Binary Options Strategies: How to Make Money in Binary Options Trading BINARYTOPGUN.COM IQ OPTION RICH PAGE
TABLE OF CONTENTS Chapter 1: Introduction .............................................................................. 2 1.1 Scope and Purpose ......................................................................................... 2
Chapter 2: Brokers, Scams and Why 95% of Traders Lose .......................... 7 2.1 Selecting a Trustworthy Binary Options Broker .............................................. 7 2.2 Key Features of Top-Class Brokers ............................................................... 10 2.3 The Mindset of a Scammer ............................................................................ 12 2.4 Expert Advisors are the Scammerâ€™s Playground ........................................... 14 2.5 Defending Yourself Against Scammers ......................................................... 16 2.6 The Killer Problem ........................................................................................ 17 2.7 Understanding Novice Trading Habits ........................................................... 20 2.8 Why Standard Methods Do Not Work ............................................................ 22
Chapter 3: Analyzing Strategies and Tools ................................................ 29 3.1 Are all Price Feeds Identical? ....................................................................... 29 3.2. Introducing the MetaTrader 4 Platform ....................................................... 31 3.3 Secrets about Optimization? ......................................................................... 33 3.4 Square Pegs and Round Holes ...................................................................... 35 3.5 Real Time Issues .......................................................................................... 38 3.6 Trading Binary Options using BULL Strategies .............................................. 39 3.7 Trading Binary Options using BEAR Strategies ............................................. 42 3.8 Expert Advisors & Signal Services ................................................................ 45 3.9 Using a Demo Account Properly .................................................................... 47 3.10 Optimizing the Usage of Trading Charts ..................................................... 49
Chapter 4: A Cornerstone for Success ....................................................... 54 4.1 Memorizing Your Trading Guidelines ............................................................ 56 4.2 What Makes a Successful Trader? ................................................................. 57 4.3 Preparing Mentally For The Challenges Ahead .............................................. 59 4.4 Historical and Live Trading ........................................................................... 60 4.5 Never Stop Learning ..................................................................................... 61 4.6 Optimizing your Trading Performance .......................................................... 62
Chapter 5: Introducing Fundamental Analysis .......................................... 65 5.1 Defining Fundamental Analysis .................................................................... 65
ii 5.2 Trading Economic Data Releases .................................................................. 66 5.3 Volatility and Economic Data Events ............................................................. 72 5.4 More Trading Ideas for News Releases ......................................................... 74 5.5 Strategies Based on Fundamental Analysis .................................................. 76 5.6 Important Fundamental Indicators .............................................................. 82 5.7 Good Research is Essential ........................................................................... 87
Chapter 6: The Importance of Technical Analysis...................................... 90 6.1 Introducing Technical Analysis ..................................................................... 90 6.2 Confirmation using Candlesticks ................................................................... 93 6.3 Identifying Bottoms and Tops ...................................................................... 99 6.4 Technical Analysis Compared to Fundamental Analysis .............................. 102 6.5 The Significance of Money Management ..................................................... 106 6.6 Technical Indicators ................................................................................... 109
Chapter 7: Popular Binary Options Strategies ......................................... 129 7.1 Breakout Strategies .................................................................................... 129 7.2 Trend Retracement Strategies .................................................................... 138 7.3 â€˜Tops and Bottomsâ€™ Strategies .................................................................... 147 7.4 Scalping Strategies ..................................................................................... 151 7.5 Candlestick Strategies ................................................................................ 155 7.6 Fake out Strategies .................................................................................... 162
Chapter 8: Constructing a Binary Options Strategy ................................. 171 8.1 Picking the ideal expiry time ...................................................................... 172 8.2 Which Technical Indicator to Select ............................................................ 172 8.3 Which Assets to Trade? .............................................................................. 175 8.4 Designing a Confirmation Strategy ............................................................. 176 8.5 Rules for Opening and Closing Positions ..................................................... 179 8.6 Reducing Your Risks ................................................................................... 184 8.7 Operational Advice ..................................................................................... 188 8.8 Pitfalls to Avoid .......................................................................................... 189
Chapter 9: Trading More Effectively Using Binary Options ...................... 197 9.1 The Advantages of Using Binary Options .................................................... 197 9.2 Binary Options Strategies ........................................................................... 200 9.3 Differences between Binary and Traditional Options .................................. 204
Chapter 10: Live Binary Options Trading ................................................. 207
iii 10.1 More About Binary Options Strategies ...................................................... 207 10.2 Trading Guidelines .................................................................................... 207 10.3 What You Require to Trade Binary Options ............................................... 208 10.4 You are the Main Component .................................................................... 209 10.5 Examples of Binary Options Trading ......................................................... 211
Chapter 11: Increase Profits by Exploiting Volatility ............................... 216 11.1 Gold trading is more volatile ..................................................................... 216 11.2 Volatility and Risk Exposure ..................................................................... 219 11.3 The Complexities of Trading Gold normally .............................................. 223 11.4 Improving Your Gold Trading Results ....................................................... 226 11.5 A Trading Example .................................................................................... 228
Chapter 12: Trading Specific Markets (including Pair Options) ............... 234 12.1 Stock Trading using Binary Options .......................................................... 234 12.2 Trading Commodities using Binary Options .............................................. 236 12.3 Index trading using Binary Options .......................................................... 238 12.4 Trading Currency Pairs using Binary Options ............................................ 240 12.5 What are Pair Options? ............................................................................. 245 12.6 Pair Options vs Binary Options ................................................................. 246
Chapter 13: Trading Different Time-Frames ............................................ 249 13.1 60 Seconds Trading .................................................................................. 249 13.2 1 Minute Strategies .................................................................................. 250 13.3 Day Trading .............................................................................................. 254 13.4 Swing Trading .......................................................................................... 256 13.5 The Power of the Longer Time Frames...................................................... 259 13.6 Volatility and Time Frames ....................................................................... 261
Chapter 14: Summary ............................................................................. 264
Chapter 1: Introduction 1.1 Scope and Purpose ‘Binary Options Strategies: How Make Money in Binary Options Trading’ is basically aimed at novices and introduces all the main concepts of binary options trading in an easy-to-follow style. The prime mission of this book is to help you to trade binary options successfully and profitably. Specifically, you will be presented with concepts and strategies that will assist you in optimizing your returns. Binary options are heavily endorsed by widespread marketing promotions stressing how simple it will be for you to make an additional stream of revenue, if not a fortune, from trading the financial markets. However, you must understand from the very beginning that binary options trading is an involved topic and speculating on it successfully is certainly not a forgone conclusion. ‘Binary Options Strategies: How Make Money in Binary Options Trading’ is the book on binary options that you have been waiting for. This is because it will completely sweep away any naïve conceptions that you may possess thinking that binary option trading is a source of easy money. The main reason for doing this is so that you will become more conducive to lateral thinking and will then be more likely to consider methods that will enable you to trade binary options more effectively. Consequently, one of the main objectives of this book is to show you that you could invest considerable amounts of your time and energy if you attempt to trade
Strategies: How Make Money in Binary Options Trading’ is not trying to demoralize you by defining the depths of these tasks but to introduce you to a new sense of reality.
In doing so, the main idea is that your mindset will become more susceptible to lateral thinking and considering innovative methods of trading binary options which would be more applicable to your skill and knowledge levels. Most successful professional traders have taken many years to master this subject. Do you really have this amount of time to spare? Even if you did, do you possess the diverse skill levels required to ensure success. Perhaps you may think that all this is a dream and not possible. However, think again and read on because â€˜Binary Options Strategies: How Make Money in Binary Options Tradingâ€™ is about to show you otherwise and change your life in the process. You will discover that this book will achieve this objective by utilizing straightforward explanations supported by aesthetical and highly relevant charts and diagrams. Chapter 2 introduces you to important skills that you will find paramount to coping with key tasks, especially if you are a novice. Guidelines are provided advising how you can best accomplish the task of selecting a premier binary options broker. Worried about scammers? Then do not be as defense techniques are revealed that can protect you from this scourge. Do you want to know why so many binary options beginners fail and why many strategies just do not work? This chapter will explain all. Chapter 3: Have you already been swamped by advertisements introducing a myriad of binary options tools and strategies. How well did you do at analyzing and using them? Did you manage to select any winners? If not and, especially if you are new to this type of financial speculating, then you could well benefit by gaining insights into how professionals evaluate such products. This chapter is intended to pull back the curtains in order to reveal to you important and valuable expert insights that will help you choose those techniques that really can elevate your profit potential on a consistent basis.
Chapter 4 will introduce a progressive trading approach which can substantially simplify your trading decision-making. This is because the procedures explained are able to drastically enhance your chances of trading successfully irrespective of any inadequacies you may have in skills, knowledge or experience. The initial step in this process is to help you to concentrate on the primary aspects of such an approach, which is a robust mental attitude and yourself. Chapter 5 introduces you to the concepts of Fundamental Analysis. You will then be shown how you can proficiently trade important news events and how volatility impacts these releases. You will also be introduced to a number of key economic indicators and why constant research is so important. Chapter 6 deals with Technical Analysis by describing its main functions. You are also presented with a number of strategies based on its concepts with which you can trade a variety of market conditions. The importance of money management is explained and a selection of premier technical indicators introduced. Chapter 7 explains the concepts behind a variety of popular binary options strategies including breakouts, tops and bottoms, scalping and trend retracement, etc. In particular, specific examples will be introduced illustrating each of the presented strategies in action. Chapter 8 now uses the information introduced in the previous chapters to show you how to develop your own binary options trading strategy in easy-to-follow steps. Advice on how to limit your risks is presented and operational guidelines are supplied which you can utilize when trading your new strategy. Potential pitfalls are also identified. Chapter 9 is intended to demonstrate to you the advantages of trading binary options by using a diversity of assets as their underlying securities. This objective will be achieved by introducing you to strategies, advantages and examples that will help you get the most out of trading binary options.
Chapter 10 demonstrates the benefits of trading binary options now that you have been introduced to their merits. This goal will be accomplished by presenting strategies, techniques and examples that will assist you in deriving the most out of this trading mechanism. To commence this process, additional features of a well-proven and tested binary options strategy are discussed. Chapter 11 introduces concepts to exploit volatility in order to boost your profit potential. Specifically, the advantages of trading gold are clearly defined as a mechanism to achieve this objective. The conclusion that you should deduce after reading this chapter is that an approach using binary options is definitely required if you intend to profit from trading excessive volatility. Chapter 12 describes how you can best deploy binary options in order to trade specific market sectors, such as stocks, commodities, currencies and indices. In addition, the concepts of pair options are presented and are directly compared to those of binary options. Chapter 13 discusses the merits of designing binary options strategies using different time-frames. Reasons are listed why professional traders tend to prefer the longer time-frames. Also, the impacts of volatility on time-frames are also identified. Chapter 14 summarizes the ideas introduced throughout this book as well as recommending your best way forward.
Brokers, Scams and Why 95% of Traders Lose
Chapter 2: Brokers, Scams and Why 95% of Traders Lose The primary purpose of this chapter is to introduce you to a number of skills that you will find very useful, especially if you are have just started trading binary options. For instance, guidelines will be provided that will help you identify the optimum binary options broker that will best comply with your trading aspirations and ambitions. In addition, you will be advised on how best you can protect yourself from the many scammers, which unfortunately, inundate this marketplace. Finally, explanations will be supplied explaining why so many novices fail at binary options and why many standard strategies do not generate consistent results. This information is not intended to deter you from your binary options objectives but, instead, is meant to deliver a more realistic understanding about what you should expect from trading binary options.
2.1 Selecting a Trustworthy Binary Options Broker If you intend to trade Binary Options, then one of your initial tasks will be to choose a premier broker who will supply you with the necessary tools and services to accomplish this objective. Here are some key features that you should evaluate: 2.1.1 Define Your Basic Requirements Essentially, you should identify the initial facilities which you ideally need your new broker to support. For instance, you should seek answers for the following pertinent queries: -
Do you intend to trade currencies, commodities, indices and stocks?
What deposit amount do you intend to invest? If you are a novice then you should aim to spend a minimum amount until you have gained sufficient experience.
How do you propose funding your new trading account, e.g. credit card or bank wire, etc.?
You can deploy such fundamental questions to help develop a more comprehensive list of requirements that you can then utilize to select your optimum broker. 2.1.2 Review and Research each Brokers of Interest Before joining any broker, ensure you have undertaken widespread research into both its reputation and the quality of its tools and services. You can achieve this goal by analyzing the extensive number of online reviews that exist for most top-class brokers. In particular, you should verify the following key attributes. -
Are they regulated by the recognized governing bodies of their country of origin, e.g. Cyprus Securities Exchange Commission (CySEC) or the Commodities Future Trading Commission (CFTC), etc.? Essentially, you should validate that any broker of interest is correctly qualified before investing any funds with them.
Are they US citizen friendly, i.e. do they accept USA clients?
What leverage amenities will be supported? This feature is vitally important as it will enable you to activate very large trades supported by minimum deposits. Nevertheless, you should not seek an unrealistic value otherwise your risk levels will also surge dramatically. If you are a beginner, then you should opt for leverage of about 100:1.
Identify a broker which consistently supplies the lowest spreads. These values are the commissions that it will charge for each trade you activate.
Carefully analyze the trading tools and platform provided. Basically, you need the best facilities possible to assist you in deriving the optimum trading decisions, such as identifying high quality entry prospects.
2.1.3 Demo Accounts Verify that a prospective broker supports free demo facilities so that you can test its amenities as well as improving your trading skills before risking any of your own funds.
You are well-advised not to risk any of your own money without
utilizing a demo account first, especially if you are a newbie. 2.1.4 Compare Brokers After undertaking the above steps; you should then have generated a list of preferred brokers that best match your trading ambitions and aspirations. Next, you must filter these selections down in order to obtain your ideal broker. You can accomplish this objective by asking more detailed queries, such as the following: -
What type of accounts do they offer, e.g. mini, micro or MetaTrader 4/5
(MT4/5), etc.? -
Where are they based and when were they founded?
How efficient and effective is the trading platform supported and how good are its facilities and tools?
Is the customer service supported effective and efficient?
2.1.5 Enlist with a Broker by Activating a Demo Account By doing so, you can invest time to test all the tools supported by your new trading platform. Verify that its facilities fully comply with your requirements. If not, then investigate other brokers. In summary, you will need to consume energy and time in order to identify the optimum broker permitting you to trade Binary Options as proficiently as possible. Achieving this task successfully will substantially contribute to your ability to attain long-term success.
2.2 Key Features of Top-Class Brokers Many experts advise utilizing the following list of key attributes to assist you in identifying optimum binary options brokers that will comply best with your trading objectives. 2.2.1 Fee Structure Verify that all commissions and charges are clearly transparent and easily accessible. You do never want to be surprised by any non-disclosed costs whatsoever. 2.2.2 Professional Support You will require premier quality customer support 24/7 in order to address all your queries concerning your brokerâ€™s trading platform, tools and services, etc. Validate the proficiency of the support provided by calling them and asking pertinent questions. How did you rate the courtesy and quality of your received replies? 2.2.3 List of Assets Top-class brokers offer a comprehensive selection of underlying assets which you can utilize to activate binary options. Premier companies usually support over 100 such items, which are normally diversified between the four main trading categories, i.e. indices, commodities, stocks and currencies. 2.2.4 Returns and Refunds Confirm that your potential broker consistently supplies competitive returns and refunds. For example, seek profit payouts of 80+% and rebates of 10+%. 2.2.5 Leverage Your preferred broker must provide you with an excellent leverage facility in order for you to capture worthwhile profits, as defined in 2.1.2.
2.2.6 Expiry Times A prospective broker must support a wide-ranging choice of expiry times, ideally ranging from 1 minute to multi-month. 2.2.7 Security This feature is particularly vital as it will ensure that all the key information that you enter into your brokerâ€™s platform will always be stored securely. Verify how this task will be accomplished. 2.2.8 Trading History You need a tool capable of storing all the critical details of every binary option that you will ever activate. You also require additional resources to assist you in analyzing this information in order to enhance your trading skills. 2.2.9 Trading Platform You must have access to a top-class trading platform that will permit you to implement your trading decisions reliably and promptly. Test out such facilities by utilizing a demo account, if possible. 2.2.10 Web-Based Access This attribute is highly relevant especially if you plan to trade on the move. You will then be able to operate at anytime and anywhere by simply using any computer facility boosting an internet connection. 2.2.11 Withdrawals and Deposits Confirm that you will not endure any problems when transferring money out of and into your trading account.
2.2.12 Website Quality brokers present excellent websites that offer helpful advice capable of enhancing your trading decisions, i.e. news commentaries, educational material and the trading tips, etc. Also confirm that this tool is frequently updated and easy to transverse. By comparing and analyzing the attributes, identified above, will assist you considerably in selecting the optimum broker for you.
2.3 The Mindset of a Scammer Scammers are despicable individuals who are very talented at identifying and exploiting the flaws of inexperienced traders. Although experts are very proficient at countering scamming ruses, sadly binary options beginners are not. Scammers know precisely how to entice novices by targeting their dreams, ambitions and innocence. You basically cannot underrate scammers because they are skillfully adept in the ways of deception. As such, most novices are easy prey for them. If you said that it is very sad that the world has come to this then, no doubt, many would agree with you. You would think that with all the efforts scammers make to con the general public out of money that they could expend their energies doing something good for humanity. Unfortunately, that is just not the nature of these things. As statistics show that novices are tricked out of amazingly large sums of money every year, you need as a priority to gain an appreciation of the protective measures that experts deploy in order to protect themselves from scammers. This section is intended to help you achieve this objective.
Regrettably, many newbies endure severe depression after reality demolishes their na誰ve and pre-conceived ideas about binary options trading. Consequently, they then tend to seek in despair for any quick or magical answer that can eliminate their problems by readily placing their trading objectives back on course. However, by instigating such actions, newbies then become ready targets for the large quantities of scammers who infest the binary options market. You are wise to appreciate quickly that the financial markets are breeding grounds for the scammer. One of the main reasons for this is that many novices convince themselves that they can easily acquire even just a small slice of the enormous daily turnover traded every day. The powerful publicity, which engulfs binary options, also brainwashes beginners into thinking that they can become rich very quickly. You can grasp the size of this problem if you imagine the distribution of traders as a very large pyramid with the 5% of successful traders at the top. Consequently, you will form part of the massive base of this structure if you are a beginner. Scammers are normally just failed traders who usually contribute to the area between the bottom 10% and the top 5% of our imaginary pyramid. As such, most of these obnoxious individuals have failed to cope properly with the many complexities associated with binary options trading as well as lacking the skills and vision to create strategies and tools that really work profitably. They almost definitely were unable to counter the optimization obstacles which are generated as a result of price constantly producing complex price formations and patterns. A large majority of scammers have a bent on creating automated devices that are based on their flawed trading strategies. Consequently, the vast majority of these products do not generate any sort of profit at all. What are the best methods you can utilize to protect yourself from the scammer? The following list presents some of the main methods used by professionals:
1. Do their advertisements make ridiculous claims about the performance of their products? For instance, you must be on your guard if you read statements such as ’our robot will assist you in attaining 100% binary options trading successes’ or ‘our tool can generate a return of 100% return in a matter of days’.
2. If you study marketing literature carefully, you can then deduce whether they have been produced by scammers. For example, are any real trading results presented that you can readily verify?
3. You are almost certainly reading about a scam if you have be provided with a long drawling sales letter backed by a sequence of autorespondergenerated emails supported by idiotic titles.
2.4 Expert Advisors are the Scammer’s Playground If you are new to binary option trading and are intent on buying an automatic trading program then you must be cautious because when doing so you will be stepping into the world of the scammer. These individuals are typically unsuccessful traders who have not managed to grasp the complexities of this involved subject. Consequently, you need to understand that most of them have just created their products by utilizing their deficient trading strategies. This is the key reason why such a significant percentage of these items fail to meet their promotional hype. For example, if you were to trust all the claims included in the adverts for such expert advisors then you should deduce that their owners should already be very well-off and retired. However, studies and reality present a far more demoralizing image by displaying that in excess of 95% of these tools fail. Even those that do register any reasonable results, only do so for a restricted time period. A recent study disclosed the subsequent performance details after screening numerous wellknown robots:
1. Five% of these resources did not generate any income whatsoever even for their developers.
2. Another 10% created profits but only on selected trading platforms and then just for minimal durations. 3. Seventy percent attained profits for intervals up to three months only. 4. Five% were able to produce profits but for their inventors only. 5. Despite the fact that another 10% did obtain profits, they were so modest in size that they were totally submerged by broker fees.
You can deduce after studying the above results that most of the creators of these devices have no genuine concepts about how to successfully produce an expert advisor. In particular, scammers have serious problems conquering the optimization issues that are created as a result of price continuously producing complicated
inadequacies, scammers still plough on publishing their defected rubbish onto the market in order to obtain as much revenue as possible. Many scammers are so deluded that they even think their own customers are the key reason for the failure of their merchandise. They make assertions stating that the buyers of their expert advisors should not anticipate that all their monetary problems should disappear simply after purchasing a $100 robot. Nevertheless, it is the scammers themselves who promote such ideas within their deployable promotional material. Recently, they have even resorted to requesting that their consumers should fund the research required to optimize their products to the ever-evolving trading conditions.
