Binary Options Trading Strategies – Trend Reversal

Asset prices usually move in one direction for a set period of time by following a trend.  Price and volume trend movement in the same direction usually points to a healthy underlying market direction.  However if price trend is going up but volume is decreasing this could be an indicator of a possible price trend reversal. In this situation, a trader might choose to buy an option that is in the opposite direction to previous movements.  For example, he might choose to purchase a Call option if the price was previously falling but is now expected to rise, or he might purchase a Put option if an increasing price is expected to fall.

Trend Reversal

Trend reversal can appear as a diamond pattern on a price chart.  Although it may not be as common as other patterns, it can be a useful indicator for traders.  The trend reversal pattern comes in two forms: the diamond top and the diamond bottom. Both types look like a diamond lying on its side.

A diamond top will form when an uptrend peaks.  It will occur when the rise ends and the price will remain flat for a period of time. This pattern can result in a series of waves that become taller and then move back down to lower levels. This type of pattern is a sign that a trader should change the direction of his trades.

A diamond bottom indicates the opposite of a diamond top and occurs at the bottom of a downward trend.  A flattening out of the waves indicates a change in direction and an imminent breakout to the upside. A binary options trader who, for example, has been concentrating on Put options, should now change to Call options so that he can capitalise on the trend reversal.

This strategy relies on the principle that an asset that suddenly moves in one direction is unlikely to remain at that peak but will move back towards its original position. Therefore, an investor should consider buying either a Call or Put depending on whether the price has risen or fallen suddenly following the principle that it will soon return and stabilize.

It should be noted that no one can predict with total accuracy when an asset has reached its peak.  It is important to monitor and research the asset closely so that the possible timing of a return can be determined.

Binary Options Trading Strategies – Trend Reversal Video

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