Head and shoulder patterns in binary options trading
Analysis plays an important role in binary options trading. The trader uses both fundamental and technical analysis of the binary options available, to understand the market movement and finally enter a successful trade. Its is extremely vital to keep an eye on the reversal patterns irrespective of whether you are trading FOREX or binary options.
There are many patterns that binary options trading have and one of them being Head and Shoulder pattern, which is used as a trend indicator while trading. We have many things common to Forex and options trading. The traders tend to forget this and continue trading Forex while trading options.
This may be sounding simple but in practicality lot of money is lost per day due to this. Analysis of the binary options can help determine the direction of the market with precision. Head & Shoulders is another pattern that is used for analysis and is a reversal pattern in binary options trading as well as in Forex trading.
The head and shoulder pattern depicts then end of the uptrend. The pattern of head and shoulder is considered to be a reliable indicator when it is found in the middle of an uptrend. Before the market reaches its highest, generally it begins to slow down due to the forces of supply and demand at its balance, and then again it begins to consolidate. When the sellers are ready at their highs, at this point is visible at the left shoulder of the pattern and start to pull the market down in test of the pattern’s neckline.
The buyers will try to push up the market by returning to the market and this would create new highs – resulting in the formation of the head pattern. All this is possible with the binary options that are available. After the head is formed, the market would again pull back to its support level forming the neckline.
There would be re- buying again and finally when it fails to meet the previous high, the right shoulder of the pattern is formed. Normally both the left and the right shoulder are at the same level. It could be little higher or lower so long as the shoulder pattern is formed. This is when the sellers enter the position and buyers close theirs. The instant when the market breaks the neckline, the head and shoulder pattern is complete and will finally result in an increased selling volume, since the buyers are already exiting the market.