Using the Panel – Left and Right Chart
The whole concept is based on the free information one has on the left side of the chart and this free information is to be used on forecasting important entry levels on the right side of the chart to identify places for buying call or put options.
The thing is that price is moving in waves, or steps, and levels that offered resistance is the past and in the end price managed to overcome them are the levels most likely to offer support in the future.
The same is valid for the other way around, with the mentioning that in this situation the support is turning into resistance. Now, this information is important as those areas are the level one should buy call options (in a support area) or put options (in a resistance area).
The two videos with this educational article deal with the USDCAD pair showing you exactly how to look for this market geometry aspect and, more importantly, when these levels are considered to be broken or not, so a support should turn into a resistance level or not.
Market geometry field is an extremely vast one and only by looking at the whole picture one can find the perfect place for trading a binary option. In trading binary options, there is not only the expiration date to be taken into account but also the striking price. This is what makes the difference between a losing and a winning option and market geometry is giving us clues to find the best places where market is most likely to hesitate.
After all, trading is a game of probabilities and this is what a trader is doing: taking a chance into one specific direction when the odds for the trade to go in his/her favor are the best.
Identifying Stronger Support/Resistance Areas
One way to identify stronger support/resistance areas is to look on the bigger time frames and then take the levels from the bigger time frames and looking at the lower ones. By the time price comes into that level then trading an option is key.
In Elliott Waves Theory, when trading a triangle for example, it is expected most of the times that the b-d trend line of the triangle to be re-tested after the break and this is a clue regarding what type of the triangle market formed and what to expect next. Therefore, if the triangle is forming on the four hours chart for example, then after the 2-4 trend line break one can go on the hourly and five minutes time frame and wait for the retracement.
Finding the Perfect Entry Price With a Bullish Triangle
In the example above, if the triangle is a bullish one, or an ascending one (make sure you check the Ascending Triangle article here on our Binary Options Academy), then buying a call option on a retest of the b-d trend line is the thing to do and the expiration date, if the retest is being seen on the five minutes chart, can be even a small one. Usually such triangles that are being retested appear as X waves in complex correction so the upside in our example should be unlimited.
And just like that, a pattern, like the triangle above, is giving us the perfect entry place for a successful binary option as what it was supposed to be a strong resistance (the breaking of the b-d trend line) is turning out to be a support on the retest and gives a trader the striking price.
Other Patterns That Can be Used to Identify Support/Resistance Areas
However, not only patterns in the Elliott Waves are suitable for breaking and retesting, as also a head and shoulders neckline is retested most of the times and by the time the retest is coming, one should trade a put option in the classical head and shoulders pattern or a call option if the head and shoulders pattern is an inverted one.
Another pattern that shows price struggling to break a support/resistance and then coming back to the level is the wedge, and in a rising wedge one should look for a retest of the 2-4 trend line by the time it is retested, while on a falling wedge the same 2-4 trend line should be retested after the break. The only difference is that in the first case one should look to buy put options, as a rising wedge is a bearish pattern, while on the later one should look for buying call options after a bullish pattern.
Multiple Tests of Support / Resistance Levels
It is possible also that market is making multiple testing in a strong support/resistance area and this multiple testing is showing different things to the experienced trader. For example, multiple testing in a rising or a falling channel it is showing nothing but the possibility for market to form a double or a triple zigzag, namely a zigzag family pattern. Knowing that, and also knowing that these are corrective patterns, lead to the logical conclusion that put options should be looking into multiple retesting of the rising trend line in a rising channel, while call options are indicated if the situation is opposite.