2.5 Defending Yourself Against Scammers During recent challenging financial times, many individuals understandably sought ways to create extra money. A significant number were lured towards binary options mainly because of its substantial daily turnover and simplicity of use. They incorrectly imagined that they had outstanding possibilities of obtaining just a modest portion of its massive income flow. However, most of them failed to appreciate that they would need to effectively conquer a serious learning curve in order to achieve
constant profits. Upon ultimately acknowledging the
ramifications of their circumstances, many of them then hunted for speedier remedies as opposed to grappling with the complexities of this topic. Those who did select the former path subsequently became potential cannon fodder for scammers. You must appreciate rapidly that scammers are typically just unsuccessful investors who have devised ways to make their pathetic efforts at trading look rewarding. One of the key attributes of a scammer is that they have a sound familiarity with the mindset of novices. In truth, many scammers have even attained the point whereby they may have attempted to develop their unique trading strategies. They may have even recorded some good results by capturing profits for some extended time. However, most of them ultimately fared poorly since they basically did not have the expertise or know-how to resolve the many difficulties of binary options trading. If you now understand that the majority of scammers structured the designs of their automated solutions on their flawed trading strategies then you will instantly realize why hardly any of them work. For that reason, if a device or method attracts your attention then you must carry out a professional evaluation of its promotional materials by checking for any unsustainable performance claims. For example, you should search for outlandish boasts, such as ‘our product is able to double your balance each and every week’ or ‘do you want to learn a secret that will make you very wealthy in no time at all’. As such statements are almost impossible to accomplish in reality, if you detect them then you can deduce that you are handling a rip-off.
You should also hunt for proof of performance. For instance, are you able to validate any of the product’s specification and results independently before you commit to a purchase? If, instead, you find yourself studying just a prolonged drawling sales page, then you are well-advised to disregard that specific item as yet another scam. Scammers will try to lure you by utilizing remarkable adverts comprising keys words that have powerful marketing and promotional influences. For instance, as the word ‘secret’ is a particular favorite, look out for titles such as ‘the ten secrets that trading professionals have not explained to you’ or ‘these secrets about binary options will stun you’. The only real secret that scammers possess is how they find so many ways to generate such huge amounts of junk. If you have any concerns, then do not buy.
2.6 The Killer Problem Why do so many investors fail at Binary Options trading? The figures are daunting as they illustrate that nearly 95% of people do. Is there a core explanation that will help explain this specific trend? Yes, there is as you will always be confronted by a specific issue when trading binary options which can not only consume your entire deposits but render your goals and dreams useless as well. This section sets about identifying this sinister facet of Binary Options trading. Comparable to the majority of us, you may well have been captivated by advertising campaigns promoting the idea that you can easily make 75%+ returns in just minutes by trading binary options. This feature is, in truth, quite genuine because you can. However, you must also understand that you can equally lose 100% of your investments in comparable periods of time.
Nevertheless, for some emotional reason we usually disregard the latter problem by preferring to spotlight the former feature usually because we are motivated by thoughts of instantaneous wealth. The marketing aspects of binary options are, unquestionably, highly effective and efficient at luring most individuals into a deluded state of false security. Why does this occur? After all, although binary options brokers do advertise their products and services, they are not effectively keeping a firearm at our heads and pushing us into trading. The core matter appears to be that most of us do not appreciate the significant adverse effects that are trigger by those horrific broker-biased Rewardto-Risk (R/R) ratios. Let us now research this topic in more detail with the aim of understanding the true relevance of this challenging issue. For example, imagine that you have opened a binary option trade based on an asset boasting a payment ratio of 75% and a refund ratio of 0%. This means that you will be supporting a position displaying an R/R ratio of 75%: 100%, i. e. 42%. Imagine that you activate 5 trades each with such an R/R ratio by waging $100 every time. Now, contemplate that you win 3 and lose 2. Your profit would be (($75*3) - ($100*2)) = $25. In comparison, the next time you lose 3 and win 2. Your loss will now be (($100*3) - (($75*2)) = $150 Well, those results are not very impressive but, instead, are quite concerning. So, let us now contemplate that you are trading the shorter time frames and implement 500 trades in 2 months once again with an identical R/R ratio and with a win-to-loss (w/L) ratio of 65%. You wager $100 on each position. Consequently, your overall profit will be $6, 875. Pretty good, I guess. Even so, the third month is a minor catastrophe leading to 250 trades registering 60% losses. Your losses would now equal $7, 500 which would not only eliminate your original 2 month profit but also create a monetary loss.
I guess it is realistic to summarize that by making use of a strategy featuring such a dreadful R-to-R signifies that you will always be courting tragedy. Just one short period of damaging trading results can completely eliminate all your efforts rapidly. Now, if you operate identical figures using an R/R ratio of 110%: 100%, then they will produce a winning 2 month profit of $18, 250 and a 1 month loss of $4,000 producing an overall profit of $14, 250! Some experts have been researching this topic for many years and have concluded that it is possible to conquer this substantial problem and convert the odds back into your favor. To achieve this goal, a strategy is needed that boasts a W/L ratio of at least 50% (much higher is preferable). The next crucial step is to generate a R/R ratio that is in excess of 50% as the normal ones are well less than this figure, e. g. 75%: 100% = 42%. You will be pleased to know that this goal can be achieved using a variety of methods. However, to complete this task successfully you must be aware that you will need to reassess every basic aspect of binary options trading by implementing a far more enlightened outlook. 2.6.1 The Burning Question As you can deduce, the reward-to-risk ratio issue defined above is a significant hurdle to conquer and inhibits most traders from ever realizing any worthwhile gains. You also need to appreciate that if you have the technical and monetary amenities, such as those of a distinguished hedge fund, then you will possess the capabilities of producing serious profits from binary options trading by simply forecasting the right directional movements of selected assets. Nonetheless, you will almost certainly require $millions of dollars annually to support the costly resources and suitably qualified staff needed to make this happen.
So, here is the basic problem. Do Jane and Joe Average have any hope of earning a constant flow of rewarding profits by trading binary options since the odds are piled so much against them? With a restricted budget of just a few thousand dollars, they will definitely not possess the amenities of a hedge fund. This goal can be accomplished in numerous ways. However, in doing so every facet of trading binary options has to be considered in a totally different light. For instance, you cannot proceed to spotlight 60sec trades as most beginners are inclined to do.
2.7 Understanding Novice Trading Habits This objective is not to focus on any negativity or to poke fun at beginners by any means. Instead, researching into their behavioral trading habits should disclose important insights into why you should not adopt such approaches if you want to trade binary options productively. As you undoubtedly know, practically 95% of all beginners fail by losing their entire original deposits rapidly during the process. They manage to achieve this undesired target by utilizing naive strategies and techniques which experts would toss aside instantly. For example, many newcomers believe all they have to do is merely eyeball the trading charts of any assets that interest them. In some way, they imagine that they can discover patterns, such as reversals and breakouts, by undertaking just this process alone. This is even though they have virtually no trading expertise, knowledge or appropriate skills. Some even believe, that within days from start-up, their restricted analytical skills will permit them to make remarkable binary options breakthroughs that no-one else has previously discovered. This egotistic and unsophisticated approach is nothing short of instigating monetary suicide. This is even more so when you find that most newbies activate binary options without even applying any kind of money management strategy at all.
As a result, they over-trade by launching highly leveraged positions exposing their equity to unsubstantiated levels of risk. Consequently, they eventually endure significant drawdowns that ultimately consume their entire trading capitals.
Options professionals just watch on in amazement as this situation repeats itself constantly. Even if they do attempt to intercede, most newcomers often just ignore any expert guidance offered to them by assuming that they have somehow discovered a magical secret allowing them to trade binary options effectively. As you can quickly deduce, you cannot continue trading in this fashion otherwise you will experience considerable monetary losses. 2.7.1 The Outcomes of Such Naivety You may have been attracted towards binary options trading by the intensive publicity surrounding this topic. Certainly, this investment mechanism undoubtedly offers many attributes that can easily lure beginners by presenting images of instantaneous prosperity. However, once you leaped on-board then you could have rapidly discovered that you had bitten off more than you could chew. As a result, your original aspirations may have quickly dissolved into delusions. For example, did you possess any of the concepts listed below that are the findings produced by a recent study enquiring into the state of mind of binary options newbies? -
They assume that all they must do to accomplish binary options success is to either obtain an automated robot or some guruâ€™s trading method.
Novices also believe they do not need to apply any genuine effort into mastering the complexities of binary options trading.
Most newbies do not realize that one of their prime priorities must be to utilize well-proven money management principles as a way to supply the best possible defense for their trading capital.
They search for exhilaration and excitement by attempting to conduct many trades per day. They believe that in doing so they will create substantial profits more rapidly.
They cannot handle losses proficiently and do not understand that even professionals make blunders.
Novices jump from one binary option strategy to another by not persevering with any technique for
any extended time
particularly if such tools cannot generate profits fast enough. -
They are under the deluded perception that 80% of their binary options trades will be straight out winners.
They have no appreciation that the odds are piled against them and they must apply appropriate measures urgently in order to counter this situation.
If you have already acquired any expertise at trading the fiscal markets, then you will appreciate that the above is just a wish list and has no authentic bearing on the real world of binary options trading. In truth, you can deduce that beginners consider that they can utilize binary options to become wealthy rapidly with virtually no hard work on their part. Nevertheless, you must promptly realize that harboring such naive concepts will only generate substantial monetary losses over the long run.
2.8 Why Standard Methods Do Not Work Two simple equations exist that will determine whether you will be successful at binary options trading or not. Again, the majority of traders fail to appreciate their importance and as such most of them are unsuccessful at acquiring any worthwhile profits on a consistent basis. These two formulae are:
Win-to-loss >= 50% Reward-to-Risk Ratio > 1 If you can trade binary options in such a way by ensuring that these two conditions are always satisfied then you will unquestionably achieve success. No matter what you do and what strategies you employ, by adhering to these two simple equations will ensure that your account balance will grow constantly. However, the basic problem is that the odds are stacked against you from the start. This is because binary options brokers support payments of about 75% on average but losses of 100%. Yes, of course there are variations on these figures depending on which assets you trade, which expiry times selected and what refund ratios are offered. However, do matter which combination you choose, the important fact to realize is as follows: Your Reward-to-Risk (R/R) ratio will always be less than unity. In fact, using the numbers presented above it will be 0.75. The massive adverse implications of using such a poor R/R have been clearly identified in section 2.6. In particular, you must remember that binary option trading supports only two possible outcomes. Either you will win and collect 75% or fail by losing 100%. There are no intermediate results. 2.8.1 Impacts on Trading The normal reaction of nearly all traders, especially novices, is to completely dismiss the significance of such an appalling Reward-to-Risk ratio by leaping immediately into the fray. This reaction is probably due to a combination of human nature and intense marketing publicity. Basically, we have a tendency to focus on the 75% winning potential as opposed to the 100% losing result. We are all guilty of making such a drastic oversight.
Let us now consider the impacts of such actions by studying a popular strategy that some binary option consultants advise novices to implement. This technique is based on the human sentiment gauge located on their trading platform. The strategy is then supported by the usage of a Martingale strategy. Essentially, novices are advised to open positions in the current direction favored by the majority of traders. For example, if the gauge is primarily green, then you should go long. Alternatively, if red dominates then you should execute a short position. The basic concept is that the majority of traders will be correct for the majority of time. By following this simple technique, you will then not have to implement any technical or fundamental analysis whatsoever as it would have already been done for you. Traders are also encouraged to utilize the 60 seconds expiry time. In addition, whenever you suffer a loss, you should then execute your next trade, based on the sentiment gauge, by applying a Martingale strategy. This means that you should double the size of your previous position following every loss. The logic behind this approach is that as the majority of traders cannot be consistently wrong, you will eventually record a win recouping all your previous losses. 2.8.2 The Insanity of Such an Approach First, you must keep in mind that when you are performing the above strategy you will be doing so with a Reward-to-Risk Ratio < 1. This means in order to record consistent profits, then your Win-to-Loss ratio must be greater than 50%. However, the sentiment approach is badly flawed for the following reasons: -
As 95% of all traders fail at binary options trading, why would you exploit a strategy advising you to open positions based primarily on their recommendations?
activating trades against the current long-term trend if you structure them on sentiment. -
If you also utilize the shorter time frames, then you will be basing your trading decisions on noise-generated price movements as opposed to those created by real fundamental and technical events.
The fundamental conclusion you can make if you apply such an approach is that you will have no real idea what your win-to-loss ratio will be at any given time. You certainly cannot confirm that it exceeds 50%. In contrast, if you want to make consistent profits then you must know precisely what this figure is at all times. The Martingale concept adds further fuel to this chaos. This idea was conceived by gamblers playing casino games, such as roulette, in 18th century France. Basically, there can only be two results, i.e. the ball will land on red or black. Consequently, if after each loss you keep doubling your bet then eventually you must win enabling you to recoup your earlier losses. However, although binary options appear similar in nature to roulette in that you must select either an upwards or downwards direction, there is an important difference. This is that price action is time dependent. For example, during one minute, the value of price can fluctuate dramatically by recording varying values at different seconds, e.g. 11th, 19th and 34th seconds, etc. In addition, the sequence that you are advised to implement in the case of losses is often similar to the following: $12, $30, $70 and $150 This sequence infers that if you suffer a first loss of $12 then you should execute your next trade by risking $30 and so on. However, what is often not explained is what happens if you keep registering losses, as follows: $12, $30, $70, $150, $400, $900, $2,000
In order words, you could easily lose over $3,000 if you suffered just 7 consecutive losses by adopting this Martingale approach. Can this easily happen? Yes, is the answer! For instance, envisage that your win-to-loss ratio is 50% and assume you opened 100 trades. Now, although fifty of them will be winners, you have no control over in which order they will happen. This means that you could easily encounter a sequence of 10 successive losses before a new winning streak occurs. In conclusion, this strategy is definitely worrisome. You can now begin to understand why nearly all novices lose their deposits by implementing it. 2.8.3 What should you do? The answer is quite simple. Before implementing any trading actions whatsoever, you must ensure that you optimize your Reward-to-Risk Ratio so that it preferably exceeds unity by as much as possible. However, if your binary options trading platform will always offer payouts in the region of 75% compared to losses of 100%, can such a result be readily achieved? Yes, it can! However, you will need to alter your entire perspective about binary options trading in order to achieve this objective. The following table presents an example of a strategy, capable of realizing this objective, using a live trading account displaying results for the first three full trading weeks of 2014. By studying the figures displayed, you can confirm the following: Win-to-Loss Ratio = 11/14 = 78% Average Win = $9; Average Loss = $6; Reward-to-Risk Ratio of 1.5 (> unity) Consequently, profits are consistently recorded enabling the account to grow exponentially.
Analyzing Strategies and Tools
Chapter 3: Analyzing Strategies and Tools You may have already been swamped by advertisements introducing a myriad of binary options tools and strategies. How well did you do at analyzing and using them? Did you manage to select any winners? If not and, especially if you are new to this type of financial speculating, then you could well benefit by gaining insights into how professionals evaluate such products. This chapter is intended to pull back the curtains in order to reveal to you important and valuable expert insights that will help you choose those techniques that really can elevate your profit potential on a consistent basis. You will discover and learn that what you considered to be hard-rock fact may not be so when scrutinized by those investors who really do make serious financial returns from trading binary options.
3.1 Are all Price Feeds Identical? One of the favorite assertions that internet marketers make is that their automated products can trade any market condition irrespective if they are rangetrading or trending. Undoubtedly you may have already been introduced to numerous amazing trading charts illustrating just how proficient their new marvelous strategies, tools or technical indicators can discover renowned price formations, such as the â€˜head and shouldersâ€™ without a failure in sight. Nevertheless, there is crucial observation that professionals know that you are not being advised. This is that all brokers support their own specific price feeds that are based on their choice of banks. This means that the technical indicators supported by their trading platforms generate their readings from these price feeds. Consequently, this next declaration is critical: the readings created by technical indicators are heavily influenced by the specific trading platform you are currently utilizing.
Does it not strike you as odd that hardly any promoters of automated products inform you about this critical point? They ought to do because the implications can drastically impact your trading performance as the following figure reveals.
In the diagram above, a technical indicator supported by the trading platform of one broker advises that you should execute a LONG position at point 1, supported by a stop-loss just below the blue line. In contrast, another broker could recommend doing the same but at a slightly later time as shown at point 2. Consequently, the second stop-loss is now located just beneath the green line. Look what the results are. In the initial example, the trade produces a win while the second is stopped-out. Although this example was obtained using a Forex trading platform, the same issue applies directly to binary options in that the initial trade could finish ‘in-the-money’ while the second expires ‘out-of-the-money’.
This problem is the blight of numerous strategies and robots that are presently being promoted on the market nowadays. Why do their designers not inform you about this significant problem which can unquestionably impact the efficiency of their tools? The primary reason is that many of them are not aware of its presence and even if they were, they do not possess the knowledge to resolve it proficiently? How can you safeguard your trading capital from the effects of this issue? Well, essentially you must discover whose trading platform was utilized to build the applicable software tool. You must realize that there exists a strong possibility that you will not be able to reproduce historic results and worthwhile future profits if you trade using the trading platforms of other brokers. Additionally, when you are analyzing the performance reports of any tool or strategy, you must carefully record the exact trading platform deployed during the investigation. You can supply yourself with added protection by picking strategies and tools that function best by deploying the higher time-frames from the daily upwards. The reason for this is that their performances will more independent of which trading platform you are trading. In addition, the technical indicators included in their designs will not have such a distinctive bearing on profitability.
3.2. Introducing the MetaTrader 4 Platform
This popular and revered tool can be used to create, modify and compile source code produced using the MetaQuotes Language 4. Many designers utilized this platform to develop automated products to trade the financial markets. For example, they devise Technical Indicators, Experts Advisors and Scripts for the specific intent of automating the process of trading currencies, stocks, commodities and indices.
Main features of the MetaTrader 4 Platform are as follows: •
Opens and saves text files
Editing and displaying edited and modified source code
Copying, cutting and pasting text
Printing files and text
Search and replace facilities
Supports a comprehensive MLQ4 dictionary
Offers a variety of font types and sizes;
Tailored syntax accent;
Syntax compiling and checking
Identifies and displays compilation errors
Creating executable object files
3.3 Secrets about Optimization? There is an additional problem that can significantly impact the performances of binary option products, which is that the developers of automated tools normally optimize the trading activities of their devices to specific marketing conditions. Their software can then generate outstanding operational results, which are subsequently presented to you within promotional material. However, trading conditions can drastically evolve very quickly. For instance, the conventional drivers creating the price patterns on the EUR/USD trading charts are the judgments made by the European and USA governments along with the related performances of their economies. However, a critical change occurred in July 2011 when US recessionary worries and European debt contagion started to trigger escalating levels of anxiety and uncertainness which subsequently became the new drivers. One of the key ramifications of this new development was that most trading tools and strategies, that had been optimized to perform best with the original drivers, started to crash under these new trading conditions. You can confirm this outcome by visiting websites, such as the Forex Peace Army. In so doing, you can readily validate that the performances of the majority of reviewed expert advisors severely deteriorated following July 2011.
The table above shows a good example of this problem by presenting the trading results for a famous robot. You will observe that as the month of August advanced, the quantity of losses increased significantly. This was because increasingly market anxiety and uncertainly started to have an escalating impact on creation of the price structures for the EUR/USD currency pair. As this tool was optimize to trade under more standard market conditions, its performance deteriorated when confounded by the new price formations primarily created by market dread and anxiety.
3.4 Square Pegs and Round Holes You must realize that there exists no amazing formula that will guarantee you will achieve immediate success at binary options trading. However, you can unquestionably acquire such an impression if you were to trust the many adverts promoting products for this market. So that you can safeguard yourself from the many scams that are prevalent these days, you need to learn how to evaluate this promotional literature proficiently by applying an expert analysis. For example, many entrepreneurs boast about just how well their automated products perform because their key design principles are structured on a renowned formula or theory. However, before you are entirely taken in by this rubbish, there is something that you should appreciate about binary options trading which is wellknown and valued by all professional traders. That is this kind of investment mechanism is performed in real-time and at high speed. Price can generate the most intricate waveforms during these periods, which are hard to predict and consequently challenging to trade effectively. This feature implies that unless a strategy can proficiently cope with the above complexities, then it will only create average results at best when it is applied to binary options trading. Failed cases are the martingale technique, which is rooted in casino gambling, and the bell-shaped curve, which was built to evaluate distributions. Let us now review the former as a method to demonstrate why attempting to adapt such methods to binary options trading is the same as trying to insert a square peg into a round hole. The Martingale method recommends that the size of future bets should be constantly doubled following each loss. This trading approach was initially developed in 18th century France and was based on the theorem that you cannot lose all the time. When this gambling technique was initially deployed in casinos, its advocators would continuously double their table bets every time they lost based on the supposition that they would eventually win.
