How to trade binary options in a flat market

As you know, most of the time the market is flat. Directional movement takes about 30% of the time, the remaining 70% of the market moves horizontally. Interestingly, this rule is true for any time period, therefore, the skill of determining a flat on a chart is necessary for absolutely every trader. Today we will learn how to determine a flat on a chart, what is its main difference from a directional movement and how to trade it profitably in Binary Options .

What is flat

To understand what a flat is, first let’s try to figure out how it differs from a trend movement. For starters, the trend can be up and down. An uptrend is a series of rising highs and lows:

Downward — declining highs and lows:

To create a directional movement, an imbalance between buyers and sellers is required, as a result of which the price will rise or fall. During a flat, the forces of sellers and buyers, on the contrary, come to equilibrium, as a result of which the price stops updating old highs and lows. For example, breaking a chain of upward highs or lows in an uptrend is a clear prerequisite for the beginning of a sideways movement.

Another definition of flat is consolidation. As a rule, price consolidation means a period of corrective movement within the general trend, or horizontal price movement on reversals.

Consolidation often appears during the phases of accumulation and distribution. The first one manifests itself at the minimums of reversal movements and represents a period of accumulation of volumes before a jump, the second phase is an accumulation of volumes before a fall, characterized by a short horizontal movement.

However, consolidation usually means a short-term correction rather than a long-term sideways movement. The beginning of a sideways movement can be determined by two tops and two bottoms, which are within the boundaries of the previous wave.

Description of the trading method

For a simple and effective determination of a flat, you need to draw several horizontal levels on the price chart. Having identified the support and resistance zones , the flat can be easily identified by the price movement between the two levels that form the channel boundaries. When entering the channel, the further development of events has three possible scenarios: the price will break through the channel boundaries, bounce off them, or expand the range.

In this case, it is important not to confuse a horizontal channel with an inclined one. The sloping channel represents a trend movement, as the previous extremes are being updated. The essence of the flat is in the horizontal price movement, when the price does not have a clear direction up or down.

According to statistics, the price often repels from the level, rather than breaks it. Therefore, channels should be traded on a pullback. A breakdown of the channel also takes place, but for us it will mean the destruction of the formed figure — a rectangular channel.

Recommendations for trading

Despite the seeming simplicity, trading in a flat carries some risks, so it is extremely important to be aware of some pitfalls. In our case, binary options somewhat simplify the task, since they do not require a strong price movement to make a profit — it is enough only to fulfill simple conditions.

The main rule is always wait for confirmation! If you expect a rebound from the level, you do not need to enter the market immediately after the price touches it. You can only make a decision to enter a trade after the candle closes , that is, when the price has already been fixed in any position. We also need that there are no volume accumulation zones near the channel borders — this is a prerequisite for a possible level breakout . It should be borne in mind that a simple breakout of the level does not cancel the current sideways movement and, in fact, it may be an expansion of the range.

Another important point is choosing the right time to trade. It is unwise to trade flat during an active market. For example, during the European and American sessions, trading activity increases, and at the opening there is often a sharp change in trend, or the current trend is replenished with fresh volumes.

The ideal time to trade a flat is a market with relatively little volatility . At this time, the market is the most predictable and prone to movement in a horizontal channel, which is what we actually need. It is necessary to avoid trading at the opening of the European and American sessions, since it is during this period that a change in the main trend is possible, or, conversely, an increase in the current turnover.

Expiry time — 1 candle of the current timeframe. But, if you trade on M1, then it is better to increase the expiration time to 3 candles. The most suitable timeframe for channel trading is M15, since during low volatility, smaller periods are difficult to analyze.

Examples on the chart

Trading levels can be easily identified by the noticeable highs and lows on the chart. For simplicity, you can add the ZigZag indicator to the chart . Now it remains to mark the horizontal levels by the candlestick bodies at the places where the ZigZagpeaks are formed . In these places, some resistance acts on the price, therefore, it is possible that the same factors will affect the price in the future.

When the price enters the channel, that is, the candlestick closes between two horizontal levels, we wait for an entry signal. First, the candlestick must touch any of the channel boundaries. If the price touches the upper border, we enter a decline, if the lower one — an increase. At the same time, the signal candle should close inside the channel. Buy an option of the desired direction at the opening of the next candle, with an expiration of one candle.

Here we have 2 ITM deals and one OTM. This is an illustration of one of the pitfalls of rebound trading. Even when the price bounced off the level and we received confirmation, one cannot be 100% sure of the strength of the momentum in the market. Then the price went up, but the deal turned out to be unsuccessful. But, even without applying additional filters, provided that the key levels are correctly marked, the proportion of false bounces will not exceed the permissible error.

Conclusion

If you have enough skills, trading during a flat movement does not present any particular difficulties, and in general it is much safer than counter-trend trading. But remember that in any case, the flat will end sometime, and a directional movement will take its place. Until this happens, flat provides an opportunity for additional income in Binary Options. The main thing is to always wait for the confirmation of the signal, and this will require good discipline. If you feel unsure, try your hand at a demo account , and then go to the real market.