The name of the strategy already makes it clear what kind of market conditions are used for trading binary options, the breakouts of an stable trend or ranging market. Although a trend stable is running in one direction, minor or major outbreaks. This is, for example, mostly the case when the market is overbought or oversold.
To use the breakout strategy in trading successfully, is necessary to ensure, first, that it is indeed a stable trend in the market for the asset. For this purpose, the use of a free demo account at a Forex or CFD broker has been proven, in conjunction with the trading platform MetaTrader 4. The MetaTrader 4 software has all the necessary tools to analyze the existing market direction and to mark it within the charts.
If in the chart to the asset in question is a trend or a sideways movement is identified, the price range will be marked with trend channel, as it is done in the trend-following strategy. Now, it is important to recognize when the price will break out of the channel with high probability, and when it is likely to increase only shortly above or below the limits. For this purpose, an indicator is used, which is placed below the chart. The RSI indicator shows whether a market is currently under sold, balanced or oversold. For this purpose in the indicator two boundaries are drawn, 30 and 70. If the price is below the 30 mark, the asset is oversold and is likely to rise soon. if it rises above the 70 mark, it is overbought and is likely to fall soon. This does not necessarily mean that a trend is changing, but in many cases it is a corrective movement that returns to the original trend.
Breakout in an upward trend
In the illustration above is easy to see that the course moving within a trend channel. When it breaks the first time out of the channel, the value of the RSI is slightly less than 70. After the break of the channel it rises at 77.15 and than turns back. In this case a "call" option is purchased, which is related in its expiration time to the time frame shown in the chart and should be correspondingly shorter. This is especially true in charts with a very short time frame, as 1 Minute or 5 minutes. In general, the Breakout strategy should be used in binary options with a display in the chart of 15 minutes or more.
The Breakout Strategy provides in trading binary options comparatively few trading opportunities. But it is also an excellent addition to trading with the trend following strategy and the strategy with support and resistance.