Recently, quite a few developers have included the principles of the Martingale into their automated expert advisors. Consequently, after their products have selected a preferred a trading direction, either long or short, then they will constantly trade in that path only. Whenever a loss is experienced, the Martingale strategy demands that the following lot size of the next trade must be doubled on the basis that a win will ultimately happen. However, this is definitely monetary suicide when trading the financial markets because the price of an asset can simply keep progressing in the losing direction, without any reversals, until the traderâ€™s balance is totally exhausted, as demonstrated in the next diagram.
The above figure displays a series of trades taken from a larger collection of results. They were generated by a binary option trading strategy applying a seventier Martingale concept. This feature implied that the bet size of each loss would be continuously doubled until a seventh consecutive loss was recorded. At that stage, a loss would be registered.
You can observe such an outcome in the above diagram which shows that all seven positions eventually failed causing the trader to suffer a very large loss. In normal gambling such an event rarely happens because the odds of a win are roughly 50%. However, this statistic does not apply to binary options trading because of the complex price formations that can be produced in real-time. The trading results of software tools utilizing the Martingale concepts have been mainly very disappointing. The reason for this is as follows. A Martingale system can be very effective when deployed to play a game such as roulette. This is because the chance of correctly picking red or black is practically 50:50 ignoring the house slots. However, the financial market is a completely different entity despite the fact that superficially price can only move upwards or downwards. As the number of paths that price can move to over a specific period of time is practically infinite, this means that it is statistically quite capable of producing trading patterns that can regularly activate 7-tier losses, which is a premier feature of the above Martingale strategy. In addition, any martingale strategy based on such a risk profile requires its user to deposit a substantially large financial reserve in order to support it. What is be even worse is that the trader can only invest a small proportion of this balance to fund an initial trade because a significant amount would have to be held in reserve in order to service all 7 tiers. This reserve problem also means that the initial trade can only support a very small lot size. Consequently, all users of such a Martingale strategy would be in a very undesirable position because they could only open relatively small trades despite possessing sizeable trading capital. Consequently, although an expert advisor based on this concept could secure many wins, their size would pale into insignificance compared to the extremely large ones of losses. This is the fundamental reason why the reward-to-risk ratio of such tools is so appalling bad.
In summary, you are well-advised that when you are evaluating any products or strategies to assess if their central concepts are full compliant to the trading environment of binary options. This is exactly what professional traders do. If you should detect any discrepancies then you should reject deficient products as you will only experience mediocre results, at best, over the long haul.
3.5 Real Time Issues These effects are the curse of most trading tools and strategies. Although professional traders are fully aware of this, novices tend not to be and as a result are unable to instigate effective analysis of binary options products. In fact, such devices have been found to be totally inadequate at coping with the extreme events generated during real-time trading. For instance, large price spikes and internet disconnections can seriously influence the quality of trading results attained. As such, experts have striven to master the necessary skills that will allow them to perform detailed research on any products of interest in order to verify that they really do contain solutions to realtime problems. For example, the design of robots should incorporate techniques that will ensure central strategies are effective at countering the adverse effects of price spikes. In addition, these tools should ideally back-up key trading parameters to hard-disk at regular time intervals. Should a disconnection of any sort occur, they can then extract and retrieve the data in order to minimize the impacts of such disruptive events. If you study and master the importance of the points listed above, then you will be able to start evaluating any binary options product of interest in the same way as a professional. By doing so, you will then be able to differentiate the better tools from the herd as well as providing optimized protection against scams.
3.6 Trading Binary Options using BULL Strategies This strategy can be implemented whenever gold starts to advance upwards in a b ullish channel. Binary options an d currencies pairs based on gold supp ly y ou with outs tanding opportun ities to profit from bull strategies. Fir st, y ou must detect tho se times when gold is proceeding in a bullish channel. Imagine that after searching all the assets suppor ted by y our broker, y ou detect that the XAU/U SD (gold /US D ollar currency pair) is producing the formation that y ou need by advancing upwards, as shown on the followin g chart.
This technique can be executed whenever an asset begins to traverse higher
within a bullish channel. Binary options, structured particularly on currencies pairs, provide excellent opportunities to gain from bull strategies. You initially need to identify those periods when an asset is advancing in a bullish channel. Envisage that after a thorough research, you identify that the XAU/USD (gold/US Dollar currency pair) is generating the price structure required by moving upwards, as displayed in the next diagram.
Now, y ou must study this trend in greater detail. Basically , y ou need to detect major technical features, such as trendlines. For ins tance, the next chart illustrates the movement of the gold with the lower and up per trendlines overlaid upon it.
Next, you must analyze this formation in more depth. Essentially, you need to verify the presence of key technical features, e.g. trendlines. For example, the following figure displays the directional movement of an asset bounded by its lower and upper trendlines.
Basically , y ou can easily produce the upper trendline. Just join the sequence of higher highs ; see above diagram. Next, connect the series of hig her lows to create the lower trendline. Your bull strategy is now ready for use. Keep tracking the chart until go ld strike s the lower trendline since th is will be an excellent po int to execute a CALL op tion. However, verify the lower trendline remains intact by confirming that price does not brea k beneath it before implementing any further action. If confirmed, then activate a CALL binary option. Utilize a well-tested management policy to assist y ou in assessin g the most app licable am ount to wager on this trade. You w ill then need to cho ose an appropriate expiry time. Expert consensus advises selecting one in excess of 30 minu tes so that any fundamental considerations have enough time to propel pr ice forward in y our preferred direction. Consider that the in-the-money pay out is 70%; the out-of-money refund is 10% and the wagered amount is $200. T he reward-to-risk ratio is then $140 :$180. T his implies that this initial trade can generate a win of $140 compared to a loss of $180. Sometime later, gold did indeed climb and the initial pos itio n is in-the-money . You next detect gold s trikin g the lower trendline once more, as shown on the next diagram.
Essentially, you can simply create the upper trendline by just joining the series of higher highs, as shown on the above chart. Next, link the sequence of higher lows to generate the lower trendline. Your bull strategy is now set to be implemented. Keep monitoring the trading chart until price hits the lower trendline, which will be an outstanding place to initiate a CALL option. However, verify first that price does not break below the lower trendline before executing any subsequent actions. If the lower trendline does remain intact, then implement a ‘CALL’ binary option. Deploy a proven management strategy to help you determine a sensible amount to invest on this new position. You will then need to choose an appropriate expiry time. Expert consensus advises selecting ones in excess of 30 minutes so that any fundamental considerations have enough time to propel price forward in your preferred direction. Consider that the ‘in-the-money’ payout is 70%; the ‘out-of-money’ refund is 10% and the wagered amount is $200. The reward-to-risk ratio is then $140:$180. This implies that this initial trade can generate a win of $140 compared to a loss of $180.
A little time later, price did indeed climb and the initial position is ‘in-themoney’. You next detect price striking the lower trendline once more, as shown on the next diagram.
You then select to implement CALL 2 b inary option as po sitioned on the diagram above by deploy ing the identical features as the original trade. However, y ou once more wait for a couple of minutes to verify the lower trendline remains secure. As gold wo uld have advanced upwards by some considerable amount before CALL 2 was executed, this implies that CAL L 1 is well in- the-money . Should the lower trendline remain steadfast at CALL2 then only a minor ris k was present that price would plummet downw ards and drop beneath the strike pr ice of CALL 1. Consequently , the new reward-to-risk ratio is $28 0:$40 . This is an excellent status to achieve as it fulf ills ex pert recommendations that alway s counsel reducing y our ris k expo sure at every possible opportu nity . Concentrate on y our los s poten tial first and allow y our profits to lo o k after themselves. After a short interval, the go ld price has again appreciated and both options are recording winning pos itions. Again y ou observe price striking the lower trendline. You now execute a th ird CALL binary option po ssessing matching parameters to those of the original two. Again, y ou first verify that the lower trendline remains intact. The reward-to-risk ratio no w signals a maximum profit of $420 if in-the-money at expiration and a profit of $100 if out-of-the-money . After the expiry time finally elapses, three winning trades were registered producing a pay out of $1020, includ ing the depo sits.
You then opt to activate the ‘CALL 2’ binary option, as located on the chart above by utilizing a similar procedure as before. Again, you must wait for a short period of time in order to verify that the lower trendline remains secure. As price would have advanced upwards by some considerable distance before ‘CALL 2’ was executed, this implies that ‘CALL 1’ is well in-the-money. Should the lower trendline remain steadfast at ‘CALL2’ then only a minor risk is now present that price would plummet downwards and drop beneath the strike price of ‘CALL 1’.
Consequently, the new reward-to-risk ratio is $280:$40. This is an excellent stance to achieve as it conforms to expert recommendations that always counsel reducing your risk exposure at every possible opportunity. In other words: ‘Concentrate on your loss potential first and allow your profits to look after themselves’. After a short interval, the price has again appreciated in value and both options are recording winning positions. Again you observe price striking the lower trendline. You then instigate a third ‘CALL’ binary option possessing matching parameters to those of the original two. Again, you first verify that the lower trendline remains intact. The reward-to-risk ratio now signals a maximum profit of $420 if ‘in-themoney’ at expiration and a profit of $100 if ‘out-of-the-money’. After the expiry time finally elapses, three winning trades were registered producing a payout of $1,020, including the initial deposits.
3.7 Trading Binary Options using BEAR Strategies This approach can be executed every time an asset begins to progress lower within a bearish channel. Binary options provide exceptional prospects to benefit from bearish strategies. Initially, you need to identify those instances when price is proceeding forward in a bearish channel. Envisage that after researching all the assets serviced by your broker, you discover that the XAU/USD (gold/US Dollar currency pair) is generating the pattern that you require by slumping lower, as demonstrated on the next chart.
At this point, you must analyze this trend in greater depth. Fundamentally, you should identify key technical features, such as trendlines. For example, the following chart displays the directional movement of price bounded by its upper and lower trendlines.
Fundamentally, you can easily create the upper trendline by simply joining the series of lower highs, as shown in above diagram. Next, link the sequence of lower lows to generate the lower trendline. Your bear strategy is now set for use. Continue monitoring the chart until price hits the upper trendline since this will be an outstanding point to implement a ‘PUT’ option. Nevertheless, confirm that the upper trendline stays intact by verifying that price does not break above it before implementing any additional steps. If validated, then trigger a ‘PUT’ binary option. Deploy a well-tested management plan to help you determine the most suitable figure to gamble on this position. You will then need to choose the ideal expiry time.
Professional opinion recommends selecting one in excess of a half-hour so that any fundamental factors will have sufficient time to launch price forward in your desired direction. Consider that the ‘in-the-money’ payment is 70%; the ‘outof-money’ refund is 10% and the invested sum is $200. The Reward-to-Risk ratio is subsequently $140: $180 meaning that this trade can produce a win of $140 in comparison to a loss of $180. Sometime afterwards, price does, in fact, decline and the first position expires is ‘in-the-money’. You next identify price striking the upper trendline yet again, as revealed by the following figure.
You then opt to activate ‘PUT 2’ binary option, as located on the figure above by implementing the same functions as the initial trade. Nonetheless, you once again wait for a few minutes to verify that the upper trendline stays unbroken. As price would have already dropped downwards by some significant amount before ‘PUT 2’ was executed, this feature means that PUT 1 is ‘well in-the-money’. If the upper trendline now remains intact at PUT 2, then the chances are minimum that price will spike upwards and break above the opening price of ‘PUT 1’. Therefore, the new reward-to-risk ratio is $280: $40.
This is a great position to attain as it complies with expert advice that always recommends lowering your risk exposure at every feasible opportunity. Focus on restricting your losses first by permitting your profits to take care of themselves. After a limited period, price has fallen even further and both binary options are now recording ‘in-the-money’ statuses. Once again, you notice price hitting the upper trendline. You now activate a third ‘PUT’ binary option featuring identical attributes to those of the initial two. Again, you first verify that the upper trendline stays intact. The reward-to-risk ratio now supports an optimum profit of $420 if ‘in-themoney’ at expiry and loss of $100 if ‘out-of-the-money’. At expiration, three wins were registered creating a payout of $1020, including the deposits.
3.8 Expert Advisors & Signal Services This section further introduces the stimulating world of software trading services and products. The main goals are to present you with the following key resources: - Identify the key benefits and problems of these services and tools - Help you understand comparison tables proficiently
comprising the key
performance variables of each reviewed service and product so that you can quickly undertake important evaluations - Provide concise explanations of important terms, i.e. expectancy value - Recommend a plan of action that you should activate after researching all the products and services of interest. 3.8.1 What are Forex Robots and Signals? A robot is a dedicated software program that can automatically trade the financial markets on your behalf without any involvement by you. The most wellknown robots have been coded especially so that they can be operated using the revered Metatrader 4 trading platform.
These resources can then be operated as expert advisers which can conduct a range of actions automatically, such as pinpointing new trading prospects, exiting and executing positions and sheltering your trading funds from abnormal levels of risk, etc. In truth, any manual trading procedure that you conduct can be included into a robot. A signal is a professionally produced tip advising when to initialize a new position based on a selected asset. Every alert is supplied with all the information needed to execute it easily and accurately, including a precise entry price and time. Signals are created by either a specialized automated product or by skilled experts. The most popular approaches utilized to transfer this data from provider to customer are internet, SMS, internet, social media and email. 3.8.2 Advantages and Pitfalls Almost all promotional material lists the achievements of their specific automated product or service by stressing operational parameters, such as significant profits, fool-proof coding and the capability to acquire profits in the financial markets without the necessity of any human involvement. Sadly, most of these assertions are just pure nonsense at best and downright scams at worst. Nevertheless, these tools are very adept at decreasing the stress behind trading by eliminating human sentiment from all their functional pursuits. In additional, services and expert advisors can function 24 hours a day without suffering excessive stress or exhaustion in contrast to traders. Every product is based on confirmed and well-tested trading strategies coupled with money management principles with the expressed intention of helping its purchasers achieve optimum profits at minimal risks. Despite all these constructive aspects, how do you establish if an item is any good and what characteristics do you especially seek? Basically, you need evidence that the device does indeed generate profits persistently. The normal method implemented by most sellers to achieve this goal is to utilize back-testing results.
information can easily be altered. Consequently, you should always be suspicious if you learn that you have to constantly modify the configuration parameters of your new software tool in order to achieve optimum results. If you are required to accomplish this task, then you will simply be attempting to fine-tune the device or service constantly in order to comply with ever-changing trading conditions. You need to realize rapidly that the automated market is scammerâ€™s heaven. You may have already been inundated by the intensive marketing promotions of more than one of these products and/or services. However, you must appreciate that the majority of software tools only attain profits for very limited time-periods. A newly released study produced the next operational results: -
Software devices recording profits for periods up to 3 months - 70%
Products producing revenue for their designers only - 5%
Tools creating modest profits which are swamped by broker slippage 10%
Devices not creating any profits at all - 5%
Services and robots optimized to particular brokersâ€™ platforms - 10%.
3.9 Using a Demo Account Properly
Professional investors always emphatically recommend that you should trade binary options for some considerable time before endangering your own funds by going live. You can accomplish this goal by launching a demo account with a suitable broker who will then permit you to use its trading platform containing substantial free demo amenities and resources. If you embark on such an activity, then you will also present yourself with the ability to assess and evaluate the trading platforms of all brokers that interest you at no cost whatsoever.
You will discover that brokers will be more than pleased to let you try this approach because they then get the chance to introduce and promote their products and services to you with the overall purpose of convincing you to register a live account with them. Nevertheless, although this idea sounds fantastic and is undoubtedly a great action to adopt, you must realize that there are significant variances between trading a demo account in comparison to a live one. For instance, you will not feel the same psychological and emotional stress when demo trading because, as your own personal funds will not be in jeopardy, you can embrace a more cavalier approach to your trading. On the other hand, you will discover that live trading can create severe nerve-racking predicaments especially if you begin enduring sequences of consecutive losses. When demo trading, you do not have to handle so many demoralizing situations that can significantly decrease your confidence. For example, you will not need to battle the escalating fear that evolves when price abruptly begins shifting against your active trades. You also do not need to fret, when demo trading, about losing your total balance because you can constantly replenish it with a brand-new one. For that reason, a gang-ho approach to demo trading can make you acquire potentially inadequate trading practices such as attempting to maintain your trades open for extensive periods of time. You will find that transporting such processes to live trading conditions is certainly not a good strategy as you could expose your equity to unfavorable degrees of risk. Never forget, when you embark on the key task of choosing a binary options broker, to make sure that you discover one that will supply you constantly with the most affordable spreads. This is because these fees can drastically build up over time and can detrimentally affect your profits.
Professional experts will also recommend that you discover ways to manage your emotions prior to going live. However, you may find that this is challenging skill to perfect in demo mode. Your primary goal when you begin live-trading is to supply the best protection for your own restricted finances. However, this task can create unpleasant feelings that can have negative effects on the caliber of your trading judgments. For example, if you encounter a series of consecutive losses and observe your own collateral decrease before your eyes, then such situations can have damaging influences on your morale and confidence. You can try to educate yourself to withstand such complications by making sure your demo trading stimulates live trading conditions as precisely as possible. For instance, using a demo balance of $50, 000 could severely distort your trading effectiveness if this sum does not comply with the total amount that you plan to utilize when going live. As an alternative, you should pick a total that is more representative of the size of deposit you intend to utilize when live-trading. In so doing, you will construct live trading circumstances as closely as possible.
3.10 Optimizing the Usage of Trading Charts
Let us now consider how charts fit into the realm of technical analysis and the numerous methods that you can utilize them in order to improve your trading performance. For example, they are key tools that investors apply in order to detect new quality entry opportunities. However, although you should learn about the numerous versions of charts that exist, you are advised to focus on just a few that are effective for you and that satisfies your risk profile. As such, you should only routinely make use of two or three types.
You can easily get captivated seeking the perfect way to trade and never become effective in just one straightforward approach. There is no ideal tool or indicator for trading as so many individuals have already discovered after seeking such solutions for countless years! When you trade, your primary objective is to place the percentages in your favor and then revel in the results as opposed to fretting over those trades that did not work out as you originally thought. Basic charts display price over a selected time-period by including pertinent information which can be readily analyzed. Some technical reviews only consider the key price cycles with the intent of detecting its preferred directional movements. Studying this data can provide vital insights about whether to activate new positions or not. There are numerous methods that can be deployed to add lines to the charts which can help identify price targets. For example, trendlines are popular tools that can assist you in predicting the movement of an asset when it is advancing within a well-defined bearish or bullish channel. In addition, you can install powerful trading indicators, such as the moving average, which can also help to forecast the future path of an asset. All these resources should be added in the main area of the chart so that they relate directly to the price line. Charts also comprise other sections where additional information can be included to provide different viewpoints of price action. For example, you may decide to install more sophisticated technical indicators in these regions, such as the Relative Strength Index and the Stochastic Oscillator. By using such an approach, you can ensure that the main region does not become over-cluttered and difficult to analyze. As chapter 6 will demonstrate, you have an extensive choice of technical indicators. The primary objective of these tools is to advise when the price of an asset becomes overbought or oversold. This is a very useful condition to detect because it can help identify those times when a retraction will most likely occur. You can consequently, open a new binary option in the opposite direction at these locations.
For example, when an oversold status is registered, such situations normally suggest that traders have become overindulgent at selling an asset implying that a bullish correction could now be imminent. As such, whenever you detect this condition, you should start evaluating the viability of opening a â€˜CALLâ€™ binary option using the asset under study as its underlying security. Technical oscillators fluctuate between low and high readings providing an indication about whether an asset is oversold or overbought. Different tools may not provide concurring results as their values depend on how they are calculated. However, they will normally agree on the current sentiment of the prevailing market environment. Whenever you detect that an oscillator is issuing either a selling or buying signal, then you should analyze the relevant price movement for confirmation. Essentially, there are three fundamental techniques that traders deploy when using trading charts â€“ -
Search for structures and formations that help forecast future price direction
Add important lines on charts to assist in analyzing price action more accurately.
Install technical indicators to detect key conditions, such as oversold and overbought.
3.10.1 Using Charts to Trade Some brokers will permit you to trade directly from trading charts. Their trading platforms often identify potential entry location for new trades. Using such facilities
3.10.1 Conclusions The following list contains important factors which you will find useful whenever you utilize trading charts. -
Line charts display closing prices only
Candlestick and Bar charts are structured on four key prices â€“ open, low, high and closing â€“ for each time- frame
Candlestick charts are simpler to study
The majority of charts enable you to study trading volumes
You can deploy either logarithmic or arithmetic chart scales â€“ the former is often utilized when deploying the longer time-frames.
