One of the main strategic decisions binary traders need to make is the choice between following trends and trading on swings. Both approaches have a lot going for them. Both can earn you a nice, tidy profit, and neither offers excessive risks. Which one you ought to choose depends on other factors. Learn more in our article Trend-Follower or Swing-Trader?.
In this article we will give you an introduction to what it means to be a trend follower and what it means to be a swing trader. Hopefully the information we provide can help you make the right decision. In binary trading there is much to get to grips with. By relying on sites such as this, you can quickly and easily get all the knowledge you need to get off to a good start.
The big defining difference between a trend following tactic and a swing trading approach, is the way in which you, as a trader, relate to trends. So, let us begin with looking a little bit closer at what constitutes a trend in this context.
When you look at a price chart for an asset you are monitoring you will see that there are many rapid changes. The price is constantly fluctuating. The difference can be small, but they are there. That is why a price chart will usually look like a zigzag pattern.
However, you will often see that the general direction of the price is clearly headed in one direction over time. Even though the price fluctuates it tends towards one direction or the other, i.e. upwards or downwards. This overall movement is called a trend. When the market is in a trend, you know in which direction the price of the asset in question is moving over time.
Because of the fluctuating prices, trends might not be entirely easy to spot. This is especially true if you are looking at a chart with a very short timeframe. In order to identify trends, a longer time frame can be advisable. There are also other tools you can use to find trends. They include support levels, resistance levels and several different trend lines. By using them, you will be able to determine whether a trend is ongoing and in which direction it is moving. By also using momentum indicators you will in addition be able to get an indication of how much momentum it has, how strong it is, and how long it will last. All of this can help you make a winning investment in a binary option.
So, now we know what a trend is, let’s identify what it means to be a trend follower. Basically, a trader who follows trends, is a trader who will be on the lookout for reliable, strong trends, and then make investments accordingly. As soon as a trend has been found using the methods described earlier, such a trader will predict that the price of the asset will continue to move in the trend’s direction, and invest in a binary option that bears out this prediction.
A swing trader, on the other hand, has no time for trends. A swing trader trades on the many, rapid changes in price that are occurring constantly within the trend. These fluctuations happen all the time for assets that are traded at a high volume. This goes for all assets that form the basis for binary options.
The consequence of this is that a swing trader gets the opportunity to carry out far more trades than a trend follower. Not only can a swing trader make lots of trades within one trend, he or she can also make binary investments when the market is not in a trend. This would be unthinkable for a trend follower.
A swing trader looks at the market much more close up than a trend follower. This can be done using tools such as Bollinger bands and, especially, momentum indicators. Generally speaking a swing trader will use charts with shorter timeframes than a trend follower.
There are pros and cons to both to being a trend-follower or swing-trader. Trends are not difficult to identify and they occur very frequently. Swings occur literally all the time, even when the market is moving sideways.
The important thing to remember is that neither approach is more likely to yield a profit. It is also important to keep in mind that this – unlike other strategic decisions you need to make within binary trading – is not a choice between high risk and low risk. It is simply a choice between two different strategies that both offer many plusses and minuses. What you choose should depend on what you prefer as a trader and a person.