Binary Options Trading for January 7, 2014

Conveniently, I was able to get straight into taking a trade as soon as I started looking at the USD/CHF on Tuesday. At 2:30AM EST, price was pushing up against my resistance 1 pivot point of 0.90659.

Pivot points, calculated from the daily high and low from the previous trading day, tend to be a very reliable indicator of where possible intraday support and resistance in the market could be. Why do they work? Because many traders and big-money institutions also use them in their trading as a guide to making trading decisions. Support and resistance levels created from pivot points, Fibonacci retracements, and historical price data – and other tools to some extent – tend to work because enough money guides them there. It’s all a self-fulfilling prophecy.

When price rejected resistance 1 on the 2:30 candle, my attention immediately focused over to seeing if I could take a trade on the 2:35 candle. When price did touch resistance 1 again, I got into a put option.

In some cases like this you do need to be careful. Technically, this trade was all about the resistance 1 level itself and the fact that the rejection on the 2:30 candle seemed to suggest a bounce would likely be in store. But in cases where you’re in an uptrend and making new daily highs this can be a risky trade. Usually it’s dangerous to try and “pick tops” of a market or “catch a falling knife” in cases where you’re trying to find a bottom in a downtrending market. In general, I don’t recommend that beginners ever trade against the recent trend if one is discernible from your charting timeframe or one timeframe higher. But given this was just past 2:30AM EST, we were between Asian and European trading hours, so I felt in such a low volume time period it was pretty unlikely that we would be breaking resistance 1 on the first try. So I went ahead and took the put option. This trade ended up winning by about five pips.

I nearly had the opportunity to get into the same trade less than a half-hour later when price came up and rejected resistance 1 a second time. The retracement that occurred from the first touch of resistance 1 was strong enough to trade back into recent support, suggesting that the sellers had enough power to keep price below the resistance 1 level. However, I did not get the re-touch on the following candle so I passed up the trade.

Over an hour later, price was once again heading back up to resistance 1 and rejected the level on the 4:20 candle. I felt that resistance 1 was likely to hold again. After the re-touch of resistance 1 on the 3:00 candle price retraced back down, then weakly attempted to retrace back up, before breaking down below the 0.9057-ish level where price had been seeing some degree of support/consolidation. This faintly suggested that an overall downtrend for the morning could ensue. Consequently, once price re-touched resistance 1 again on the 4:25 candle I got into a put option.

This trade, however, essentially went against me the entire way. It made a comeback effort on the closing candle, but I still lost by one pip. In hindsight, it actually didn’t seem like the best trade with all the price data that followed it. I also had not paid attention to the fact that all four price bars before I took the trade had been experiencing steadily increasing bullish momentum, and that’s not something to ignore.

And there is also something to be said for the weakening of a price level once it’s been touched more than one time. The first or second touch might yield a strong trade or two, but sometimes the third time can be a charm and break through. The fact that it was continually getting back up to resistance 1 in the first place suggested that the buyers in the market were exerting genuine influence that could cause a breach of the resistance level. It was especially true in this case with the increasing upward momentum seen on each five-minute candle leading up to the trade. But this is something I can learn from. It wasn’t necessarily a bad trade, but by analyzing it further I can see that it’s something I probably shouldn’t have taken.

Of course, in many cases, you might take a great set-up that had multiple factors going in your favor, but it may lose in the end. Losing trades aren’t always bad trades. In fact, many trades that end up losing may be great trades, as losing is always part of trading no matter how seemingly perfect the set-up. But analyzing each and every single one of your trades after your day is finished (not necessarily right away, but sometime later) can be a valuable practice that can improve your trading skills. It’s something I always do, and I believe that it’s led me to become a more conservative, yet more accurate, trader over time.

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