Although technical analysis can be applied with any time-frame, it is far
A Cornerstone for Success
Chapter 4: A Cornerstone for Success This chapter will introduce a progressive trading approach which can substantially simplify your trading decision-making. This is because the procedures explained are able to drastically enhance your chances of trading success irrespective of any inadequacies you may have in skills, knowledge or experience. The initial step in this process is to help you to concentrate on the primary aspects of such an approach which is a robust mental attitude and yourself. When traders study or find out about a new trading secret, they usually imagine that it is a new indicator, new psychological trick or an innovative strategy that will lead them to the Holy Grail of trading. Apart from the well-established fact that such an item is completely evasive, there is a superior and more productive way to trading more effective than by just deploying the next best methodology, indicator or emotional trick. The REAL secret to trading success is something which many experts have used to ensure success, not just with binary options, but also trading stocks, indices commodities and futures. Regardless of whether you are trading a strategy based on fundamental analysis, technical indicators or utilizing a robot; there is one factor that is consistent to all these approaches, which is YOU! One of the errors that novices make is that they believe they can acquire a strategy or implement an automatic expert advisor and then merely sit back and watch the bucks roll in without any additional involvement by themselves. What such beginners fail to take into consideration is the emotional and psychological facets of trading. While mastering a methodology or the best deployment of an automatic robot, many become embroiled in what is referred to as the â€˜right sideâ€™ syndrome. This metal attitude entails traders always focusing on and studying the right-hand side of a trading chart in order to identify new quality entry and exit prospects.
However, as real-life trading does not work in this fashion, this analytical provides a fake sense of success. Undoubtedly, you must acquire an excellent understanding of a strategy and how its critical factors operate. However, you will need to acquire the ability to not only see trades but to also imagine how they will function when activated in order for you to secure long-term trading profits under any trading conditions,. For that reason, professionals have developed, in recent times, an impressive and highly effective trading methodology that when applied to any automated or manual strategy can transform it into a profitable tool. Again, novices generally make the blunder of wasting a significant amount of time investigating into what are the best indicators, strategies and expert advisors that are capable of producing the perfect trading results. In addition, many newbies fall into the pitfall of thinking that if one trader has attained success with a particular automated device or strategy, then they can as well. A specific pitfall that is widespread with most present-day manual and automated techniques is that they are not provided with instructions demonstrating how to acquire the best possible results from their usage. These resources are, of course, normally supplied with explicit details describing how to install them and then how to modify their key variables. However, new users are often not informed about how to achieve the best performances from trading their new device or how to incorporate them effectively into manual strategies. The methodology, that has been created as a way to conquer these issues is very straightforward but effective. This tool enables traders to be successful with any trading strategy, whether manual or automatic. Furthermore, this formula can be proficiently applied to all other financial markets, such as futures, stocks, commodities and currencies.
4.1 Memorizing Your Trading Guidelines
Most traders are usually familiar with the first part of the formula, which is to gain a clear appreciation about how a strategy or robot functions as well as learning how to tune them effectively by adjusting their key parameters. However, once they successfully complete this step, many of them will then start trading these tools straightaway. Unfortunately, this is a serious mistake. Instead, the major objective of this initial step is to encourage you to learn your trading strategy so well that you will be able to recite its main trading guidelines by memory. For instance, these rules should include well-defined entry and exit for every position that you intend to open. A good analogy would be the favourite saying of most real estate agents which is ‘location, location, location’.
In comparison, in order for you to achieve
trading success, your equivalent expression should be ‘memorize, memorize, memorize’! Consequently, this is why your rules should be spelled out explicitly in words. Many successful traders emphatically record ALL aspects of their trading guidelines and business practices in writing. This is a very important step, which has been eloquently summarized by Lee Iacocca, a former President and CEO for Chrysler Corporation, who stated "The discipline of writing something down is the first step toward making it happen." Many experts have concluded that numerous novices fail at binary options because they omit this vital action. In the world of trading, there are no real shortcuts to success and believing that you can simply learn a strategy and then trade it straightaway is adopting an erroneous approach. This is why many beginners record indifferent results.
4.2 What Makes a Successful Trader?
Expert opinion advises that a list of critical attributes that many prosperous traders possess is as follows: 1. Competence 2. Self-control 3. Commitment 4. Patience 5. Perseverance Let us now analyze these characteristics in turn so that we can determine why they are so crucial to trading. Competence As you can imagine, you will not attain success at any human endeavour if you do not learn the levels of expertise required. The initial step of this methodology especially concentrates on this essential facet of trading. For that reason, if you carefully analyze and then memorize the details of a strategy then you will readily accomplish this objective. In addition, if you subsequently blend your new knowledge with the other steps of this methodology then you will begin to advance along the path to success. Self-Control Understanding how to manage your emotions is a major feat to accomplish if you want to trade binary options viably. For instance, you cannot surrender to greed which is a common pitfall to fall into. For example, the substantial daily turnover of the financial market causes many investors to adopt a gung-ho attitude causing them to gamble instead of applying professional trading procedures.
However, you can quite easily acquire the levels of self-control that are needed simply by mastering and then practising a sound methodology. This is because such tools have been created specifically to assist traders manage their feelings permitting them to trade in a more business-like manner. Commitment Investing in a well-regarded form of binary options education should be a vital facet of your trading methodology. Possessing a need to study as much as you possibly can will place you in an excellent position to kick off a successful trading career. When doing so, keep in mind that there is a sizable amount of free quality information available on the internet. Patience Nowadays, many individuals do not take enough time to attain the degree of patience that is necessary to achieve success in most areas of human pursuits. Instead, they tend to be too centered on "instant gratification." Specifically, many traders lose their initial deposits quickly because they do not hold out until market conditions are ideal to execute new trades. They permit their psychological instincts to dominate careful research of both technical and fundamental factors. For instance, many circumstances happen when traders quickly open â€˜PUTâ€™ binary options after negative news is issued only to subsequently repent their judgments if these broadcasts turn out to be inaccurate. Perseverance Binary option trading is not suitable for those who have not developed perseverance. This is mainly because trading should be considered as a business since obtaining profits may be a gradual process. As such, traders must exert enough perseverance combined with competence and patience to register success.
For example, traders need to possess sufficient perseverance in order to obtain proven trading strategies that will enable their profits to grow even during volatile conditions.
4.3 Preparing Mentally For The Challenges Ahead
This task is regarded by many professionals to be the most crucial of a proven methodology. Those traders who invest the essential energy on this stage can substantially reduce the psychological and emotional complications that many others frequently experience. Psychological preparation is centered on your trading mentality. Premier investors are able to mentally practice all their forthcoming trades. These leading traders prepare themselves by previewing their prospective trades in their head before they are actually executed. The majority of people state, "I will believe it when i see it." In comparison, top investors state "I will see it when i believe it." You will not have to search far to discover examples of the power of mental rehearsal because it is very popular in professional sports. For instance, when attending skiing activities, you will discover that it is a typical sight to see specialized skiers psychologically rehearsing their runs even before they have buckled up their skis. Another sports group that perform mental rehearsal are golfers. Jack Nicklaus was cited as stating that he never missed a putt in his head. These skilled sportsmen have developed a procedure for mental rehearsal. They have accomplished this objective simply because they recognize the significance in executing this task since it undoubtedly helps them become the very best at their sport. Likewise, investors need to be at the top of their game whenever they execute new positions.
As the above illustrations evidently indicate, there is good value in practicing your trading guidelines using your mindâ€™s eye. You should also attempt to take your new prospective trades through a rigid mental rehearsal in the same way to that adopted by leading sportspeople. Once you have been subjected to the initial phases of a standard methodology, you now need to evaluate just how effectively you have mastered its key principles. You can accomplish this task by making use of demo accounts that the majority of binary option brokers support. Probably the most critical point about trading a demo account is to be selfdisciplined in deploying a strategy in precisely same manner as you have learned it. What this concept specifically implies is that you should not introduce any new concepts, such as new technique, technical indicators or performance updates until you have gained a level of experience and competence at trading your strategy in its original form. Such an action does not imply that you should not take records of any new modifications or enhancements that you discover about your strategy or the financial markets, etc. when you are trading your demo account. You must definitely note all your discoveries. However, before you can include them into your trading plan, you need to recommence your methodology by starting once again at the very beginning. By instigating such a methodological approach will help you enormously incorporate any new findings professionally into your trading strategy.
4.4 Historical and Live Trading Many professional traders stress the significance and influence of screen time.
Specifically, there are two kinds of screen time. The first one involves
analyzing historical charts by studying them in order to detect key price structures and formations. The second form is performed in real-time entailing investors sitting in front of their computers and monitoring price movements tick by tick as new trading conditions unfold.
As such, this second technique enables you to track just how well a strategy or expert advisor responds to varying market conditions.
For example, an asset
could be either range trading or trending at any point in time. To become effective at binary options trading, you must be able to readily detect and differentiate between these two important market conditions. Consequently, this stage of a methodology is not just about studying why an automated or manual strategy has executed a new trade but also evaluating why they did so during the prevailing market circumstances. You must also acquire an appreciation about why certain trades were not activated during various market environments. One of the optimum exercises that an investor can perform in order to assess strategies in live action is to generate substantial quantities of trading charts. You can then analyze the charts by visually identifying the entry and exit points of every trade that you implemented.
You should also register the guidelines that you
utilized in order to detect and activate these positions. You will discover that you will learn a significant amount from the exercise of clearly stating your rules directly onto the pertinent charts.
4.5 Never Stop Learning One of the primary features of expert traders is that they never cease studying
methodologies, their expert advisors, their charting software and most crucial of all, themselves. Most methodologies are defined in a linear manner. However, the truth is that they should really be introduced using a circular structure because when you have arrived at the final phase, your studying is far from over. To become a topclass investor, you will need to dedicate time and energy to constantly cycle through all the phases of your chosen methodology.
One of the most amazing facets of binary options trading is that you can acquire instant feedback about how you are performing. There occurs an occasion in every expertâ€™s trading existence when they encountered rough patches or went into a downturn. A sound methodology can assist at those times by helping you rebound rapidly back to your maximum performance. All
comprehensive list that they implement to analyze all new prospective trade. For that reason, they quickly identify if they are not adhering precisely to their own trading guidelines or if they are not psychologically geared to trade the present market environment. Also, top investors have the ability to constantly discover new approaches, concepts and techniques enabling them to enhance their trading.
4.6 Optimizing your Trading Performance After identifying a brand new strategy, nearly all newbies attempt to trade it immediately. However, such an action can be a blunder. Instead, you should utilize a technique to initially help you appraise the effectiveness of your new tool. For instance, your first step should be to acquire a thorough comprehension of your new device and how precisely its main factors operate. In particular, you should study it so well that you can recite all its critical details from memory. Next you should monitor your strategy in action. Essentially, you can conduct this task by instigating an intensive review of the relevant historical data for selected assets and time frames. You should revert as far back in time as your trading platform permits. You should then use the entry and exit conditions of your strategy to identify every trade that it would have opened during the entire time period. Methodically record the results of each one showing whether it was a loss or a win.
You should also experiment with mental rehearsal. If you picture how each position will perform in your head, then you will discover that you can attain a lot of information from completing this task. For example, you can assess and compare the real results to your predicted ones which could allow you to discover important modifications or enhancements. You should also experiment by trading your strategy by using a demo account. Record the results and pertinent details of all your positions opened. If you study and practise your methodology, as described, then you will start to experience more success at developing strategies that will generate sizeable profits on a consistent basis. If you take your time to master the concepts of the concepts, explained in this chapter, then you will construct a sound cornerstone for success enabling you to optimize the returns with any strategy that you use.
Introducing Fundamental Analysis
Chapter 5: Introducing Fundamental Analysis 5.1 Defining Fundamental Analysis As previous chapters have already advised, you need to devise a trading strategy in order to improve your trading prospects. You will find that many investors deploy fundamental analysis to assist them in accomplishing this objective. This form of price analysis tries to forecast future asset movements by studying environmental, political and economic events that will impact their fundamental demand and supply. In order words, when you use fundamental analysis strategies, you will be attempting to determine how political and economic events will influence the financial markets. Consequently, you will need to master how to detect and then assess the release of important news data and information in order to determine their impacts on assets. Such items of interest will be new economic policies, political developments, inflation, economic growth forecasts and interest rates changes, etc.. You will need to monitor the pertinent numbers and comments issued in speeches made by prominent politicians and economists. Specifically, you must focus on any important announcements concerning the USA politics and economy because they will generate the biggest impacts on the price movements of assets. For instance, you will find that speeches made by the US Secretary of Treasury and Chairman of the USA Federal Reserve Bank can cause excessive price spikes. You may already be aware that the price of an asset appreciates in value in response
developments. As such, you will need to analyze a widespread range of data relating to the health of an asset in order to predict the directional movements of price. For instance, you will need to study government policies as well as monitoring key economic indicators, such as durable goods orders, international trade, Gross Domestic Product (GDP) and the quarterly earnings reports of major companies, etc.
After you have evaluated all this information, you will subsequently need to devise a theory that will assist you in gauging its impacts on the current and future prices of the appropriate asset. If you can accomplish these goals, then you will be in a powerful position to determine if the price of an asset about to drop or appreciate in value. As such, if you intend to use fundamental analysis then you will need to concentrate
developments will impact assets. You must also acquire an intimate understanding and feel for fundamental analysis in order to utilize proficiently. Many professionals then recommend merging your findings with those of technical analysis with the prime intent of creating an effective binary options strategy.
5.2 Trading Economic Data Releases You will find that the release of important economic national data is highly anticipated by the markets and can produce significant price movements. Prime examples of postings that are assessed by economists to be of major significance are as follows: - National-Interest-Rate-Changes - US-Non-Farm-Payroll - US-Trade-Balance - US-Unemployment-Claims, etc. Such releases can immediately generate price surges or spikes and this is especially the case if the data released pertains to the US economic. You must also realize that substantially large price movements can be created if the newly issued figures surprise investors by not equating to the predicted values forecasted by prominent analysts. In contrast, should the released value be similar to its expected one, then changes in price movements tend to be more subdued.
Consequently, if you can accurately forecast and then profit from the price movements generated by fundamental data releases, then you will certainly improve your ability to trade binary options successfully. However, you must understand that this task is not so easy to accomplish consistently without the necessary skill and knowledge, especially if you are a novice. This is because large numbers of investors produce the price movements on the financial markets. In addition, the majority of them possess their own personal agenda supported by excessive budgets in some cases. These factors rise especially to the fore during the postings of economic data that are classified as high importance. This section will explain to you why this happens and also supply you with perceptions that you can then use to create effective solutions. To commence this process, you must attain a good definition about exactly what are economic news releases. Essentially, they are important items portraying the latest insights into a countryâ€™s
health, either directly or indirectly,
categorized into three types: political, economic and financial. Economic and Financial news releases have the largest impacts and are keenly awaited by all serious traders because of the influences they can have on the directional price movements of assets. This is especially so should the posted values vary to any significant degree from their forecasted numbers. Consequently, all major details are kept under top security and very tight control until the exact moment of their posting because of the dynamic impacts on the markets that they can generate. As such, one of your key priorities is to know when all the main data is scheduled for release. You can accomplish this objective by accessing the global economic calendar that lists the precise dates and times of all key publications. You will discover that a good broker will willingly provide you with these details by normally using a format similar to that displayed in the next diagram:
You will learn that the better resources will permit you to utilize a filter so that you can target those events of interest. You must definitely focus your attention on all releases, rated as high importance, irrespective of their country of origin. You will also need to note both the high and medium postings produced from the USA because most of them can generate significant price movements on financial markets. If you opt to study fundamental analysis then you should also identify a quality source of top-class commentary that can supply you with comprehensive analysis of the repercussions of all new political and economic postings. The ensuing diagram displays an example:
Political events can also create serious impacts on asset prices, such as national disasters, OPEC meetings as well as government elections, etc. You should be able to cope better with those that are scheduled well in advance. However, you will experience greater difficulties dealing with random affairs, such as terrorist attacks, that can create traumatic and sudden market developments.
One issue that you need to master is how to respond proficiently to the headlines of a data release. Often, instant reactions are capable of propelling price in a particular direction. However, this response is then quickly and completely reversed after investors have taken the time to study the specifics of the relevant posting in more depth. In addition, some major releases consist of multiple components. As such, you will discover that difficulties arise when some items of a news release closely comply with their predicted numbers while others fail to do so. When this happens, traders can become confused choosing one solution initially only to reverse it completely sometime later. As a result, you must be on your guard against fake price movements that are instigated just after a release because they could be retracted drastically within a short time-period after traders have acquired a deeper understanding of the news content. After studying the above analysis, you can now appreciate why many investors, especially beginners, endure so many problems handling the complexities of price surges that can be created during the publication of fundamental news. This is the prime reasons numerous traders refrain from becoming involved with these developments in order to safeguard their trading capital from the associated high levels of risk. In particular, beginners usually grossly overrate their abilities to trade fundamental events proficiently because they erroneously believe that they possess the skill to precisely predict their results. Regrettably, this is not the case because their trading mindset comprises many defects, such as: 1. They tend to concentrate on prospective profits by ignoring downside risks. 2. They believe that all their trades will be winners. 3. They fail to appreciate that they will attain greater success if they target for more realistic objectives.
4. As they harbor such high profit prospects, they frequently become demoralized very quickly after they endure a series of successive losses. Economic data can occasionally create major price surges although the precise reason why such events occur is not fully understood. However, you must be aware that because these changes can persist for some time, you must not leap to the assumption that the market is hot and ripe for new trades just on this basis. You will discover that this is not a sound strategy and can produce substantial losses especially if you do not possess a sound grasp of the present market environment. concluded,
Unfortunately, many beginners do just that. As you can now
fundamental data releases because of the significant risks involved.
You should always remember that the only factor that is predictable about price is that it is totally unpredictable. The posting of Fundamental data events certainly supports this statement because the price movements that they can produce are completely random. So, is trading fundamental news a complete waste of time? No it is not, especially if you understand precisely what you are doing because the sizeable profits can be acquired. A strategy is now presented that numerous investors have developed in order to generate worthwhile profits from trading economic news releases.
Wait until five minutes before the posting of the news item before implementing both sell and buy entry trades about twenty-five points from the current quoted price of your selected asset. Utilize a 10 minute expiry time.
You may have to fine-tune your entry values as price often drifts slightly before the posting.
As soon as one of your positions is opened following the release then cancel your other trade.
Your activated binary option should have expired â€˜in-the-moneyâ€™.
You must take guard, however, because although your risk exposure could be substantially reduced by deploying such a strategy, trading will still involve significant uncertainties because fundamental events can rapidly produce complex price structures.
As such, you must apply well-proven money management
concepts by limiting your risks per trade to 2% of your entire trading capital. You must definitely enforce this policy when trading fundamental data releases because their unpredictability can produce so much uncertainty. You should also record the details of all your trades, concerning fundamental data releases, into a trading diary. You will then be able to review your results as well as determine the expectancy value of your trading strategy. You should also consider developing your confidence in your ability to trade fundamental news by backtesting your trading strategy against historical data. If you also realize that powerful fundamental events can influence the direction of price for some considerable time then you may prefer to develop a strategy that will allow you to successfully trade the applicable asset during these less turbulent times. Many professionals also recommend that you should always lock-in your returns by exiting your active binary options, if possible, prior to the release of the pending news item.
5.3 Volatility and Economic Data Events If you plan to trade major news releases, then you will need a binary options broker who can provide you with fixed spreads and quick command execution. This is because these activities can generate very erratic conditions that can often create large price spikes. Sadly, most investors do not have the facilities that are effective enough at proficiently managing the market conditions that exist after important economic data releases.
You must understand that the financial market may become very volatile during the periods that critical economic data is scheduled for publishing because many traders are trying to define their positions by activating an exceptionally large level of orders within a short space of time. For that reason, your own personal orders could be swamped in this chaos if your internet connection is not of the finest quality and ultra-fast. Consequently, your instructions might not be actioned until sometime after price has surged through your preferred opening level. Furthermore, there may not be sufficient liquidity present to fulfill all the numerous commands that are being requested. You must recognize that these problems happen frequently during the release of crucial economic data, especially when volatility is excessive. You can even attempt to determine new trading prospects by incorporating one or more technical indicators as vital facets of your trading strategy. Nonetheless, you must realize that all these resources encounter difficulties handling the high levels of volatility that the financial markets can generate because they were not originally built with this intent as their primary goal. Once again, you must never forget this fact when you try and trade important news events. As a result, you should not consider technical indicators as the ultimate solution to all the problems that exist during this kind of trading. They were created to perform best during more stable times when the statistics that they rely on are considerably more dependable. You will find that technical indicators do not operate so well during the volatile periods that can occur when critical economic data is published. If you do depend on these resources, is it feasible for you to adjust and revise them so that they can handle volatility better? Unless you are extremely proficient at mathematics, the straightforward answer is no.
As an alternative, you should incorporate them into a trading strategy. You could then fine-tune the key variables of your strategy until you optimize its overall performance. You should also re-evaluate its effectiveness after each modification by recalculating its new expectancy value. In conclusion, you must acquire an understanding of the complications that can occur during the volatile times associated with the release of critical economic data. Never forget that the financial markets are proficient at creating the most complicated price formations that can demolish your active positions rapidly.
