Trend Follower

trend followerIf you are a trend follower, you will already have made one of the most fundamental decisions all binary traders must make. If, on the other hand, you still haven’t made the choice between following trends and trading on swings, you need to weigh up your options and make the decision that’s best for you.

Either way, this article about trend following can make useful reading. We have gathered some essential information about how you identify a trend and how you can use the trend to make good money. The usefulness of this to a trend follower should be obvious: it can help make him or her more efficient. If you are still undecided between trend-following and swing-trading, this article can help you make up your mind.

Identifying a trend

First things first – how do you go about identifying a trend? The price of an asset is always moving. This constant fluctuation, up and down, can mask the overall direction in which the market is headed. Therefore you need to use some basic tools in order to find the trend, if indeed a trend is ongoing.

This is actually not that difficult at all. Simply by using some fairly basic tools for technical analysis, you will be able to identify a trend. They include, among other, the following:

  • The moving average
  • Support levels
  • Resistance levels
  • Bollinger bands
  • Trend lines
  • Momentum indicators

You can find out more about these tools elsewhere on the site. For our purposes in this article, the important point is simply that all of them will help you see the bigger picture. Instead of a market that is in constant zigzag movement, a clearer trend showing you in which direction the price of the asset is moving will appear.

Because trends are more stable than the constant fluctuations in price that appear constantly, they can be used to base predictions on. For example, if you identify a bullish trend, you can reasonably expect the price of the asset in question to rise. By using momentum indicators, you can in addition get an idea for how long the trend might continue, and how high it will take the asset’s price. These are all very helpful bits of data for a binary options trader.

It is important to remember that a trend is not always present. Sometime the market is simply moving sideways, the zigzag pattern is not hiding an underlying trend. In such market condition a trend follower will stay inactive, and not execute any trades.

How to be a trend follower

In the context of binary trading “following a trend” does not simply mean identifying it and then observing its development. It means cashing in on the predictions you can make based on the trend. In other words, making investments in binary options in accordance with the trend you have identified.

Essentially, a trend follower will assume that the trend is reliable, and that it will continue for a long enough timespan to pay off in the form of a binary option. You can, generally speaking, invest in two different kinds of binary option when you are following a trend. They are:

  1. High / Low options. This is the basic form of binary option, and the one that is simplest to use for trend followers. All that is required is to predict whether the price of an asset will move up or down during the running time of the asset. For a trend follower this means that for a bearish trend, you invest in a down option, and for a bullish trend you invest in an up option. You ought to check carefully how strong the trend is to make a solid prediction of how long it will last. Based on this, you should choose an appropriate running time for your option.
  2. Touch options. This sort of options asks you to make a more precise prediction than the aforementioned high / low option. Whereas a high / low option simply asks which direction an asset’s price will move, a touch option asks you to specify how far it will go. This is clearly a much tougher call to make. As a result, you stand to make a much higher return on a touch option than a high / low option. A trend follower needs to use momentum indicators and other tools to find out how strong the ongoing trend is. If it has a lot of momentum, and you think it will carry on strongly, a touch option might constitute a wise investment.

There are many benefits to trend following. Trends are not difficult to identify. They can be quite reliably gauged using technical analysis, and they can form the basis of quite reliable predictions regarding market movements.

Many traders make their investments based on trends. You should consider doing the same, if this sort of approach fits well with how you see the market and like to trade.

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