In the medical world, “flat line” is a term used for when a heartbeat stops. In the world of binary options, the term is a bit different as it responds to when an asset is flirting with a support or resistance line, either barely touching it, or barely crossing it. The flat line strategy can be employed effectively when these lines exist, but only in a certain manner. Here, we will look at what conditions you should be on the lookout for, and what to be aware of, too.
If You Decide to Use This
The first step in using the flat line strategy is to identify an asset that has surpassed or is approaching either a point of resistance or support. The next step is to wait for the asset to begin its correction. Once this occurs, you need to wait for the asset to attempt to retest that resistance or support line a second time. If this doesn’t occur in a short amount of time compared to the timeframe that you are looking at, this strategy will not work. For example, if you are looking at a 1-minute chart, then this needs to occur in 10 minutes or less from the initial testing of the support/resistance line.
Ideally, the asset should have a perfectly flat support or resistance line working for it, and should not be trading within a channel. The difference is subtle, but very noticeable when you are looking at a price chart. A channel can have an asset trading within a tight range, but the price can still be moving up or down. A flat line—for this strategy to work—needs to move in a perfect horizontal line across the face of the chart.
The final step is to initiate the trade once the previous signals have all occurred, and have occurred in the correct order. The direction of the trade that you make will be dependent on whether you are looking at the support or the resistance line. The support line is at the bottom of a price chart, and if the conditions occur revolving around this point, then you should be looking at call options. If they occur at the resistance line, then you will want to execute a put option.
The expiry of the trade that you take out will necessarily be dependent on the chart that you are using. Try to use an expiry that is slightly longer than the chart intervals you are using. For example, if you have a 1-minute chart, your goal expiry should be between 2 and 5 minutes in length.
Things Can Go Wrong – Remember
This strategy has been tested most thoroughly in the Forex marketplace, and applies most directly to currency pairs when you are using it within the world of binary options. These concepts can be applied to other classes of assets, but thanks to the fact that finding short term data for other assets is often more difficult—and more expensive because of the increased cost in the necessary software. Using this on other assets will be a little bit harder to do with the same levels of efficacy, then.
Another drawback is that this relies on what typically happens when looked at a large number of similar situations. It is not something that works in every single situation, and although it does work often, you will want to confirm your trades with other indicators as well. This will help you to ensure greater levels of accuracy and help improve your profit rate. This will naturally decrease the number of trades that you make, and this might cut into your overall dollar profit number, depending on how many trades you typically make and of the nature that they are.