When deciding whether to execute a bear or a bull put in binary options trading, one of the things to pay close attention to is the asset volume which is being traded. By looking closely at this, it is possible to find out the majority opinion about what how an asset’s price is likely to move. The volume in question is not the entire total volume of the asset, but specifically the amount of the asset that is being moved between traders. For example, if only a small volume of the total asset is being traded, this is not especially relevant, however if a large proportion of it is moving between investors, it may be worth considering further.
When placing a binary options put based on volume, it is important to not only look at volumes that are being traded through your own broker but also the volumes that are being traded across the whole asset market in order to obtain an informed opinion that is based on volume. It is only once you are satisfied that you understand the volume trend across the entire asset market that you should find a current hourly chart of your chosen binary option and seek out the latest largest candles in the bull and bear markets.
Once this is accomplished, the following step is to find the average of both the lows and highs based on the result shown by the established candles. It is then possible to draw 2 horizontal lines connecting the lows and highs of the 2 candles. A trader is then well positioned to base their call or put on their chosen binary option once the market shows that it is trending to either the minimum or maximum volume close to the horizontal lines.
What is the Importance of Volume?
Volume is key as it is an ideal confirmation tool which figuring out asset trends and chart patterns. This makes it an essential aspect to consider when making calls or puts based on statistical analysis. It is also vital to be aware that any price alteration connected with volume highs will tend to have more relevance than a price alteration that is connected to a volume low. On average, a high volume price indicator is more likely to be a signal of a reversal in trends than a low volume indicator.
Volume is one of the most important techniques that confirm the reading of technical charts. If the chart shows considerable movement in the market, it shows that a lot of traders have picked up on the asset’s trend and are trying to make profits by trading this trend.
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How to Trade Based on Volume
When a trader combines the lows and highs of the average price candle with the volume, they are reasonably able to predict the market’s turning point. They are then able to place a trade that goes against the way the majority of the market is moving. This will produce a higher return since the trade appears more risky than a trade which follows the market trend.
However it is essential to think the trade through carefully before it is executed. If volume movement is especially high and the lows and highs are correctly calculated, timing is the key to your trading success. It is essential to action your trade at just the right moment, before the price comes to a peak and starts to reverse in the opposite direction, in order to generate maximum profits and enjoy the best possible returns on your investment.
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- Quantifying trading behavior in financial markets using Google Trends. Preis, Tobias, Helen Susannah Moat, and H. Eugene Stanley. Scientific reports 3 (2013).
- “Investor overconfidence and trading volume.” Statman, Meir, Steven Thorley, and Keith Vorkink. Review of Financial Studies 19.4 (2006): 1531-1565.