The key qualities that have made binary options so appealing to traders are their simplicity and straightforwardness in speculating their assets. This means that while you are trading binary options, you either gain a fixed sum of profit or lose a fixed amount. Their simple nature has often made them quite easy to understand and trade. However, trading binary options successfully requires strategy, knowledge, and the right approach.
Many trading strategies exist in the market. Investors will have to study and look into various strategies to find the one they are the most comfortable with. One of the most popular kinds of trends is the uptrend and downtrend, which encompasses lower highs and higher lows.
In this article, we will discuss uptrends and downtrends so that beginners in binary options trading can better understand this kind of strategy.
Article Breakdown
What are Lowering Highs and Highering Lows?
Before we begin to understand a lowering high and a highering low, it is important to be clear about an uptrend and a downtrend. Each price hike is higher than the one following it in an uptrend. This means that the prices are moving in an overall upward direction. In a downtrend, each price hike is lower than the one following it. This means that the prices are moving in an overall downward direction.
A lowering high occurs in a downtrend market. In this kind of case, the asset price increases but cannot go beyond the former high when the market is in an uptrend. For example, gold was on a downtrend from the end of March to the start of April. It was at the price of $1,870 on the 27th of March. This price further dropped to $1,868 on the 29th of March and then rose to $1,873 on the 30th of March. As the market was on a downtrend, we say that gold reached its lowering high on March 30. Even though the price increased, it still can’t be considered an uptrend as the price was still lower than $1,880, which was the former high of the market.
The price continues to rise at a highering low but does not reach the former high price. However, the price remains higher than the lowest price in the downward trend. This kind of case happens in an uptrend market. For example, the gold market experienced an uptrend in the first week of April. It traded at a price of $2,000 on 3rd April and further rose to $2,049 on 4th April.
However, on 5th April, the price dropped to $1,990. This decrease in price is called a highering low as the price did not fall below $1,880, and the prices’ graph continued in an uptrend direction.
How to Capitalize Money During a Highering Low and a Lowering High
When a trader finally understands the difference between a highering low and lowering high, they can use them to gain profits during a changing market. Capitalizing money from highering lows and lowering highs often works best for short-term binary options, meaning they work best for contracts ranging from 1-minute to 1-hour.
When the market is open and active, look if the price of the asset makes a low or a high. If the price starts at a low, wait for it to strike a higher low and then make a long call. If the price starts at a high, wait for it to strike a lower high and then make a short put.
However, looking for a higher low and lowering high is not enough for the trader to make a strategy. They will need a trigger to indicate when to enter the trade market. The first type of trigger is a range.
For example, lines are drawn around the first lower high if the range develops around it. If we break the range to the downside, a short put could be taken. In contrast, if the range develops around a higher low, then the trader would have to wait until there is a breakout above the higher end of the range before they can make a long trade.
The other kind of trigger is the channel break. This kind of trigger can be seen when the price revives toward the former high creating a mini-trend. However, it does not make it to the former high. When this happens, draw a line below the bars of the prices as they rise. And as soon as the price drops below the line that you just drew, take a put trade or go short.
Final Thoughts
This kind of strategy is quite simple and straightforward and can be learned by traders of all levels. However, the downside of this strategy is that when the market is very unpredictable and choppy, no trend really develops, which usually leads to losses.
So, if you see that the action of the price is limited within a small range during the session you are trying to trade in, then it will be for the best if you avoid this strategy until the price begins to move more candidly.