5.4 More Trading Ideas for News Releases Following the posting of an economic news item, you can then trade binary options using the concept that after investors has eventually determine the true effects of the release, they will select a favored price direction. If you utilize this feature then you can benefit from the advantage of not having to deal directly with all the psychological pressures that can occur during the time of the publication and soon after. To initialize this plan, you merely must delay making any decisions for about 20 minutes after the posting and then activate a trade in the present direction of the asset that was most affected by the release. Nonetheless, you must still exert extreme care if you utilize this trading procedure especially after the posting of crucial news items, such as the US nonfarm payroll. This is because such indicators can generate substantial volatility so that price requires substantial time to stabilize. You can also try and trade news releases by tracking the original path of an asset after a retracement. Essentially, you will find that should the issued number vary considerably from its expected value, then this outcome normally produces a price surge in one direction or the other according to the result. In many cases, the original price spike is frequently quickly accompanied by a reversal a result of profit taking.
For that reason, you are encouraged to wait for solid evidence confirming that the retracement is entirely finish before launching a new trade in the initial direction of the preliminary surge. In so doing, your position should enjoy a superior reward to risk ratio, as a result. As there is no definitive process that you can utilize to recognize the precise conclusion of a reversal, many professionals advise utilizing either of the next two techniques: 1. The first approach involves you seeking signs suggesting that the reversal is starting to consolidate. 2. Alternatively, you can try to detect the asset starting to move in its initial direction by a pre-determined amount, e. g. wait till it has recaptured 50% of the retracement. You can also design a trading strategy based on the feature that frequently before the release of critical news items, assets often start range-trading inside a restricted consolidation structure. The subsequent diagram displays an illustration of this process when investors were waiting for a US Fed decision to supply them with sufficient assurance to either sell or buy the EUR/USD.
This particular trend is caused by traders anticipating that the expected news release will identified a preferred direction in which to drive price. Consequently, if you can confirm that an asset is range-trading by detecting a floor (support) and a ceiling (resistance), then you could acquire some rewarding profits even before the news event happens. Nevertheless, you must appreciate that price has a tendency to favor one direction or the other prior to the big event. For instance, if investors anticipate that an US news item is likely to be positive, then the EUR/USD could start to produce a series of lower highs and lower lows. However, even though fakeouts can occasionally occur during these periods, they rarely evolve into full breakouts before the news events takes place. You must realize that utilizing such a strategy involves some hazards because economic data postings are infamous for generating wild fluctuations in price. This is because investors often take an instant viewpoint of the headlines of the posting but then totally reverse their evaluations soon after they have analyzed the pertinent details more carefully. Consequently, you will need to implement a well-tested money management strategy to counter such problems. Nonetheless, you should not be deterred by all these issues because trading news releases can be a very lucrative activity, if conducted properly. Basically, there are three main methods of executing this type of trading which are: pre, post and spike trading. As the last one is considered to be complicated, you should focus on the suggestions stated in this section in order to trade the first two.
5.5 Strategies Based on Fundamental Analysis
This section teaches you how global economic, political and social events can have serious impacts on the financial markets. In addition, insights are provided into how to trade strategies based on fundamental analysis.
5.5.1 Distinguishing between Random and Scheduled Events The majority of fundamental economic events have predetermined times and dates showing precisely when their data will be released during each calendar month. You can easily identify when they are scheduled to be posted by studying the official economic calendar, as shown in the next diagram:
Although some scheduled events can certainly produce sizeable volatility accompanied by serious price surges, you will find that, in many ways, they can be easier to trade than random developments. This is because you can plan ahead about how best to cope with them as you will know precisely when they are scheduled to occur. You will have much more difficulty dealing with events that are completely random and unpredictable. Under such circumstances, you must always remember that investors tend to seek safe-havens for their money as they loathe uncertainty. 5.5.2 Types of Random Fundamental Events Unpredictable weather can play havoc with the financial markets and generate serious price movements. For instance, consider the effects of a hurricane striking oil refineries based in the Gulf of Mexico. Such an event could seriously disturb the worldâ€™s oil supply and especially impact correlated currencies, such as the Canadian dollar (CAD).
Price of Oil (black line) versus the USD/CAD (green line)
In the above diagram, you can confirm that the negatively correlated USD/CAD plunges, i.e. CAD climbs, when oil prices appreciate in value. Any potential change of a countryâ€™s government can lead to enhanced levels of speculation concerning whether old financial policies while be replaced by new ones. You will also find that, during a USA presidential election, that the financial markets will adopt a very quiet profile until traders and economists are able to analyze the full implications of the final results. For example, should a new government be elected then the markets will need to gain a sound understanding of the new presidentâ€™s financial stance before committing to a serious course of action. As you will never be able to predict when random events will occur, with any degree of certainty, you must always take measures to protect your active positions and account balances by always utilizing a well-tested money management policy.
5.5.3 Trading Economic News Releases If you have a leaning towards fundamental analysis, then this activity will be of paramount importance to you. You can locate a significant amount of help concerning the potential outcomes of these events by studying the commentaries of trading experts and economists. You will find that such information is readily supplied by your binary options broker and displayed as follows:
If you delve deeper into such information then you will find that analysts usually provide predictions for all major economic data releases. Very importantly, if there is a good correlation between the forecasted numbers and those of the actual releases, then you can expect that price will scarcely react because the potential impacts would have already been priced-in by the markets. In contrast, if the predictions and released numbers vary significantly then you could well witness significant surges in volatility accompanied by serious price movements. This is because investors will then realize that the basis behind their active positions could be fundamentally unsound and, as such, will make rapidly efforts to correct such problems.
5.5.4 US-Non-Farm-Payroll (NFP) release A major economic indicator that is widely anticipated by all market participants is the NFP which is normally released on the first Friday of every month. NFP is a monthly survey produced by the U.S. Labor Department which advises how many new posts were created by US employers during the preceding month, excluding those who work for the following: private household employees, the Government, non-profit organizations and farm workers. The NFP represents the total number of US workers who generate nearly 80% of Americaâ€™s Gross Domestic Product (GDP). Economists and trading professionals study this parameter very closely because monthly changes in its value can signify whether the health of the USA economy is declining or improving. This is because the NFP indicates whether US businesses are employing extra staff or shedding jobs on a monthly basis. You will find that investors respond more speedily to any discrepancies between the expected and released NFP figures than any other economic parameter. In fact, you can expect price surges of hundreds of pips under such circumstances. 5.5.5 The Unemployment Rate If the NFP produces a worse number than expected, then you will find that attention
unemployment rate. This parameter represents the number of US citizens who are currently out of work but who are actively seeking employment. As you would expect, the unemployment rate is always a politically charged number. For instance, if the unemployment rate has dropped since the previous month then this outcome implies that more people are successfully finding jobs. This means that the USA economy is improving because US businesses are increasing their labor force.
5.5.6 Impacts on Assets You would be quite right in concluding that trading volatile economic parameters such as the NFP and the Unemployment Rate can be quite a challenging task. You will also find that whereas some traders look forward to this prospect every month, many others shut-up shop until the resultant impacts of these events subside. If you are a binary options novice then you should exert extreme caution until you know what you are doing otherwise you could suffer serious losses. The following diagram shows you why:
The above diagram illustrates that the NFP caused a significant drop in the EUR/USD recently of about 310 pips within one hour, as depicted by the large red candle in center of diagram. You must understand that in order to produce such a price movement, then the NFP figure must have generated a massive surge in volatility. Although this appears at first sight to be an excellent opportunity for profit, you must realize that under such conditions price can move in such a way that it can create the most complex formations in minutes.
5.6 Important Fundamental Indicators This sector identifies and explains the influences that a number of important economic indicators can have on your binary options trading. Fundamental analysis is one of the main techniques used to evaluate price movements and involves the study of economic data and reports, released by countries, with the express intent of evaluating their impacts on assets. You will find that traders, who specialize in this method of analysis, track and evaluate Trade Balances as one of their prime activities. 5.6.1 What is a Trade Balance? This important economic parameter represents the difference between the net exports and net imports of a country. The well-being of the Trade Balance of a nation can have a dramatic effect on the value of its currency against those of other countries. For instance, if the Eurozone generated a deteriorating Trade Balance then this would cause the Euro to fall against other currencies. In contrast, an improving Trade balance would boost the single currency. 5.6.2 Interpreting Trade Balances You need to gain a good understanding of Trade Balances in order that you can use this information correctly when binary options trading. For instance, is a deficit always a bad sign because it indicates that the economy of a country is in decline? The answer to this question is no because you need to correlate the Trade Balance of a nation with its current economic cycle. Countries have a tendency to increase their exports during times of recession in an effort to create jobs and boost their economies. These actions usually result in trade deficits and are definitely not a good sign of economic health. In contrast, nations normally import more goods during expansionary times in order to induce price competition and limit inflation.
These policies have the effect of again
generating trade imbalances but this time they are supporting a healthier economy.
In particular, the USA Trade Balance identifies the gap between its exports and
performance of the US dollar against other currencies. This is because the Trade Balance and demand for the greenback are inseparably linked. For example, other countries must purchase the US dollar in order to buy US exports. This implies that if the USA exports grow than so does the demand for its currency. 5.6.3 Treasury-International-Capital The Treasury-International-Capital (TIC) data is another important fundamental indicator and presents the difference between the total value of foreign long-term assets purchased by American citizens and the quantity of US assets bought by foreigners during a defined time period.
As such, the TIC
represents a value which demonstrates the balance of foreign and domestic investments. For instance, if overseas investors bought $100 billion of USA bonds and stocks while the USA purchased just $50 billion in overseas stocks and bonds then the TIC would be -$50B. Why is the TIC so important to your binary options trading? This is because when foreigners purchase US domestic assets they must purchase them using US dollars. Subsequently, when the TIC rises in value so does the demand for the US dollar. As such, you can look to identify good entry opportunities especially using assets based on the US dollar. 5.6.4 Trade-Flows Trade flows are interconnected with Trade Balances and TICs and represent the selling and buying of services and goods between nations. More specifically, Trade Flows are the difference between the total value of products that a nation sells to other countries and the total value of its purchases from other nations. Net exporters are those countries that export more to their international customers than they import from their global suppliers. As such, they enjoy a trade surplus because they sell more products than they buy internationally.
As a result, the demand for the currency of those countries, which are classified as net exporters, appreciates. This is because their international customers must convert their own currencies into those of the net exporters so that they can purchase the goods of the net exporters. In contrast, countries that are net importers purchase more from their international suppliers than they export to their worldwide customers. Consequently, they experience trade deficits because they buy more services and goods than they sell globally. As such, the demand for the currencies of those countries, which are classified as net importers, drops. This is because they need to sell their own domestic currencies in order to purchase the foreign currencies with which they need to buy their imports. You should now have gained an appreciation that any changes in the trade flows of a country can dramatically affect the value of its currency against those of other nations. As such, if you intend to use fundamental analysis to study price movements then you will need to carefully monitor this parameter and learn to understand the influences that it can have on applicable assets, especially currency. 5.6.5 Capital-Flows Capital-flow represents the difference in the quantity of currency bought and purchased to service capital investments. A primary attribute of capital flows is its balance. For example, a nation can possess either a negative or positive capital flow. If a nation exhibits a +ve capital flow then this means it is receiving more foreign investment than it is supplying to overseas countries. As a result, the demand for its currency rises because inflows exceed outflows. This is because international investors must convert their own countryâ€™s currency into the domestic currency of the invested nation.
In contrast, if a nation exhibits a -ve capital flow then this means it is receiving less foreign investment than it is paying out to overseas countries. As a result, the demand for its currency drops because outflows exceed inflows. This is because such nations must convert their domestic currency into those of the countries that they intend invest. You will find that countries that attract the highest levels of foreign investment tend to provide the highest returns on capital supplied by high interest rates and economic growth. Consequently, such nations will generate positive capital flows. Under these circumstances, the demand for the assets, especially currencies, of these countries increases and so do their values. 5.6.6 An Example Imagine that the economy of the USA was booming whilst Australia was suffering a recession. As a result, the USA stock markets would be experiencing growth whereas those of Australia would be in decline. Under such circumstances, the Australian dollar would in sold in favor of the US dollar. In addition, capital flows would be into the USA and out of Australia. This effect would cause the US dollar to appreciate in value against the Australian dollar because demand for the USD would increase while that of the AUD would fall. This sector should have demonstrated to you how to monitor and utilize the postings of important parameters such as the TIC data, Trade Balance, Capital Flows and Trade Flows. You should also have gained insights into how to utilize these types of information if you intend using fundamental analysis to help you evaluate price developments. You can find the scheduled monthly releases of such data by consulting the official economic calendar. Your binary options broker will almost certainly provide you with such a tool, as shown in the following diagram.
You can dramatically improve your prospects of achieving consistent binary options profits if you design a trading strategy using fundamental analysis. Later chapters will show you exactly how to achieve this objective by utilizing straightforward explanations supported by real live examples of trading strategies that are explicitly illustrated by aesthetical and highly relevant charts and diagrams.
5.7 Good Research is Essential If you are trying to detect a new trading opportunity by utilizing fundamental analysis that possesses an excellent prospective return then you have to understand that your procedure of selection must fulfil specific criteria. You are well-advised to evaluate these requirements prior to even considering opening any new binary options. You will discover that the more attention and effort that you exert in assessing the quality of each of your new opportunities; the better prospects you will have of attaining both profits and success. Your own mindset will partially dictate the level of risk that you are prepared to accept. Specifically, there are two primary facets that you will need to evaluate. These are the size of your trading capital and your capability to handle with ambiguity. You should utilize a well-tested money management policy to assist you in selecting the optimum solution for limiting risk. Always remember that you must never risk money that you can ill-afford to lose. You must concentrate your efforts on assessing this risk factor in the most professional manner as possible. As you become more experienced at binary options trading, you will find that the best trading opportunities will always provide you with the optimum reward-to-risk ratio. However, how do you locate them? You can achieve this objective by painstakingly researching into the performance of your trading strategy using extensive demo testing. If you do not possess a trading strategy, then you are well-advised to design or acquire one. At the end of each sequence of testing you must evaluate the performance of your strategy by determining its win-to-loss ratio and expectancy value. You will then have a professional means of determining how well your strategy is at identifying the best trading opportunities. After you have successfully achieved this goal, you will be in a much better position to capture new trades that exhibit both high profitability and affordable levels of risk.
Another major factor that will contribute to your risk levels is the amount of time that you can afford to monitor your trading. For instance, if you do not have a great deal of time at your disposal, then this will certainly affect the quality of your trading decisions. By evaluating the above activities carefully, you must conclude that you will have to apply professional and scientific methods of a very good standard in order to achieve success. This is certainly a quantity of work which cannot be performed in a short time and is a departure from the quick-rich image projected by binary options adverts.
The Importance of Technical Analysis
Chapter 6: The Importance of Technical Analysis 6.1 Introducing Technical Analysis You can utilize technical analysis to help you forecast the future directional movements of price by analyzing the historical data records of any asset of interest. Essentially, in so doing you will be trying to obtain a complete picture of the trading history of an asset. You will find that even those investors who favor fundamental analysis will still implement technical analysis as a confirmation technique. When using this study, you need to realize that it is dependent upon several theoretical concepts. For example, this research is based on price actions and its associated data and definitely does not include the viewpoints or perceptions of investors in any way at all. This analysis is also structured on the idea that history has a powerful inclination to repeat itself by generating price patterns that possess predictable structures. Your primary goal, when utilizing technical analysis, is to discover new high quality trading prospects which you can try to do by identifying these repeatable patterns. As many professionals consider that assets move in trends, they do not believe that their oscillations are just disorderly without any structure. For example, if they identify that price has been moving in a particular direction, they normally expect that it will proceed to do so for an extended period of time unless a major new catalyst intervenes. You will discover that if you include technical analysis into your trading strategy that it will help you trade in a more methodical and businesslike fashion. Despite the fact that this kind of analysis is certainly not faultless, it can help you make superior judgments and better quality trading decisions. You may use many different types of charts to assist you in conducting technical analysis including:
1. You can arranged your chart to show the very well-known candlesticks with each one exhibiting the closing, opening, high and low prices for that period of time it represents, as demonstrated in the next diagram.
Additionally, you need to understand that the distance between the opening price of the red bearish candlestick and its high value is named the wick while the distance between its lowest figure and closing price is termed the tail. Candlesticks are incredibly helpful technical indicators because they have been utilized in trading for centuries. During that time period, many patterns have been discovered comprising candlesticks, such as those demonstrated in the ensuing diagram:
The Doji comprises no real body and represents Market indecision.
Spinning tops Marubozu have small bodies possesses no tail with little or no or wick but has a wicks or tails long body. Black promote Market favors Bears indecision. whilst White favors Bulls
Shaven Head possess a long tail, small body with no wick and indicates a bullish reversal.
You will attain even greater success with candlesticks if you install them on trading charts using the larger time-frames from the daily upwards. 2. Alternatively you could choose to study bar charts which also display the opening price, closing price, high price and low price each selected time frame as displayed in the subsequent diagram.
6.2 Confirmation using Candlesticks You may already been introduced to a number of techniques that you can use to safeguard your equity whilst increasing your profit potential. However, once you have detected a new possible entry point for a trade, you will discover that it is good practice to seek additional confirmation before taking further action. Many experts recommend that one good way to undertake this task is to examine the Japanese candlestick patterns on the daily trading charts of any asset of interest. You have already been presented with the basics of candlesticks. Ideally, you must seek confirmation signs that support your new entry theory and that your new position has, therefore, a high chance of success. During this procedure, you cannot afford to be subjective in your analysis. For instance, you should not enter a new position just because you think it feels right especially if major technical events and items are indicating the opposite. If you were to continue with such a strategy then you will only experience significant trading failure over the long haul. Instead, you should examine trading charts carefully and objectively for possible entry points. After you have achieved this, you are then strongly advised to seek confirmation by studying the candlestick patterns on the trading charts of the applicable asset. In addition, if none of your trading strategies are displaying any evidence of new trading opportunities, then you should also study trading charts for positive candlestick patterns. If you locate one, then you start researching into the reasons why they have been form i.e. fundamental or technical. You must also then reexamine your trading strategies in order to determine if you can identify any backup evidence verifying that the candlestick patterns are advance warnings of potential new entry prospects.
You will discover that there are many books on the subject of candlestick patterns. You are now presented in this section with a readily available source of information for your perusal. You can utilize candlestick patterns to detect and confirm key price formations, many of which are discussed in this book e.g. retracements, reversals, breakouts and fakeouts etc. For instance, you can make great use of candlesticks to help you determine and distinguish between reversals and retracements. You will find that there are a significant number of important candlestick patterns. You have already been introduced to some but here are the descriptions of a few more that are very popular: 6.2.1 Morning Star This formation is represented by a three candlestick structure that signifies the start of a new bullish channel. The first candlestick is usually a long bearish one, the second slumps slightly lower while the third is a bullish candlestick that closes above the center of the initial candlestick, as displayed in the ensuing diagram.
6.2.2 Dark Cloud Cover This is a bearish reversal pattern comprising a large bearish candle that casts a shadow over a preceding bullish one. To create this pattern, the final day candle in the sequence must open at a high and then close below the midpoint of the body of the preceding day â€“ see next diagram
6.2.3 Hanging Man You will find that this pattern has a small body and is created towards the completion of a bullish trend. Investors do not assess that the body color is of high significance but tend to be more concerned that the extended lower tail is almost double the size of the body and that a minimum wick exists, as shown by the following figure. You will find that this formation is evaluated as a bearish indicator signifying there has been an assertive effort to sell an asset that was firmly rejected towards the finish of the current time-frame.
6.2.4 Shooting Star This structure is generated when the opening, closing and lowest prices of a candlestick are very near to one another. Another key attribute of a shooting star is that it has an extensive wick which is normally double the length of the body, as illustrated by the central candlestick in ensuring diagram. This is a major bearish sign indicating that a bullish trend has just been vividly rebuffed by investors.
6.2.5 Doji This formation is produced when both opening and closing prices are located towards the center of the pattern. The Doji has both a wick and tail which can be fairly long and nearly equal in length, as displayed on the following diagram. By itself, the Doji is not considered to be either a bearish or bullish indicator and as such it is usually analyzed as part of a series of three successive candlesticks.
6.2.6 Hammer This structure is generated during the final stages of a robust bearish trend and, as such, usually identifies the birth of a new bullish channel. The hammer possesses a minute body which is created at the completion of the active timeframe. There is no upper wick but a noteworthy lower tail which is almost double the distance of the body, as demonstrated in the next figure. Essentially, the Hammer indicates that the price has rebounded upwards after testing a key support level.
6.2.7 Inverted Hammer This formation indicates the birth of a new bullish channel which is produced towards the completion of a strong bearish trend. The candlestick has opening and closing prices very near to one another with no tail but a wick that is nearly double the distance of the body, as shown by the subsequent diagram.
