In binary options trading, pivot points can be defined as price levels that show traders the specific turning point in the asset price. For binary options traders, the biggest challenge is to determine the point where the underlying asset prices are likely to turn direction. For instance, price of an asset like gold could be experiencing a steady downward, bearish trend and suddenly turn around to touch new record prices.
Smart binary options traders know that they must take advantage of this reversal. They must also find ways to protect themselves from major losses due to price reversals that may expose them. The best way to do this is to use the pivot points trading strategy. This is a powerful strategy used by experienced traders to predict profitable prices in an accurate manner.
Trading effectively with pivot points
Ask any accomplished trader and he will tell you how identifying the points where the asset price is likely to reverse is one of the most effective ways to trade. By points they mean the pivot points and their related resistance and support levels. Pivot points are used by seasoned traders to predict movement of price of the asset and this in turn helps them determine the time when they can make profits on their trade or limit likely losses.
When the gold price, for example, reaches a pivot point after a prolonged upward trend, traders identify the pivot point of reversal where the price is likely to start falling and trade their asset to make profits. Similarly pivot points help identify when the bearish trend is losing stream and there is a strong likelihood of prices going up. Traders then use this information to buy this asset and increase their potential profit.
In a nutshell, you can easily identify bearish and bullish asset sentiment using pivots. During the intra-day trading, if the gold price opens high and eventually goes below the pivot point, this may be an indication that there is going to be a major downtrend.
Traders combine pivot points with resistance and support levels which is nothing but defining levels that assets find it difficult to cross. Support levels can be determined with information on whether the price of the asset falls below the pivot point at the beginning of the downtrend or more towards the middle. If it is at the beginning, it means, there are possibilities of the price stabilizing soon at the first support level.
Resistance levels on the other hand use pivot points to identify where the asset price crosses the point during the major uptrend. The level is a test where if it is breached or if it holds sends varied signals to traders.
Benefits of using pivot points for binary options traders
Being very easy to calculate with respect to resistance and support levels, pivot points is convenient to use.
Pivot points can be applied in a flexible manner which means pivot levels can be used with commodities, currency pairs, stocks and binary options.
Pivot points are very accurate and traders benefit from its reliable signals to conduct precise technical analysis which in turn allows them to make the right trading decisions.
One of the leading price action indicators, pivot points helps traders identify bearish and bullish trends during a particular period of time. Pivots are easy to leverage as they lead the market at all times.
Example of pivot point chart-