“The trend is your friend” until it doesn’t. Nothing lasts forever and that is true for binary options prices as well. There will be times when the prices will change direction and you will be in a situation to make a good decision in order to monetize those swings. This article will focus on technical analysis and we will try to give you some tips on how to trade binary option when reversals happen in the market.
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The aggressive approach
Let’s say you have a higher risk tolerance and you have enough confidence in your methodology. What you need to do is spot a current trend that is in play and see where it might stop. You have to search for key support and resistance levels, which are historical levels where the market had started strong moves in the past.
Why do you need to do that?
Because if the market participants had been heavily active around a given level in the past, some of them will try to do the same if the price will reach that level again. You need to develop the necessary skills and have the discipline to stick to your method in order to find those levels and opportunities can arise.
After you spot those important levels you can go on a smaller time frame and place options around it, anticipating a reversal. Even though the move won’t cover a lot of ground, there will surely be counter-trend players and the price will definitely move on the other side.
The conservative approach
If you have low-risk tolerance, then the above approach is not for you. Instead, you can wait for the market to reach your key support or resistance levels and see how the price reacts to it. If the counter-trend players manage to influence the price, then you have your confirmation and you can search for opportunities.
The big disadvantage of this approach is that you will most likely enter at a worse price and the risks of you being out of the money are high.
Both methods have positive and negative points, but you must decide according to your personality, which of them fits the best for you.