You will discover that those candlestick formations possessing either long tails or wicks with nearly no body tend to be the most effective, e. g. hammer, hanging man, morning star, hammer and inverted hammer. You are encouraged to identify these structures on charts displaying the more dependable longer timeframes. You may deploy these candlestick patterns as follows. For example, if you have been struggling to initialize any new positions by utilizing your trading strategies, then you should hunt for one of the patterns listed above. For instance, envisage that you have discovered a hammer on a daily chart. You should then investigate the reasons for its development by analyzing all the relevant news commentaries, fundamental and technical factors. From this study, you may be able to ascertain if a major reversal is being created or merely a corrective dip. Occasionally, if you have other various reasons of initiating a new position then you should consider examining the candlestick formations on the trading chart of the relevant asset for extra verification. For example, suppose that you were intending to execute a â€˜CALLâ€™ binary option after researching a trading chart but observed that a shooting star candlestick was being created. Under these circumstances, you should reassess your decision and await further developments before proceeding further. Using this candlestick technique can assist you in verifying your active positions, identify new trades or stop you entering trades that will ultimately convert into losses. Nevertheless, you must understand that candlestick patterns have restricted use when high priority economic news is scheduled for release. How can you evaluate the effectiveness of incorporating candlestick verification into trading strategies? This objective can be accomplished as follows. First, compute the expectancy value of your strategy on its own and then repeat the procedure after introducing an extra step of candlestick confirmation.
6.3 Identifying Bottoms and Tops When you are trading binary options, you could conclude that price is moving in a sequence of waves and that each one exhibits a trough or bottom and a crest or top. You will also find that tops and bottoms are classified as key reversal formations indicating that a major change to a long term trend is imminent. A very popular trading strategy is to try to detect a top or bottom and subsequently trade to the next opposite one, i.e. enter at a top and exit at a bottom or execute a position at a bottom and close it at a top. Your aim if you utilize this approach will be to identify tops and bottoms as accurately as you can by using the following types of techniques. You can choose to use scientific tools, such as the W D Gunn, Elliot Wave or the Fibonacci retracements. These concepts are essentially based on the theory that price action constantly repeats itself. However, structuring your strategy on such models, just on their own, is not a wise practice and could produce indifferent results. One of the primary explanations for this is that the financial markets are not predictive in nature and the optimum you should attempt to achieve is to ascertain the probabilities of its next move. This means that, should you merely try and predict the marketâ€™s next move, you are, in fact, stacking the odds against yourself and, as such, will almost certainly lose. In addition, a currency market, such as the Forex, advances in a way that prices cannot be predicted. As a consequence, scientific theories should be utilized with caution and, then, in conjunction with other proven trading resources. Other investors structure their methodologies on the favorite trading maxim which states: â€œpurchase low and sell highâ€? but this concept is not so easy to implement as it sounds. In order to detect a bottom, you must search for a support level that price has rebounded against numerous times. Once achieved, you can then set an entry condition to buy. The flaw with this type of action is that you will be only guessing or even gambling that the support will hold next time. As you will not be placing the odds in your favor by performing such actions, the chances are that you could experience many failures by doing so.
Instead and in order to increase your chances of success, you should first confirm that the support holds. You need evidence verifying that this level is not breached and that price has generated enough momentum to propel itself into your preferred direction before you enter a new trade. If you start to understand that trading the financial markets is about odds and not certainties, you can then begin to position your trades to achieve more wins than losses and as such will begin to enjoy more success. You will find that a number of methods have been designed to help you achieve these objectives. One technique requires you to examine monthly and weekly charts searching for tops and bottoms. In particular, you must attempt to locate those against which the price has bounced a number of times. Once achieved, you must then link the troughs and peaks to generate support and resistance lines for those assets of interest. These lines offer good chances of entering new trades on rebounds especially if you can also identify evidence of momentum buildup in the reverse direction as well. Another method you can use is to spot great levels for reversals is to locate psychological levels of currency pairs, such as 1.4000 for the EUR/USD. These numbers not only appear to have some type of effect on the psychology of investors but also provide outstanding prospects for new entry points. However, when attempting this procedure, you should always analyze historical data in order to confirm that these levels held a number of times previously. Once again, you must detect indications of price reversal which you can do by identifying entry points about 20 points back in the direction that you anticipate price to advance. When seeking for levels, as just defined, always remember that although the price may break through them this time, that this action could be a fakeout and not a real breakout. To counter this issue, you are advised to safeguard your trades from fakeouts and create a potentially larger reward if a real breakout does materialize.
Here are a number of the most famous top and bottom reversal patterns which should help you detect them and as a result improve your trading results. 6.3.1 Head and Shoulders Pattern This renowned structure possesses three tops or peaks. The central peak or head is marginally higher than the two lower, although not balanced shoulders. The line joining the troughs of the two shoulders is termed the neckline which is rarely perfectly straight or horizontal. This formation is a powerful reversal indicator which is not formed until the neckline is pierced. A sound strategy that you can utilize in order to verify the strength of the reversal is to pause until two consecutive closes below the neckline have been registered on trading charts displaying the longer time-frames. Some investors utilize the distance between the head top and neckline to determine price-targets for their positions. They accomplish this objective by determining the distance from the head to the neckline and the deploying the equivalent distance beneath their opening value. 6.3.2 Double Top and Bottom Formations Double tops, also termed "M" patterns, are created by an initially steep climb in price. The structure then proceeds to produce two peaks, separated by a dip, before finishing with a substantial price drop. Double bottoms are also known as "W" patterns and start with a serious plunge in price, followed by two troughs divided by a peak before completing with a significant climb in price. The key features of top and bottom formations are the following:
1. They are major reversal formations that normally identify the pending closure of the prevalent trend. 2. Tops are usually more precisely defined although shorter than bottoms.
3. They provide strong indications of a pending change in price direction.
6.3.3 Triple Top and Bottom Structures The former is created when price bounces against a level at least three times indicating a major resistance. Similarly, the latter is generated whenever price rebounds against a support three times and is indicative of serious purchasing interest. 6.3.4 V-Pattern This formation is produced when price reverses very rapidly from one direction to another without prior warning.
You will find that reversals offer some of the best prospects for executing new trades with outstanding profit potential as they normally indicate serious price changes. However, you will discover that true bottoms and tops can be quite difficult to detect. As such, you are advised to pause until price verifies a reversal by fully creating one of the above proven and dependable structures. In conclusion, devising trading strategies enabling you to proficiently identify bottoms and tops can be a very lucrative activity and well worth your time achieving.
6.4 Technical Analysis Compared to Fundamental Analysis There has constantly existed a lively discussion about whether one of these two renowned and popular kinds of analysis produces the more effective trading results. The key query is should you focus on just one of them at the detriment of the other? Can you incorporate the virtues of both into a strategy? This section is intended to supply pertinent insights into these relevant questions.
6. 4. 1 Technical Analysis Explained Technical Analysis is a technique utilized to assess the underlying assets of binary options by studying the statistics created by historical volume and price activities. Technical analysts do not try to gauge an assetâ€™s inherent value but instead make use of trading charts to recognize price formations that can help predict its future activity. You will discover that Technical Analysis can assist you substantially in enhancing your binary options performance. Technical analysis is an effective resource that can help you forecast the future directional actions of the price of underlying assets by examining their past trading behavior. Basically, you will strive to obtain a thorough comprehension about the trading formations and trends produced by the price of these securities. Even investors who endorse strategies constructed on fundamental analysis will often deploy the principles of technical analysis as confirmation tools. You must initially understand that Technical Analysis is based on a limited number of key concepts. For instance, this analytical technique focuses particularly on the price activities of assets and does not, by any means, take into account the emotions or outlooks of investors. Technical analysis depends largely on the perspective that the price history of an asset boasts a robust urge to persistently reproduce itself by generating foreseeable formations. As a result, your primary objective will be to identify new quality entry prospects for binary options by mastering how to identify these repeatable patterns. 6.4.2 Fundamental Analysis Defined You will find that many investors utilize the concepts of fundamental analysis to help them develop binary options strategies. Essentially, this study tries to forecast the future directional movements of assets by analyzing the economic, political, economic environmental trends that will most impact their demand and supply.
Specifically, you must learn how to recognize when key news items will be published so that you can assess their influences on your selected assets. You should concentrate on major data events, such as political developments, new government initiatives, interest rates changes, economic growth and inflation figures, etc. Additionally, you will have to track the key statements and information stated within speeches presented by politicians and distinguished economists In particular, you should focus on all the key activities related to USA politics and economy since they can produce the largest price movements on the financial markets. You should note carefully that speeches provided by the President of the USA and by the Chairman of the US Federal Reserve can produce substantial price spikes. You must understand that trading fundamental news skillfully will require that you invest significant quantities of your time and assets perfecting this topic. Professional opinion also recommends that you conduct a major analysis of the past performance of each economic release that you plan to trade. This is because you will then obtain a sound comprehension about how each item functions and what to anticipate at future publications. For example, if you observe that a particular news item has a tendency to generate high volatility, then you may conclude that you would be prudent not to trade it. However, when deriving such judgments never forget that past performances are only a guide and do not forecast future price action with 100% precision. You must also realize that the financial markets have the ability to generate sizeable price spikes. As such, if you are planning to create a binary options strategy structured on fundamental analysis then you should first record the scheduled dates and times of all major economic publications. Additionally, you should specifically monitor those that can produce the largest price surges as a priority.
6.4.3 Comparing the two Analysis The pros and cons of these two analytical methods will now be detailed. Technical analysis inspires you to concentrate on historical price data as it is based on the performances of assets presented on trading charts. Your objective is to acquire a sound understanding of the past, present and future price movements of those assets of interest. However, this type of analysis has shortcomings as it does not focus on the fundamental facets influencing assets.
For instance, imagine that you have
executed a binary option structured on a selected firm. If you utilize technical analysis to solely help identify this prospects then you would have not probed into just how well this company was operating in reality. Consequently, you would not appreciate if this firm was generating profits and how well it is presently competing against primary competition within its elected market sector, etc.
In contrast, the primary benefit of fundamental analysis is that it supplies you with perceptions into just how well an asset is currently performing in the real world. Professional investors and major financial bodies have a tendency to lean extensively on this type of study in order to allow them to produce high quality trading decisions. However, as you will not possess a distinct visual image in front of you when you undertake fundamental analysis, you could experience serious timing problems when activating and closing your binary options. Consequently, you could suffer from lagging delays as you can very readily execute trades later than you planned.
6.4.4 Summary There is no easy solution in determining which one of these two kinds of analysis is superior to the other as they both possess outstanding attributes. Whether you favor one to the other or a mixture of both ideally hinges on your personal temperament and trading aspirations.
6.5 The Significance of Money Management
If you do not master the concepts of money management quickly, then you will discover that margin calls will be one of your biggest problems when trading binary options even if you do deploy well-established techniques, such as technical analysis. You will find that these distressful events must be avoided as a top priority because they can completely wipe out your account balance. Margin calls occur when price advances so far against your open trading positions that you no longer have sufficient funds left to support your open positions. Such events usually follow after traders begin to over-trade by utilizing too much leverage. Should you experience such catastrophes, then you will have to endure the pain involved in completely re-building your account balance back from scratch. You will not find that this is a distressful experience because, after such events, you may feel totally demoralized. This is the exact situation that many novices end up in time and time again. They scan charts and then think that by doing so they can make quality decisions. Next they execute trades but without giving a single thought to the risk exposures involved. They do not even bother to calculate any protection for their open positions by deploying well-determined stop-losses.
Very soon, they experience margin calls because they do not have sufficient equity to support their open positions. Large financial losses follow as a consequence which are sometimes so big that they completely wipe out the traderâ€™s account balance. Margin trading can be a very powerful technique because it enables you to utilize leverage that allows you to activated trades of substantial worth by utilizing just a small deposit. For instance, if your binary options broker supplies you with a leverage of 50 to 1, then you could open a $50,000 position with just a deposit of $1,000. This sounds great but you must understand that there are significant risks involved when using leverage should price move against your open positions. In the worst case, a margin call could be produced resulting in all your open trades being automatically closed. How can you avoid such calamities? To do so, you need to develop sound and well-tested risk and money management strategies that will guarantee that you will never overtrade by restricting your risk per trade within well-determined limits. You must also mater your emotions such as greed that can make you generate poor trading decisions. You can easily fall into this trap because the enormous daily Forex turnover can easily seduce you into making unsubstantiated large gambles. You must also understand that price has a very dynamic nature that can generate levels of extreme volatility that are significantly larger than those produced by other markets. You must never underestimate this combination of high leverage and volatility because it can easily cause you to overtrade with devastating results. Basically, a money management strategy is a statistical tool that helps control the risk exposure and profit potential of every trade activated. Money Management is one of the most important aspects of binary options trading and its successful deployment is a major skill that separates experts from beginners.
One of the best money management methods is the Fixed Risk Ratio which states that traders must never risk more than 2% of their account on any single currency pair. In addition, traders must never risk more than 10% of their accounts on multiple trading. By using this method, traders can gradually increase the size of their trades, while they are winning, allowing for geometric growth or profit compounding of their accounts. Conversely, traders can decrease the size of their trades, when losing, and thus protecting their budgets by minimizing their risks. Money Management, combined with the following concept, makes it very amenable for beginners because it enables them to advance their trading knowledge in small increments of risk with maximum account protection. The important concept is â€˜do not risk too much of your balance at any one timeâ€˜. For example, there is a significant difference between wagering 2% and 10% of your total equity per trade. Ten trades, deploying only 2% of an account balance per trade, would record a loss of only 17% of the total equity if all resulted in losses. Under the identical circumstances, 10% wagered would produce losses totally 65%. Obviously, the former choice generates superior account protection producing increased survival expectations. The Fixed Risk Ratio strategy is preferred to the Fixed Money Bet one (e.g. always risk $1,000 per trade). The second has the inherent problem that although profits can grow arithmetically, each withdrawal from the account puts the system a fixed number of profitable trades back in time. Even a trading system with positive, but still only mediocre, profit expectancy can be turned into a money machine with the right money management techniques. Money management is a study that mainly determines how much can be spent on each trade with minimum risk. For instance, if too much money is risked on a single trade then the size of a potential lose could be so great as to prevent users realizing the full benefit of their trading systemsâ€™ positive profit expectancy over the long haul.
Traders, who constantly over-expose their budgets by risking too much per trade, are really demonstrating a lack of confidence in their trading strategies. Instead, if they used the Fixed Risk Ratio money management strategy combined with the principles of their strategies, then they would risk only small percentages of their budgets per trade resulting in increased chances of profit compounding.
6.6 Technical Indicators
You may have already experimented with a number of popular technical indicators. This section will now proceed to advance your knowledge further by explaining the principles behind some other famous indicators as well as providing guidance explaining how to optimize their performance. 6.6.1 Bollinger Bands John Bollinger devised the Bollinger Bands during the early months of the 1980s. He recognized a necessity for adaptive trading bands after he concluded that volatility exhibited a dynamic character as opposed to a static one, which was the preferred viewpoint in those days. You may use the Bollinger Bands to provide you with an improved understanding about how precisely the upper and lower price values of an asset interact with one another. You must understand that price records its highest valuations at the upper band and its lowest ones at the lower band. For that reason, you will find that the Bollinger bands can help you in generating high quality trading judgments by allowing you to evaluate price action together with the signals produced by your selected technical indicators. If you analyze the trading chart below, you will observe that the Bollinger Bands are represented by three blue lines that trail the price movements of assets. The central band is a simple moving average which functions as the foundation for the lower and upper bands as well as illustrating the intermediate-term trend.
Additionally, you should be aware that the gaps between the bands are dependent upon both the degree of volatility and the standard deviation used to create the middle band. You can fine-tune the default values of the two standard deviations, if necessary. You can primarily utilize the Bollinger bands to appraise the current volatility of price. Essentially, you can accomplish this goal because the Bollinger Bands can inform you whether or not price is encountering low or high volatility. For instance, you will observe in the chart above that the bands narrow when price actions are restricted but increase in range when it is subjected to increased levels of volatility. For instance, you should be able to confirm that the bands reduce in size towards the center of the diagram when price adopts a range trading mode. However, both to the right and left of the chart, you will observe that the bands are broader in size denoting that price is advancing in trends. If you concentrate on these attributes, then you will improve your skills at utilizing the Bollinger Bands effectively. You are not required to know how the Bollinger Bands are computed. Nevertheless, you must appreciate that price has a powerful bent to constantly oscillate about its center band.
You should be able to observe this effect occurring several times in the above chart. You also need to realize that the upper bands behave as resistance levels while the lower ones act as supports. For that reason, you will discover that price frequently bounces against these two bands, as you can again observe in the above chart. You will accomplish superior results using the Bollinger Bands if you present them on trading charts displaying the daily time-frame or higher, since their associated
counterparts. You can develop an excellent trading strategy utilizing these features of the Bollinger Bands which numerous investors have already accomplished. Nonetheless, if you do so, then you must realize that the Bollinger Bands perform best when price is range trading and not trending. 6.6.2 Elliot Wave Oscillator (EWO) This oscillator was created using the Elliot wave hypothesis which specifies that a price trend is normally symbolized by a three or five wave series of advances or declines. The waves are primarily produced by investor psychology and once again you will attain best results if you install this oscillator on trading charts featuring the daily time-frame or higher. If you plan to use this tool then you will initially need to identify an asset that is progressing in a five wave structure. Once achieved, you must then confirm that price has attained a high value towards the peak of the third wave before it starts to retract. If this is so, then you should deduce that this is a distinct indication that a reversal has been initiated and that it will consist of an additional three waves. If you also discover that a wave rebounds against a Fibonacci resistance or support level, then you must appreciate that a price retraction could now be forthcoming. You will find that Elliotâ€™s wave theory has already been validated by a comprehensive variety of trading strategies and tools. This Elliot Wave Oscillator was primarily devised by using the critical discovery that assets have a tendency to progress in 3 and 5 wave patterns and that important directional changes in price often occur at Fibonacci resistance and support levels.
You need also to realize that numerous trading strategies are already currently available that incorporate the exciting features of both the Fibonacci retracements and the Elliott Wave Theory. Professional traders will inform you that the price behavior related to both these concepts is frequently reproduced on trading charts. Nevertheless, you will need to obtain an excellent education in all facets of binary options trading if you intend to exploit the valuable benefits of both technical indicators. You must also certify that your analysis is not just limited to technical analysis but will also incorporate money management. You must learn how to control your risks as a top priority if you decide to utilize the Elliot Wave Oscillator or else you could endure significant monetary losses. You can deploy this tool to help you to conduct technical analysis with the express intent of identifying key price structures, such as double-tops, on trading charts of all assets of interest. The primary assumption behind this oscillator is that investor emotions oscillate between negativity and positivity in a natural wave series. The fluctuations that create these patterns that are displayed on the next chart.
The EWO is illustrated by the histogram displayed on the above diagram, which is created by subtracting a 35 period moving average from a 5 period one. As the above chart demonstrates, the histogram oscillates constantly below and above a zero line. The EWO can help you substantially in undertaking the next tasks: 1. Reduce potential losses should price unexpectedly reverses direction. 2. Identifying when a price retraction is imminent. 3. Assisting you in deciding whether to trade short or long. 4. Predicting when prevailing trends are likely to terminate. 6.6.3 Fibonacci Retracements (FRs) If you possess a need to predict the directional movements of an asset, then you could deploy the Fibonacci Retracement to help you realize this goal. This is because FRs is one of the leading technical indicators these days that can be applied to trade numerous financial markets, such as options, currencies, stocks, indices and commodities. So, what are FRs precisely and how can they best be implemented? You will discover that retracements were first identified by Leonardo Fibonacci during the 12th century. Their key concept states that price will retrace by a fixed percentage of the full size of its last movement just before it continues to advance in its original direction. The primary percentages are 38.2%, 50% and 61.8%. Leonardo discovered these crucial ratios when he noted that individualsâ€™ belly buttons are positioned 61.8% of the length between their heads and feet. Additionally, your elbow lies at 61.8% of the distance between your hand and shoulder. There are numerous other excellent examples in the natural world. However, can you make use of this tool to help you trade binary options more proficiently? Yes you can because FRs also has a significant presence in the financial markets.
For example, if you analyze the red line connecting the bottom and the top of the bullish channel presented towards the right-hand side of the above figure, then you can deploy the Fibonacci retracements to assist you in ascertaining the distance that price is expected to dip before it recommences its upwards journey. Essentially, if you plan to use this technical indicator, then you must identify those charts presenting the most extensive trends, as possible. You must then construct a line joining the bottom to the peak, as demonstrated in the above chart. You can then install the Fibonacci retracements automatically in order to generate lines identified by the blue ones shown above. You need to realize that the 3 key blue lines illustrate the distances representing the 38.2%, 50% and 61.8% percentages of the full original bullish movement, epitomized by the red line above. For instance, the 61.8% retracement level demonstrates the point that price will reverse to if it retracts by 61.8% of the original bullish surge.
Whenever an asset drops back to a Fibonacci retracement, then you must appreciate that this is a good alert to execute a new binary option in the initial price direction. For example, if price rebounds against the 50.0% retracement level in the above chart, then you should consider such an event as a serious buying opportunity. 6.6.4 Commodity Channel Index You can utilize the Commodity Channel Index (CCI) that was invented by Donald Lambert to help you detect cyclical movements in price. He based the construction of his CCI on the idea that currency pairs, commodities and stocks always progress in cycles with highs and lows occurring at periodic intervals. He initially recommended that you should use the third of a complete cycle as the maximum time-frame for the CCI. For instance, if you plan to use a 60 day cycle, then the CCI will provide best results if you select a time-frame of 20 days.
