We spoke about Pivot Point trading a couple of days ago and broke down how you can use them in your Binary Options Trading. We are going to try and break it down a bit further. The two examples that we are providing you are from March 9, 2012. This was a big day for the markets because it was the first Friday of the month when the Non Farm Payroll comes out at 8:30am EST. This is the biggest market movers in currencies all month, so you definitely want to be in front of your screens at this time every month.
The first example we are going to look at is a picture of the EURUSD (Figure1). This chart is a one minute time frame and it shows us one hour worth of action. If you look closely at the chart you can see around 15:30 we had a big bar occur. This bar is considered the spike on this 1 minute chart. The support one which is that red line across the middle, should not be considered strong support at news time. Never trade against the market the moment the spike comes out. The spike dropped to this level and consolidated for a good 10 minutes and after that continued its trend downwards towards support level two.
This is where all the magic happens when you’re looking at a chart. Whenever the asset pushes through one layer of support relatively quick and starts to approach the second level of support, that is where you want to place your entry. Right around this number. As you can see around 15:46 we hit our support level two and bounced from there. Once we get in that support level area is where you can place your binary option or Forex trade in the other direction. In this case, a trade of 12 to 15 pips could’ve been gained on a Forex trade and a positive call option would’ve been gained on on a binary option trade.
Another factor to consider if you don’t want to play the bounce off the support line, is to take the retrace trade that occurred close to 16:00. This allows you to stay with the trend using the retracement which is also a great way to trade both Forex and Binaries. Trading at this hour can be difficult if it’s right after a news event. It’s always better to wait at least 20 minutes before taking any type of trade after the initial spike.
Our next chart shows the GBPUSD trade that occurred this morning as well (Figure2). This trade shows a lot of similarities as the euro dollar trade above. We had a solid move down through support level one and as we approached support level two we knew we were looking for a call option to the north side. Once we breached the support level we entered our call option which occurred around 15:49 and closed at 16:00 in our favor with 4-5 pips and if you are trading straight spot Forex you could have gained around 10 to 12 pips. Notice how the follow-through to the downside occurred soon after this retracement off that support level. This also means you want to take a pretty quick expiration time and not sit on this very long.
This is what makes pivot points so vital in your trading. You can find these spots daily in every market including stocks, commodities, Forex and Binary Options. You just need to be willing to watch the markets as they move and trade them when these setups happen. More often than not you will see support levels broken at some point. What we try to emphasize is using these levels as the price comes up or down for its first attempt. Unless the price has moved away from these pivots a good 20 pips or so it’s best not to take the secondary trade. However, if it fits with a certain trend and you want to risk less money you can place this trade as long as you’re comfortable with it.