One of the fundamental strategic decisions all binary traders must make is to choose between following trends or trading on swings. Both these binary strategies come with pros and cons.
It is important that you consider them carefully, and make a well-informed choice. The reason for this is that these two approaches are very different, and which one you choose will determine how you act in the market.
Creating a binary option strategy that works for you, is really at the core of becoming a successful trader. We therefore urge you to take the time to learn as much as you can about the differences between these two fundamental strategies, and the plusses and minuses each one provides. You can take a first step by reading the rest of this article on the strategies of being a trend follower or swing trader.
Strategies for trend follower or swing trader
So, what are the differences between being a trend follower and a swing trader? The first step towards answering that question is to quickly point out what a trend is and what a swing is:
- A trend is a sustained price movement, either up or down, over time.
- A swing is a deviation from the prevailing market movement. Several swings can occur within a trend.
A trend follower looks at how the price of an asset is developing, trying to identify a trend. Once he sees that the price is moving in one direction, over time, he will invest in this trend’s continuation. In order to identify trends, you need to look at the market within a longer timeframe. Trends take time to develop and will not be clearly identifiable in charts with very short time frames.
A swing trader, on the other hand, will be looking at the smaller picture. He will be looking at the asset’s market performance in price charts with very short time frames. He is searching not for a prevailing trend that will point towards a reliable movement over time, but rather rapid changes.
Trends are never linear. Instead they consist of a lot of rapid changes, up and down. A trend can be seen over time, but really the market price of an asset appears as a jagged zig zag pattern if you observe it on a chart with short time frames. These zigs and zags are what the swing trader invests in.
Which strategy should I choose – trend following or swing trading?
When it comes to how you trade in binary options with a trend following or a swing trading strategy, respectively, there is no right or wrong answer. Both these approaches are equally sound. There are important differences, but none that indicate that one or the other is always better for all sorts of traders than the other. Really, it is all about which one you are more comfortable with.
One important consideration to keep in mind when you weigh up the pros and cons of trend following and swing trading is the fact that a trend following strategy gives you one trading opportunity per trend. A swing trading strategy offers numerous trading opportunities within a trade. This means the latter approach yields many more chances to make money. Having said that, trading on swings can be considered by many traders to be more risky.
For both these strategies you need to use various technical indicators to interpret the market movement of the asset you are investigating. For a trend follower the most important such indicators include among others:
- Support levels
- Resistance levels
- Bollinger bands
- Trend lines
These all help identify developing and ongoing trends, and indicate in which direction they are moving and how strong they are. Because swing traders also need to be aware of trends, they will need to use the same indicators as trend followers. However, they also need a few more in order to keep an eye on the rapid fluctuations that occur within the trend. Such indicators include:
- Momentum indicators
- The moving average
Momentum is of great importance to swing traders because a weak or strong momentum within a trade can cause rapid price fluctuations that represent potential trading opportunities.
You can read more about all the technical indicators mentioned above elsewhere on this site.