You must also appreciate that a buy signal is generated by the CCI if it records a reading that has just bounced above its -100 value. Similarly a sell sign is produced when the CCI drops below its 100 value. These two important levels are displayed by the red horizontal lines in the above chart. However, you must also realize that 70 to 80 percent of all CCI values are produced between +100 and -100. This means that sell and buy signals are produced only about 20 to 30 percent of the time. For example, imagine that you detect price forming a strong uptrend and you open a new buy position after the CCI advances above its -100. You should only then close your position after the CCI reverses back below its +100 value Similarly, you should sell whenever the CCI falls below 100 and close after the CCI moves back above -100. If you analyze the above chart using these concepts, then you will detect a number of very good selling and buying opportunities. In addition, you can also utilize the CCI to assist you in identifying price reversals. You can accomplish this task by understanding that price is deemed to be oversold when the CCI drops below -100 and overbought when it registers readings above +100. You may also be provided with a new buy signal after the CCI climbs back above -100 from oversold levels. Similarly, a sell signal will be generated when the CCI falls back below +100 from overbought levels. You can also utilize divergences to improve the quality of the CCI signal. Consequently, you can utilize the CCI to assist you in detecting trend strength, price reversals and price extremes. However, experts will advise you that the CCI is best used in conjunction with other technical indicators. You will discover that the CCI is classified as a momentum oscillator.
6.6.5 The DeMarker Indicator You can deploy the DeMarker Indicator to assist you in detecting new trading opportunities because its designer, Tom DeMarker, invented it with this task specifically in mind. You will also find that the DeMarker Indicator has many features that are similar to those of technical indicators produced by Welles Wilder. This is because Tom DeMarker attempted to provide answers to many serious problems that trading tools and strategies were experiencing when they were attempting to identify oversold and overbought conditions Fundamentally, the DI monitors the sentiment of traders with regards to asset movements. This indicator does this by comparing the present value of an asset to that of a previous identified time-period. Consequently, you can use the DI to judge tradersâ€™ evolving interest in an asset which could well assist you in detecting tops and bottoms. You need to realize that the DI makes no attempt to filter its data. Consequently, you should also be able to employ this indicator to detect new quality trading opportunities. Two variants of the DI exist although they both use the same principles. The first one has a range that operates between -100 to +100 while the second fluctuates between 0 and 1. The next chart illustrates the second variant.
If you use the second variant, then you must understand that values above 0.7 should be viewed as price tops and potential bear reversals whilst values below 0.3 forecast market bottoms. If you detect readings between 0.3 and 0.7, then you should regard that they are advising you that price is range-trading. You can identify these features in the above chart. You can also utilize the attributes of the DI to assist you in identifying new quality trading opportunities. For example, if you analyze the above chart, then you will observe that the DI rises above its 0.3 value about midway forming a new bull trend. Specifically, the DI has acquired a good reputation at recognizing the birth of new trends and new trading opportunities. You should also appreciate that the DI is a very good tool for distinguishing between fakeouts and breakouts. This is because the design of the DI makes it very effective at identifying real price reversals especially on intra-day charts and above. Fundamentally, the DI calculates the difference between the present price value and that of the previous time period. The figure is then stored by the DI if a positive result is achieved otherwise it is zeroed. The sum of all these values over a chosen time period is then divided by the lowest price value that was registered in the sequence. DeMarker also recommended that his technical indicator could be used to forecast price reversals patterns such as tops and bottoms. You should be interested to know that the DI has acquired such a good track record that many traders use it to help them detect new trading opportunities just on its own.
6.7.6 The Money Flow Index (MFI) You could gain significantly if you opt to incorporate the many features of the Money Flow Index (MFI) into your trading strategies particularly if you prefer using technical analysis to analyze the financial markets. This is because you can take advantage of the MFI to help you in quantifying the amounts of money moving onto and out of those assets of interest. You will find that the MFI has many attributes that resemble those of the renowned and highly popular Relative Strength Index (RSI). However, whereas the RSI was devised to monitor volume, the MFI evaluates price. Colin Twiggs created the MFI by basing it on the principles of an early technical indicator conceived by Marc Chaikin. Twiggs recommended that you should use the MFI to assist you in identifying the inceptions and expirations of trends. You will discover that the MFI produces superior statistics when you install it on trading charts deploying the daily timeframe and upwards. You are also encouraged to validate all MFI results by making use of a second verification technical indicator.
If you detect that the MFI is starting to rebound from its oversold level at 20 by tracking price as it climbs higher, then this is an excellent indication that a new bullish channel is being created. Likewise, you can identify high quality selling prospects if the MFI falls beneath its overbought level at 80 by trailing declining price values. For example, you will notice in the above diagram that the MFI (blue line) displays an entry level for a ‘CALL’ binary option. You must understand that in order to operate the MFI well that it signifies overbought conditions for assets when it generates readings of 80 plus, see chart above. In the same manner, you should evaluate reading of 20 and lower as oversold. For instance, if you identify that the MFI has just climbed above its 20 level after recording oversold values then you should assess such an event as a powerful opportunity to execute a ‘CALL’ binary option. However, under such instances, you must still exert caution because price could still tumble by 100s of points. For that reason, you are advised to always validate MFI readings by deploying a supplementary technical indicator before activating any new trades. You can accomplish this objective by utilizing the RSI as a verification backup. In so doing, if you then identify any critical disparities between these two indicators, then you should consider stalling any additional actions until you can attain better clarification. For example, if you notice that the RSI is advising that price is still climbing whereas the MFI values are falling, then you should only contemplate implementing a new trade once you confirm that their values are starting to align. You must also understand that the MFI produces its readings by multiplying the average price value by volume and then displaying the resultant figure on a scale between 0 and 100. If you find that the MFI is beginning to display plummeting readings but price is still ascending then you should anticipate that a new market peak is forming. You are encouraged to utilize the MFI as followings in order to recognize high quality entry prospects. You can identify new SHORT possibilities after the MFI
attains reading above 80 but then starts to retract beneath this level. You can detect LONGS whenever you notice MFI readings rising back above its oversold level at 20. Additionally, if you observe that MFI values and price are beginning to diverge then you should anticipate that a change in the price direction of an asset could occur soon. 6.7. 7 The On Balance Volume Indicator (OBV) You can deply the On Balance Volume indicator to support you in evaluating the comparatable volume and price flows of an asset over a designated time-frame. Joseph E. Granville conceived the On-Balance Volume indicator in 1962 and presented it to the markets along with his OBV theory within his book: “How to read the Stock Market”. You will find that the OBV has gained an outstanding status as one of the most renowned momentum technical indicators in the business that can be implemented to asess the relationships between price, momentum and volume of commodities, stocks, cuurencies and futures, etc. Essentially, you must understand that the OBV clasifies its daily trading volume as ‘up-volume’ if the price value of an asset records a daily close above its prior reading. Likewise, the OBV will catorize its daily trading volumes as ‘downvolume’ if price registers a closing figure that is below its last value. For that reason, you should deem that the OBV line signifies the accumulative sum of all such positive and negative volume flows combined together. You can identify these structures in the subsequent diagram. You must realize that the OBV could be forecasting a pending price reversal whenever its values start to alter direction. Granville initially discovered this crucial characteristic of his tool after undertaking comprehensive analysis. You will notice this facet of the OBV in the ensuing figure when the OBV begins to drop by identifying the final stages of the current bullish channel.
If you discover that the OBV readings are rising then you should also be able to confirm that price has also started to ascend. Additionally, you can deploy the OBV to help you reveal new trends. For example, if the OBV begins to generate a series of higher troughs and peaks, then a new bullish trend could be forming. However, if the OBV commences to issue a sequence of lower dips and tops, then such a formation could be signaling the inception of a bearish trend. You can also recognize new quality opening prospects whenever the OBV begins to create values that diverge from price. This is because the construction of the OBV concentrates on the trends of assets. You must also appreciate that Granville advised that if volume begins to diminish during a bullish channel, then a market top may be developing as purchasing pressure diminishes.
If you notice such an instance then you should assume that price will not proceed to ascend for much longer and that you should anticipate a reversal in the imminent future. Granville also confirmed that a comparable action happens in bearish trends whenever you observe volumes starting to increase. Additionally, you should understand that he also encouraged using a 20 period moving average in partnership with his OBV as a way to identify when trends are about to end. You can then discover such occasions more readily by pinpointing the crossovers of the OBV and the moving average. A price reversal could also be due whenever you detect any price and OBV divergences. If you also find that the OBV is changing direction after it has been tracking price for an extended period, then you should consider such an occasion as a new opening prospect. Finally, you should be aware that the OBV is considered by investors to be one of the most straightforward and popular momentum indicators on the marketplace these days. 6.7.8 Directional Movement Index (DMI) You will discover that the Directional Movement Index can be an excellent tool for evaluating price direction and strength. Welles Wilde, who also invented the famous Relative Strength Index, designed and released the DMI in 1978. Fundamentally, you should utilize the DMI to help you to decide whether you should trade short or long. You will find that the DMI is extremely effective at distinguishing between weak and strong price trends. Consequently, you are recommended to integrate the DMI into your trend trading strategies because it will help you to detect the strongest trends. You should realize that the DMI has a very adaptable design that enables it to function well with most time frames and can also be utilized to track all types of investments, including commodities, futures, stocks, futures and currencies, etc. The following chart illustrates some of the main attributes of the DMI as well as demonstrating how you can use it to increase your profits.
DMI is based on a moving average that is normally used with a default time period of 14. A positive indicator (DI+) displays the power of price to climb upwards (green line in above chart) while the negative indicator (DI+) represents the ability of price to move downwards (red line on chart). Your first task when you study the DMI is to determine which of the two DI lines is above the other and in ascendency. The one that is at the top is termed the dominant DI and will normally indicate the current direction of price. In addition, you must realize that for sellers and buyers to switch dominance then those two lines must execute a crossover.
For example, you will observe that the DI+ climbs above the DI-, in the above trading chart, heralding a new bullish trend. You can also confirm that price follows as well by rising in unison. However, you must understand that although a crossover is registered when the DI+ climbs above the DI-, you must still adopt caution. This is because you must not consider that these crossovers are definite buy or sell signals. As such, you are recommended to utilize a second trading indicator to confirm any recommendations provided by the DMI. You must realize that DMI crossovers can often be misleading because they can frequently generate fake alerts whenever volatility levels are low as well as producing delayed indications whenever volatility levels are high. You should therefore regard DMI crossovers as a first sign that a change in the direction of price could be imminent.
You can utilize the DMI to assist you to trade both
trending and range-bound assets. You can accomplish this task by understanding that price is trending downwards when the -DI line is above the +DI line while a bullish price action is dominating when the +DI line is above the -DI line.
6.7.9 True Strength Index (TSI) You can utilize the True Strength Index to assist you in determining when an asset can be classified has either overbought or oversold. You will discover that the True Strength Index possesses many similarities with the very popular Relative Strength Index (RSI) because both function as momentum technical indicators. You need to understand that the readings produced by the True Strength Index are produced from studying the short-term purchasing momentum of a currency pair over a specified time-period. In addition, the TSI design tries to conquer the standard lagging difficulties applicable to most moving average technical indicators. Consequently, you must realize that the TRI is more sensitive to the existing trading conditions of assets than the RSI because of its improved design. You will notice this enhanced performance by analyzing the trading chart below which displays a comparison between the TSI and RSI.
You will observe in the above diagram that the TSI produces a much smoother curve than the RSI by filtering out larger amounts of price noise. Consequently, you can use the TSI to help you identify price features, such as trends, overbought and oversold conditions, more readily. You should also realize that the True Strength Index was designed to produce accurate readings with minimum time lag when monitoring price. Consequently, if you detect that the TSI has started to generated readings that are increasing in value then this development is usually complemented by the price of the asset, of interest, also climbing. In addition, if the TSI begins to post decreasing values then you should witness that price has also started to fall. You can locate examples of both of these attributes in the above diagram. You must also learn that in order to perfect your use of the TSI to identify oversold and overbought conditions of assets that its ability to do so is dependent on two main features:
1. The TRI tracks the short-term buying momentum of an asset. 2. The TRI makes use of the lagging property of moving averages. In addition, you will also discover that a 25-day exponential moving average is first added to the difference between price bars. The result is then added to a 13day EMA to create the TRI readings. The TRI advises that price is overbought when it produces values of 25 plus while it indicates oversold states when it registers values of -25 minus. As the TSI is a variation of the RSI, you could compare its oversold and overbought features to those of the RSI. You can perform this action by analyzing the above diagram. You can utilize the TRI to detect new trading opportunities. For example, if the TRI readings drop and close below its overbought level of 25 then you should regard such developments as selling opportunities. Similarly, if you observe the TSI values climbing and closing above its -25 level then you should consider such actions as buying opportunities. Examples of both are displayed in the above diagram.
Popular Binary Options Strategies
Chapter 7: Popular Binary Options Strategies A number of these important tools will now be introduced.
7.1 Breakout Strategies 7.1.1 Concepts and Objectives A favorite binary options strategy is to trade breakouts because it is easy to implement and can generate outstanding results. The key idea behind this technique is that, if an asset has been trading for an extended time period within a restricted channel, then when it does breakout it normally moves in its new direction for quite a while. Consequently, your first step in developing a Breakout Strategy is to define a procedure that will easily recognize when assets that have been advancing within a limited range for some time. Once this task is accomplished, you can then locate prospective entry conditions that will be activated whenever a breakout happens. Although breakout strategies can be applied to any assets, you are advised to utilize them with more popular ones at the start. This is because investors have analyzed their trading patterns for many years and have obtained a sound understanding of their price actions. Restricted trading ranges of assets are enclosed by a support or floor level and a resistance or ceiling level. Frequently, a price will rebound against its floor or ceiling several times become it eventually bursts out. For instance, consider that the EUR/USD currency pair has bounced continuously against its resistance level at 1. 4200. Should this level ultimately be breached then you should evaluate such a powerful indication as an excellent opportunity to activate a new CALL binary option. A sound plan to monitor for breakouts is to deploy technical analysis. When doing so, you should utilize the longer expiry times as they are associated with more dependable statistics. Many effective breakout advocators use the hourly or 4 hourly trading charts.
In addition, they generally wait for the closing of the time-period during which the breakout happens before initiating a new position. This is because this technique provides them with sufficient time to verify that the breakout is genuine as well as supplying enhanced protection against fakeouts. The downside against applying this approach is that that price could continue to advance significantly in its favored direction and even hit your planned target value before the closure occurs. Should this happen then do not trigger a new position. More often, however, and if you do not exert sufficient patience and wait for the period close, you could expose your new trade to enhanced risks of fakeouts. When price does close substantially above the breakout level, a retraction often occurs that drags price back to the breakout level before it continues in its initial direction. There is much conjecture that such events are intentionally created by large financial institutions to cause smaller retail investors to finish â€˜out-of-themoneyâ€™. There is, however, no distinct evidence confirming this hypothesis or any motive explaining why larger traders should adopt such actions. If a price retraction does happen, profitable investors frequently instigate a new binary option at the initial breakout point. Consequently, they often capture more profitable positions exhibiting lower levels of risk exposure by doing so. Always keep your win-to-loss and reward-to-risk ratios firmly in your mind by constantly searching for superior trading positions, whenever any chances arise. Investors have discovered from practical experience that their breakout strategies are most effective when they include them together with technical indicators, such as pivot points, supports and resistances. Improved results are also attained by deploying procedures that are structured on technical patterns, such as pennants, flags and head and shoulders, etc. For example, a bearish flag is exhibited in the next diagram. If you discover such a trading formation, then you can subsequently identify a new opening opportunity if price breaks out of this structure. For instance, in the ensuing diagram, price surges beneath the support line of the flag pattern indicating that a PUT binary option should be executed.
A bearish pennant is displayed in the subsequent figure. If you detect such a structure then you can identify a new trading opportunity if price eventually breaks out of it. For instance, in the next diagram, price breaks under the support level of the pennant.
The head and shoulders formation is present by the following figure. If you discover such a structure then you can identify a new opening prospect if price breaks beneath the neckline, as demonstrated by the next diagram.
One of the prime reasons that traders like to use breakout strategies is that they provide impressive opportunities to enter trades at the earliest signs of a new trend or price channel developing. This is a very lucrative position to capture because these positions can be the starting points of major price movements that can be entered at minimum risk. The following chart shows an example.
As stated before, a breakout occurs when an asset breaches either the support or resistance levels of a tight trading range or consolidation box. The increased volatility, that provides the momentum for the price to achieve this breakout, is then usually capable of propelling it in the direction of the breakout for some time. When this happens, a new price channel is often created.
The most powerful breakout events occur when price emerges from technical patterns such as flags or pennants. See above diagrams for examples. This concept is very important to realize no matter what type of trader you are i.e. intraday, daily or weekly, etc. The best breakout candidates can usually be identified by detecting the following conditions. Has price bounced off its support or resistance a number of times? Is the trading pattern forming a flag or pennant formation? If so, price will need to develop such large amounts of momentum to force a breakout that it will then be capable of generating further extensive movements in the direction of the breakout. Entry points for breakout trading are very easy to determine. Wait for the close of the time period containing the breakout and then set an entry just above the original resistance for a bull position or below the original support for a bear position. You must take care to distinguish a true breakout from a fakeout. A fakeout occurs when price breaks out of its consolation box only to finish trading back within the original tight trading range. This is why it is so important to confirm a positive close at the end of the trading period, in which the breakout occurred, before taking action. If you act too quickly, there is no guarantee that price momentum will be sustained. This is why many traders also look for other signs, such as an increase in volatility, to confirm real breakouts. In addition, you should devise a good exit plan before embarking on a new breakout trade. One technique traders often use is to consult recent trading patterns of the asset in question. You can then determine a realistic target by calculating the average of recent price movements. Equally, if not more important, is to plan an exit should your trade fail. To aid you to do this, the following concept is very important to grasp. After a breakout occurs, the old resistance becomes the new support in a bullish breakout while the old support becomes the new resistance in a bearish one.
Should the trade settle back within its old trading range, then effectively your breakout has failed and you should immediate consider an exit route. A suitable expiry time will allow you to do this which you need to select at trade entry. Very importantly, you need to accept your loss as quickly as possible and not allow it to grow into a monster. You can achieve this objective by studying past trading records of the associated asset in order to identify the optimum expiry time So in summary, your breakout strategy must allow you to perform the following steps with confidence. First, you need to detect suitable assets that are prime breakout candidates. Search for pairs that have been trading in a tight range for some time. Preferably, locate those that have formed distinctive trading patterns, such as flags or pennants. Look for either a strong resistance or support level that price has bounced against a number of times. This implies that the asset possesses large amount of pent-up energy waiting for release which can be considered as volcanoes on the verge of erupting. Your next step is to simply wait for the breakout to occur. Once this event happens, confirm the breakoutâ€™s intentions by waiting for the close of the time period within which it occurred. This will help protect you from fakeouts. Before entering the trade, you must select an achievable expiry time from studying historical data records of the relevant asset. You need also to realize that many times price will retest its old resistance or support levels before proceeding further. So you need to be prepared for this mentally. If the level holds then a new price channel could well be formed. If not, a fakeout could occur and you need to exit using your predetermined expiry time. If after a period of time e.g. one day, no clear confirmation of the breakout has materialized, then you should consider closing your position, preferably without loss, and moving onto your next opportunity.
Breakout trading requires patience and a good strategy that ideally should remove all emotions out of the equation. This is because the market needs to generate considerable amounts of volatility to force a breakout. Afterwards, price can move rapidly resulting in many traders becoming over-excited and, as a consequence, suffer impaired judgments. Your plan needs to ensure that you remain emotionally detached during these events and trade professionally with achievable targets at minimum risk. Finally, you are well advised to test your new breakout strategy thoroughly before using it in full force. You can do this by calculating your strategyâ€™s expectancy value and win-to-loss ratio and then subsequently consider this task to be a central part of your plan. Once you have determined these parameters for your initial configuration, you can then compare them to the values generated by all your future modifications and updates. You can calculate the expectancy value and win-to-loss ratio of your trading strategy by using the following formulae: Expectancy = (%Win X Avg_Win) - (%Loss X Avg_Loss) % Win = % of positions that are winners % Loss = % of positions that are losers Avg_Win = average winning amount Avg_Loss = average losing amount Win-to-Loss Ratio = (no. of wins)/ (no. of losses) This should be done first by using historical data for your chosen asset before advancing onto demo trading. Designing a profitable breakout strategy takes time but as many successful binary options traders will tell you, the effort is well worth it.
7.1.2 Developing a Breakout Strategy A sample breakout strategy will now be presented using the Bollinger Bands. Refer to chapter 8 for detailed guidance about how to perform this task. 1.
Asset selected is the EUR/USD.
The expiry time chosen is the 1 hour.
