What Is Flatline Trading
What Is Flatline Trading?
In recent years, binary options trading has been getting a lot of attention and traction from people throughout the world. There are two big reasons for this. The first is that binary options trading doesn’t need people to already be wealthy in order to start trading and profiting. The second is that people interested in this can do it themselves, as long as they have a computer with an Internet connection. There’s no added expense of needing to hire a broker, give that broker orders, and then watch as the broker charges you for commissions, service fees, and other transaction expenses every time you want to make a trade.
With binary options trading, in addition to being a new way to trade, there are, obviously, new things that will have to be learned, especially for people not familiar with speculation trading. Like the newer Foreign Exchange trading, or Forex, binary options trading doesn’t rely on the traditional method of buying something at one price, with the hope of selling it a higher price to make a profit. It uses a different method and has many different strategies and techniques in order to achieve its goals, such as a strategy called “flatline trading.”
But what is flatline trading, and when is an appropriate time to use it? We’ll get into that, but first a little explanation of why it’s a more unique tactic to use in the context of binary options trading.
Volatility Is Usually Good
Under normal circumstances, what binary options and Forex trading require is movement in prices. It doesn’t matter whether that movement is good or bad for the asset in question, because speculative trading is about making predictions on the direction of the price movement. So, even if there’s a crash in a particular stock, and that’s terrible news for the company itself, and particularly for stock traders, a smart binary options trader who saw the crash coming could make put trades on that dropping stock and make a significant profit.
This is why dynamic markets are always a prime target for binary options and Forex traders. One of the reasons that the Foreign Exchange market is such a favorite area for both binary and Forex traders is precisely because the various currencies have a tendency to fluctuate on a daily—if not hourly—basis. And that means that this kind of constant movement in prices creates many opportunities over the course of a business day for trades.
Narrow Ranges & Small Movement
This usually means that for both Forex and binary options traders, a poor trading environments is one in which there is little movement. It’s ironic, in that this kind of stability may actually be good for certain markets, such as commodities. When the prices of goods such as grain or steel or petroleum don’t fluctuate too much, this allows businesses and industries to trade with more confidence and make better, longer term plans.
However, this lack of rising or falling prices really doesn’t help binary options traders that need spikes and drops in pricing in order to make the most of their trades. In some cases, there may be some kind of movement present, but it’s so small, and in such a narrow range that it may be hard for traders to take advantage of it in any meaningful way.
When there’s a trading situation where price movements are neglible, or confined to a small range, this is typically referred to as a “flatline.” This is a reference to the medical terminology where machines that monitor life signs show no movement up or down, which usually indicates death in a patient. In this case, a “flatline” merely indicates a relatively stagnant market, at least for the purposes of binary options or Forex traders.
Points Of Support & Resistance
This is where the technique of flatline trading comes in, and it’s a very unusual strategy, but it can be quite effective for people that are comfortable with numbers and monitoring market activity on trading charts. Flatline trading is generally about making trades during a flatter period of an asset, with the anticipation that change is on the way, and that a much more notable rise or drop in price is imminent.
This is accomplished by paying special attention to two areas of an assets price performance known as the point of support and the point of resistance. All of this falls under the category of “technical analysis,” which is a type of trading strategy based largely on using charts, numbers and algorithms in order to find and exploit patterns of trade.
In the case of the point of support and the point of resistance, it’s a well-documented phenomenon in trading that shows that the price of an asset will often hit a certain level, but then not be able to break past it, hitting and retreating from that price point a few times, before eventually breaking through the barrier into a much stronger “correction.”
If a price drops, but then stops at a certain point and rises, only to drop again, that is the point of support, and indicates an asset may be about to have a stronger drop. If a price rises to a certain point, then drops, then rises in a similar way, that is a point of resistance. It means that the asset may experience a sharp rise in price once it finally breaks through this point.
The goal of flatline trading is to be able to understand when an asset is about to break its point of support or resistance, and make a trade to take advantage of this. This requires a lot of experimentation and practice, but if you are able to determine, for example, when a currency is about to break its point of resistance and start rising sharply, a well-placed trade at that point can yield some impressive profits.
This is a complex tactic, and, of course, if you’re interpretation or understanding of the movements is wrong, you stand to make a loss. But for people that develop a knack for flatline trading, it’s a very unique opportunity to make money where most Forex or binary options traders won’t go.