Trading binary options using pivot points

Pivot points are one of the most popular ways of ‘mapping’ financial markets and create key psychological levels that traders observe for price action. Pivot points are formed as horizontal lines on a price chart, both above and below the opening price with those below described as support and those above as resistance. The calculation for these areas, which can also be used as key levels of both support and resistance for binary options traders, include the key data from a previous period of time. This data is typically the high, low and close of the time period, which generally includes that of the previous day but which can also be weekly or monthly. Pivot point calculators are available free on many websites and the levels that these generate can be applied to a price chart using the tools provided by most platforms.

How can pivot points be used in binary options trading

Once pivot points are applied to a price chart they provide a ‘map’ of price action which can be used by binary options traders in several ways. Since pivot points are used by a large number of traders, they tend to create areas where price action can occur and which traders can observe for profitable trading opportunities. One of the reactions when price reaches a daily pivot point may be rejection, known as support or resistance, which often creates reversal patterns on the lower timeframes. Binary options traders can then buy or sell binary options at these level in order to pre-empt that the pivot point will create a reversal once a reversal pattern of set of candlesticks has formed.

Continuation trades and pivot points

Additionally, the pivot point may be breached by the price and this would tell binary options traders that a movement beyond this is highly likely. Since pivots points are used as zones of support and resistance, where many traders place their orders looking for a reversal, the failure of these zones to act in this way can be used as a good signal to purchase or sell binary options in the direction of the trend. Many binary options traders will look for price to close beyond the pivot point before entering in the direction of the trend. This maximises the probability that price will not reverse at these levels and provides a good continuation signal.

Not all pivot points are made equal

Not all pivot points can be considered as equal. A typical pivot point calculator will provide a central pivot point and several higher and lower than this level. As the pivot points move further from the pivot point their influence often becomes more likely to create a short-term price reversal. This is because every market has an average range of movement each day and, when this range has been reached, the market orders placed at those zones furthest from the central pivot point become more influential on the price. Binary options traders can observe the effect of price at these levels before deciding if a continuation or high probability reversal is likely.