The way to trade binary options with pivot points is to make use of them the way you do the usual support and resistance levels. Price tends to repeatedly test the pivot point levels. The more a binary options asset hits a pivot point and retraces, the more robust the level is.
If a trader can discern that the pivot level is indeed holding, then some opportunities for profit will come. Basically, if price is close to upper level resistance, then it is a good to buy puts. At the same time, if price is near a support level it would be a good opportunity to make some money with some calls.
Visualization is always great for binary options trading. And we have a nice chart for us to illustrate. Take a look at the 15-minute EUR/USD chart below.
In the chart above, it can be seen that price is testing R1 resistance level initially. If you thought it would hold, you would have made some good money. However, an aggressive approach was needed as price neared and went beyond the R2 resistance level. Then you can see that when price went past the R3 resistance level, there was a lot of profit taking and price fell back down.
R2 seems to be long-term resistance level for the EUR/USD in this case.
It seems that relying on the various pivot points can enable you to make money by buying both calls and puts. Nonetheless, as I have always stated you shouldn’t rely on just one technical indicator. Pivot points are not foolproof.
Candlestick analysis and stochastic indicators come in handy when utilizing other technical indicator types. For instance, if you notice a doji formation over R1, or that the stochastic is suggesting overbought conditions, then the chances are higher that R1 will hold as resistance.
An important point of note is that trading typically occurs between the first support and resistance levels. Sporadically, price will test R2 or S2. And then there are the rare occasions when the third levels are tested.
Then there are those instances when price just breaks through the pivot points in a very LeBron James like manner.
Risk management means that binary options traders will have to closely watch for these situations.
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