The strategy with support and resistance is especially strong when the price of an asset does not tend in a particular direction. Here the market often shows a certain price range in which the price will receive support on one side, and resistance on the other side, also called a ranging market. This range usually provides excellent trading opportunities with binary options.
Many movements in the financial markets are caused by economic events or publications, which have a greater or lesser impact on the price performance of certain assets. Almost daily such events take place, or important figures to certain areas of the global economy are published. In many cases, these things lead to rising or falling prices of financial instruments, however, only a certain part of the financial instruments and the global markets are usually affected by these things. The prices of the assets, which are not affected by such messages, whether currency pairs, shares, indices or commodities, often tend to move sideways.
A price in the said lateral movement very often finds borders, where the price rises up to or falls within. This means the price goes up to a certain price because buyers dominate the market in this price range. When the upper limit of what buyers are willing to pay for the asset is achieved,, the sellers take the upper hand again and the price starts falling. Also in this case, the price usually falls back to the point where it now finds more buyers than sellers, which supports the price. As a consequence, the prices rise again.
Ranging market with support and resistance
When trading binary options, a similar approach is taken in these situations, as with an uptrend or downtrend. To mark the trading range in the corresponding chart, a horizontal line is drawn in the upper and lower limit of the trading range. Touches the price one of the two lines, the trader will wait until the price moves back in the opposite direction. This ensures that no option is purchased, if the line is broken and passes the course in an upward or downward trend. Touches the price the resistance, a put option will be purchased after the price has turned the direction. If it touches the support, a call option will be purchased in accordance. The expiration of the options shall be set according to the time frame which is represented by the candles on the chart of asset. It is important to ensure that the option expires before the price reaches the upper or lower limit and turns to the opposite direction.