Technical charts analysis is vital for successful binary options trading. But not everyone knows how to do it. If you’ve wanted to know how to use pivot points analysis to gauge market sentiment and price action, this article deals with the subject in the simplest way you need to understand it.
Because price action is one of the toughest indicators to predict, getting it right here can set you apart from the crowd as far as binary options trading is concerned.
Pivot points analysis is one of the methods used to glean useful information from technical charts. While the terminology may be strange for beginners in binary options investment, the strategy is simple to understand and can be a powerful to tool to beat the markets.
A look at Pivot Point analysis
Pivot Points describes the marks on a chart that the price of an asset moved through in the course of trading over a specific timeframe. This could be an hour, a day or a week. But keep in mind that pivot points are effective when looking for market trends over a specific period.
To work out pivot point for the current hour, for instance, you analyze the chart candle for the previous hour. You calculate the current hour’s pivot point by adding the previous hour’s high, low and the closing points. Once you have the total of these measures, you divide the sum by three and that gives you the pivot point for the current hour. The method is the same if you’re analyzing price action for a day, week or month.
Keep in mind that the previous hour’s chart will give you pivot point for the current hour, the previous day’s chart data will help you calculate today’s pivot point, the previous week’s chart data will help you work out the current week’s pivot point and so on.
How do you use the pivot point?
Your business as a binary options trader is not to calculate pivot points and admire them. Instead, you are looking for clues on how to make an accurate bet on a binary option so that you can minimize risk on your investment and maximize returns.
That being the case, after you have established the pivot point for the timeframe you need, you can examine it for leads on whether you should place a PUT or CALL option on an asset.
Understanding Pivot Point data
If an asset is trading above the pivot point, you know the market sentiment on that asset is bullish. In that case, the pivot point is seen as support. On the other hand, if the asset is trading below the pivot point, you know that the market sentiment is bearish and the pivot point is seen as resistance.
Understanding market sentiment and the support/resistance levels is critical for making accurate binary options predictions. Traders who have mastered the use of pivot point analysis to invest in binary options can make huge profits consistently because they are able to take the guesswork out of their investment.
Remember, a CALL option in binary options trading means you’re betting the price of the option asset will rise, while a PUT option means you’re betting the price will fall.