currency pair will fluctuate inside the middle and never hit the Pivot, R1 or S1, which will not trigger these types of trades. Having more than one method to trade increases your trade amount potential. For example price action in the morning, and pivot points gives you multiple entry possibilities throughout the day.