The technical Indicator selected is the Bollinger Bands.
Open the 1 hour EUR/USD chart and install the Bollinger Bands ensuring that the center line is well displayed. Identify either 2 noticeable upper levels or two lower points utilizing the Bollinger Bands. Connect a line by joining them so that it will represent your new breakout location. The figure above illustrates a bearish arrangement with the breakout line linking two lower values. The Bollinger Bands are depicted in the diagram above by three distinctive blue lines. New opening opportunities are identified in the following manner. Wait until either the middle Bollinger bands surges above the bullish breakout line or for it to decline below the bearish breakout line.
A bearish breakout is demonstrated in the chart above. Deploy candlesticks as your verification technical indicator using the next technique. Execute a ‘CALL’ binary option after a bullish breakout has been detected and the current active candlestick also closes higher than the breakout line. Likewise, activate a new ‘PUT’ binary option whenever bearish breakout criteria are fulfilled, as stated above, and the current candlestick finished under the breakout line. Use the risk and money management concepts to determine your optimum position size so that you do not risk more than 2% of your entire equity per position.
7.2 Trend Retracement Strategies 7.2.1 Concepts and Objectives Another extremely popular Binary options Strategy is Trend Retracements which supports the important benefit that it enables you to operate in the same direction as the prevalent trend. The primary problem you will have to solve is how to ascertain whether price is executing a prominent reversal or a minor retracement. This distinction is critical because you must know if price is experiencing a long-term slump or merely a short-lived dip. For instance, many investors have encountered serious frustrations when they have exited their active positions too early only to subsequently observe price surge back into their initially preferred direction. To counter this serious downside risk, you must learn how to detect and trade retracements effectively. So what exactly are retracements? They represent short-term price reversals that are created within significant price channels or trends. Their most vital facet is that they survive for only short time periods before price resumes advancing in its initial direction. You need to how to distinguish price retracements from the more severe and long lasting reversals. You can differentiate between the two by utilizing the following important distinctions:
1. Retracements are generally caused by smaller investors extracting profits and, consequently, do not generate significant boosts in trading volume. Full reversals are usually powered by substantial institutional selling and create major surges in trading volume. 2. Retracements generate very few serious chart patterns and then just a couple of trivial candlestick structures. In comparison, reversals are very serious events that are capable of producing major chart structures, such as double bottoms and tops, etc. 3. The lifespan of retracements is very limited as they do not usually last longer than a 1 week or so. Reversals tend to be longer lasting affairs that can extend for weeks, if not even longer. 4. Retracements are typically created after significant price spikes have been produced while reversals can take place at any time. Why is it so crucial to differentiate between retracements and reversals? This is because investors have to contend with challenging judgment calls whenever reversals happen. For example, should they retain their active positions open but risk significant losses? In contrast, they could sell when price initially plunges and then attempt to re-enter the market at a discounted price. However, they subsequently risk the opportunity of losing substantial gains if price should abruptly surged back into its initial direction. After you have developed an approach to identify retracements, you must next devise a process to ascertain their range. The standard resources are utilized to undertake this task: 1. Fibonacci retracements. 2. Trendline levels.
3. Pivot levels, resistance and supports.
Fibonacci retracements enable you to predict the scope of price modifications in a trending market. The most commonly used retracements exist at 50%, 38.2% and 61.8%. You can predict that price will correct as far as 38. 2% level during strong trends while it could retract to 61.8% during weaker channels. The 50% level is often utilized as a key level to purchase in up-trends and go SHORT in down-trends.
The above figure illustrates the Fibonacci retracements (blue lines) related to
a bullish price movement depicted by the red rising line. The three most preferred Fibonacci levels, i.e. 38.2%, 61.8% and 50% are all represented. Trends generate upward channels possessing both a lower trendline or boundary and an upper trendline or boundary. Price normally rebounds against these levels before recommencing its journey in its initial direction. A reversal, however, can assertively pierce a trendline. The next diagram demonstrates these features.
Expert traders deploy pivot points to detect key resistance and support levels. A pivot and its related resistances and supports are locations at which price often changes direction. For instance, breakout investors deploy pivot points to identify major levels that must to be broken in order for a breakout to occur. In the ensuing chart, resistances are R1 and R2; the pivot point is P1 and the support levels are S1 and S2.
Irrespective of all precautions, a retracement can easily transform into a full-
blown reversal unexpectedly. To safeguard yourself from significant losses, you need to implement a well-proven risk and money management strategy in order to optimize the protection for your equity. Once you can differentiate between a retracement and a reversal in addition to determining its scope, you can then create a trend retracement trading strategy. You could utilize a breakout strategy as described in section 7.1 to assist you in recognizing the creation of new price channels and trends. You can then deploy one of the three methods, just defined, to help you identify trend retracements. Once prices hits the lower trendline in a bullish trend or the upper trendline during a bearish trend, then you should consider initiating a new binary option if you can subsequently verify price shifting back into its initial direction. The following diagram illustrates an example.
If you cannot detect a major trend on the trading chart of an asset of interest, then dismiss it and analyze others. To be proficient at this form of trading, you must be able to identify distinctive trends without any difficulties. You do not what to use trends that are just forming as they may evolve into fakeouts. Similarly, be careful if a trend is old because it may be coming to the end of its lifespan. In addition, do not apply this technique during times when major fundamental releases are imminent because of the potential high levels of volatility that can be generated. Many successful traders consider that trends are created from collective human emotions, which are termed sentiment. Retracements are often produced because sentiment has driven trends too far in one direction generating the need for a correction. As stated above, one of the best ways to determine how far a price retracement will reverse before turning back in the direction of the trend is to use Fibonacci retracement levels. The most common Fibonacci levels that are used by traders are 38.2%, 50% and 61.8%. These are the locations against which price will generally rebound when in the process of a retracement. Should one of these points remain intact and you successfully execute a new trade then it will exhibit an enhanced reward-to-risk ratio. Nonetheless, although this is a powerful technique for identifying new opening opportunities, Fibonacci Levels are still not a precise science and, as such, can produce misleading signals, especially for novices. This is because often investors grow impatient and activate new positions before a channel has been clearly created. In addition, they have a bent to assume, for instance, that the 50% Fibonacci level will retain solid without permitting enough time to confirm precisely how price is responding.
To counter such issues, you must adopt patient and stay calm until the current time-frame completely closes in order to assess the prevailing market environment with accuracy. In conclusion, a strategy structured on trend retracement offers outstanding prospects of detecting new trading prospects exhibiting minimal risk exposure but excellent profit potential.
7.2.2 Developing a Trend Retracement Strategy An example of a Trend Retracement strategy will now be constructed utilizing Fibonacci Retracements. The main features are: 1.
The chosen asset will be the USD/CHF.
The expiry time is the 1 hour.
The primary indicator will be the Fibonacci level.
Two exponential moving averages will be deployed to ascertain the current direction of the prevailing trend.
The closing value of the active candlestick will be used as a verification process.
Instigate a ‘PUT’ binary option as follows. Activate the 1 hour USD/CHF trading chart and install the EMA200 and EMA200 technical indicators. The figure above shows a bearish trend with the EMA200 higher than EMA200. You need to detect a sufficiently large price wave and initialize the Fibonacci levels, as shown again on the above chart. You must then wait patiently in order to verify price bouncing assertively against one of the three primary Fibonacci levels, as demonstrate above. A ‘PUT’ binary Option should be executed when the present candlestick closes beneath the 23.6% level. A CALL binary option should be initiated as follows. A bullish channel must be verified by detecting that the EMA200 is lower than EMA100 before the Fibonacci levels ate installed. Wait for price to rebound against one of the Fibonacci levels and then execute a new ‘CALL’ binary option if the active candlestick closes higher than the 23.6% level.
7.3 â€˜Tops and Bottomsâ€™ Strategies 7.3.1 Concepts and Objectives The price of currency pairs tends to move in a series of waves with each one exhibiting a crest or top and a trough or bottom. The bottoms and tops of these structures are deemed to be significant reversal formations that indicate a substantial change in price movement of the prevailing trend. One of the most popular binary options trading strategies is to attempt to detect tops and bottoms. New positions are then open in the opposite direction as price rebounds against these patterns. For example, open a new short if price ricochets against a top and trade it to the next bottom. Similarly, open a new long if price bounces against a bottom and trade to the next top. The following chart shows these features.
The above chart shows a series of waves consisting of Top1, Bottom 1, Top 2, Bottom 2, Top 3 and Bottom 3. To exploit this pattern, you need to open ‘PUT’ binary option at Top 1 so that it expiries close to Bottom 1. As price rebounds from Bottom 1, a long position should be opened and traded to Top 2. Similarly, Short 2 needs to be opened as price rebounds from Top 2 and closed at Bottom 2. Consequently, one of the prime objectives of this strategy is to detect bottoms and tops as precisely as possible. The following techniques as used to perform this task. Many successful traders resort to using technical formulas, such as the W D Gunn, Elliot Wave and Fibonacci Retracements. Each one is structured on the concept that price movements repeat themselves continuously. However, basing a ‘top and bottom’ strategy solely on such models can produce unconvincing results. This is because the financial markets tend to possess a random nature. Consequently, the best traders can do is to assess the likelihoods of the next price move and not its exact nature. In addition, assets advance in such a way that their prices cannot be forecasted with precision. As such, scientific theories should be used with caution and supported by other trading techniques that confirm their readings. Many successful traders base their strategies on the famous trading maxim which advises “sell high and buy low”. For example, one method of detecting and trading a bottom is as follows. First, you will need to identify a key support against which price has rebounded numerous times. Next, you should wait in order to verify that the support remained intact. You can accomplish this objective by validating that the active candlestick terminates above the support in question which would then produce proof that price has truly recommenced its journey upwards. Once confirmed, you can subsequently activate a new CALL binary option.
Many experts consider that binary option trading is not about certainties but about odds. Consequently, you need to detect trading opportunities that will provide you with more winners than losers. Several methods have been designed to achieve this objective. For example, many traders study the monthly and weekly trading charts of assets in order to identify bottoms and tops. In particular, they are especially interested in those locations against which price bounced on numerous occasions. Once achieved, they then link successive tops to create resistances and successive lows to produce support levels. These lines then offer excellent opening opportunities whenever you observe price rebounding against them. When you are seeking levels as defined above, remember that price may sometimes pierce through resistances or supports. Nevertheless, such events often generate fake signals and not genuine breakouts. To counter this issue, you are advised to wait until the current time-frame completely closes in order confirm that the resistance or support level has remained totally intact. By doing so, you will not only create enhanced security for your new trades against fakeouts but will also produce a superior reward-to-risk ratio. This action will then allow you to enjoy reduced risk trading as well as still providing your position room to breathe. A number of famous top and bottom reversal patterns have already been introduced in section 6.3.
7.3.2 Developing a Top and Bottom Strategy A sample Top and Bottom strategy will now be presented which utilizes the Average Directional Movement Index (ADX). Refer to chapter 8 for detailed guidance about how to perform this task. This strategy is very good at detecting tops and bottoms in both bearish and bullish trends. 1. Asset selected is the GBP/USD. 2. The expiry time chosen is the one hour. 3. The main technical indicator is the ADX14 which will be utilized to assess trend strength.
resistance/support. 5. The ‘close price’ of the current candlestick will be used as a confirmation signal.
Open the 1 hour GBP/USD chart and install the ADX14 and EMA20. The diagram above displays a strong bearish trend demonstrated by the ADX14 recording a value greater than 30. Entry conditions are defined as follows. The ADX14 has to be in excess of 30 in order to indicate a robust trend. Next, you need to delay any further actions until price bounces against EMA20, which performs as a major resistance level during bearish trends. Then validate that the EMA20 level remained intact and that price is recommencing its downward journey by verifying a candlestick close beneath EMA20, as displayed in the above figure. Once accomplished, you can then activate a ‘PUT’ binary option using the GBP/USD as its underlying asset.
Similarly, open a new â€˜CALLâ€™ Binary Option when ADX14 is greater than 30; price rebounds upwards against EMA20, which acts as a bottom or support and the current candlestick closes above EMA20.
Use the risk and money management
concepts to determine your position size so that you do not risk more than 2% of your entire equity per position.
7.4 Scalping Strategies 7.4.1 Concepts and Objectives Scalping is a trading strategy that utilizes short expiry times, such the 1 minute, 3 minute and 5 minute. Investors stay clear of volatility as a central policy and focus on capturing earnings from tiny price actions. They hunt for trading conditions that allow them to execute a substantial number of successive positions in a very brief time period. They target small gains of 1 to 5 pips each and every time. In contrast to more classic strategies which seek to implement a few trades daily, a scalper will try to open many more binary options within the same time period but by deploying very fast expiry times. This means that whereas the conventional strategy would target profits of a certain amount, scalpers seek profits well in excess of that size during the same time period. However, scalpers must contend with larger risk exposure per trade than standard strategies in order to generate such returns. This stipulation means that scalpers often risk in excess of the 2% of their trading capital per position which violates the basic concepts of many well-known money management policies. Scalping is best conducted during those occasions when the financial markets are calm and not erratic. This is because at those instances price formations are usually more dependable and foreseeable. For that reason, a popular scalping time is between 5.00pm and 9.00am EST daily. This is because during these hours, the Europe, the UK and the USA do not publish major economic indicators.
A scalping strategy needs both a strong win-to-loss ratio and a well-proven money management policy in order to generate constant profits. Consequently, many scalpers select modest profit-targets backed by substantial win-to-loss ratios. Nevertheless, this method often means that the associated scalping strategies exhibit very poor reward-to-risk ratios.
Is scalping still a worthwhile strategy if it can only offerr such dismal rewardto-risk ratios? Yes is the answer as will now be demonstrated. Envisage that you are scalping using an average return ratio of 75% and a refund of 0% for each trade. These facts imply that your Reward-to-Risk ratio is 0.75. However, imagine that your scalping strategy produces a win-to-loss ratio of 60% and you risked $100 per position and activated 10 trades. As such, you would have captured a return equating to ($75*6)-($100*4) generating a $50 profit. Nevertheless, you must exert caution because just one extra loss could entirely erase your total profit and even produce a loss. Many scalpers construct their strategies on price breakouts which are created when it surges out of a restricted or consolidation range. This is because the design of such strategies is relatively straightforward and can also produce outstanding results. In particular, breakout scalping is best performed during the first hour of the new trading sessions. This means that you should aim to scalp the Asian opening at 7.00pm EST, the European opening at 2.00am EST, the London opening at 3.00am EST and the USA opening at 9.30am EST. Research shows that when these sessions commence, new trading often generates enough momentum to force price to breakout of its previous tight trading range. Such circumstances present the ideal conditions to scalp. If you study a number of trading charts at the above advised times, then you can confirm this recommendation by identifying numerous breakouts. You next need techniques that you can deploy to confirm breakouts. One such method is to identify the resistances and supports of tight trading ranges just before the opening times of major international stock exchanges.
Whenever price pierces these levels, then breakouts have occurred. If a support is broken, then you should execute ‘PUT’ binary options. Similarly, if price breaks above resistance, then initiate ‘CALL’ binary options. Many scalpers recommend using the 5 minute trading charts and target profits of about 10 points per trade. Scalping is a trading strategy that has achieved increasing popularity in recent years. This is because the design of many automated robots and expert advisors are based on scalping. Numerous novices prefer scalping as well because they are attracted to its sheer speed of operation amid the mistaken belief that this feature will generate faster profits. Scalping is a specialist trading strategy and, as such, may not be suitable for some binary option traders. Scalpers have to exhibit great care, diligence and patience to ensure that their trading account expands. Successful scalpers possess a high level of concentration; always remain focused on their active trades and implement rapid trading decisions. If you cannot trade full-time then you must appreciate that scalping is a time consuming trading strategy and, consequently, may not be conducive with your lifestyle. If you decide to scalp then you will have to pay particular attention to the difference between the payout and rebate ratios that your broker offers for each supported asset. You must ensure that the spread between these two key parameters is as small as possible otherwise just a few losses will totally erase your hard-earned profits. 7.4.2 Developing a Scalping Strategy An example of a scalping strategy will now be illustrated which deploys the Relative Strength Index and Bollinger Bands. Refer to chapter 8 for detailed guidance about how to perform this task. This strategy generates its best results when price is trading a restricted horizontal channel. 1. The asset chosen is the EUR/USD.
2. The expiry time is 5 minute. 3. The primary technical indicators are the RSI and Bollinger Bands. 4. The Stochastic Oscillator (SO) is utilized as a verification resource.
Activate the 5 minute EUR/USD chart and install the RSI, Bollinger Bands and SO. The following diagram illustrates such a setup. The upper part of the chart presents the Bollinger bands using blue lines. The RSI is displayed in the main chart region with its key 30 and 70 represented by blue lines. The SO is detailed in the bottom segment by utilizing a green line with its vital 20 and 80 levels depicted in black.
Opening criteria are identified as follows. 1. Activate a PUT Binary Option, based on the EUR/USD, whenever you discover price breaking above the upper Bollinger Band and the RSI is posting a value greater than 70. The new opportunity should also be verified by the SO recording a reading in excess of 80. The trade is closed when the 5 minute expiry time elapses. 2. Implement a CALL Binary Option, using the EUR/USD as its underlying asset, when whenever you discover price breaking below the lower Bollinger Band and the RSI is posting a value beneath 30. The new opportunity should also be verified by the SO recording a reading under 20. The trade is closed when the 5 minute expiry time elapses.
Utilize a well-proven money management policy to calculate the optimum size of your new trades in order not to risk in excess of 2% of your total trading capital per position.
7.5 Candlestick Strategies 7.5.1 Concepts and Objectives Although the theory of candlesticks was conceived by a Japanese rice investor called Sokyu Honma over 300 years ago, it is even regarded as so helpful and highly applicable to modern trading that numerous binary options strategies have been derived by using its principles. Fascination with candlesticks has elevated recently because many of its concepts combine very well with present-day advanced technology. Many prosperous investors have discovered that obtaining a good comprehension of candlestick theory has allowed them to increase their profits and success substantially. This is basically because this technique offers valuable insights into trading the financial markets.
Each candlestick provides a visual presentation about how price performed during a chosen time frame. This feature implies that if investors can understand these structures proficiently then they can attain a good comprehension of the prevailing trading conditions. A candlestick possesses 4 primary components, i.e. its opening, closing, lowest and highest prices. The gap between the closing and opening prices of a candlestick is labeled the â€˜real bodyâ€™. When the closing price is higher than the opening one, then the body color is white and the candlestick is classified as bullish. The length between the highest and closing values of a candlestick is referred to as its wick. The gap between the lowest and opening prices is known as the tail. A sample bullish candlestick is revealed in the next diagram.
Whenever the body of a candlestick is black then it has been created by a bearish downward movement with its closing price beneath its opening value. The ensuing chart illustrates a bearish candlestick.
A candlestick can exhibit numerous formations with each one possessing a unique interpretation. A series of famous patterns are now presented.
A candlestick is generated, as defined above, for each time-frame. For instance, if you have chosen the 1 hour time period, then every candlestick will present the price action that occurred during each successive hourly period. A chart can consequently exhibit a large number of candlesticks, as illustrated by the following figure.
Many prosperous investors utilize candlesticks because they offer the next advantages: 1. Numerous candlestick formations have been defined and have been comprehensively analyzed over extensive time periods. 2. Candlesticks have acquired an impressive reputation for detecting key deviations in price actions, such as retracements and reversals. 3. Candlesticks are comparatively simple to study and interpret. 4. As candlestick structures are visually distinctive, they can be easily identified on trading charts. A number of famous candlestick patterns were introduced in section 2. A few more are now introduced. 7.5.2 Bullish Engulfing Pattern This formation comprises two candlesticks and is a serious sign that a bearish trend could soon be ending. The initial candlestick consists of a tiny black body. The second possesses an exceptionally larger white body that totally swamps the body of the primary candlestick. The subsequent figure presents an example.
7.5.3 Bearish Engulfing Pattern This formation comprises of two candlesticks and is a serious sign that a bullish trend could be ending. The initial candlestick consists of a tiny white body. The second possesses an exceptionally larger black body that totally swamps the body of the primary candlestick. The subsequent figure presents an example.
7.5.4 Developing a Candlestick Strategy An example of a candlestick strategy will now be illustrated which utilizes the Bullish and Bearish Engulfing Patterns. Refer to chapter 8 for detailed guidance about how to perform this task. This strategy generates its best results when price is advancing within a restricted horizontal channel. 1. The asset chosen is the USD/CHF. 2. The expiry time selected is the Daily. 3. The primary indicators are the Bullish and Bearish Engulfing Patterns. 4. The exponential moving averages, EMA50 and EMA9, are utilized to verify the creation of a new trend.
Activate the daily USD/CHF chart and install the EMA50 and EMA9 exponential moving averages. The ensuing figure presents such a setup. A â€˜CALLâ€™ binary option was instigated with a daily expiry time at the bottom- left of the diagram following the creation of a bullish engulfing structure and EMA9 rising above EMA50. This position was closed at expiration following the appearance of a bearish engulfing formation and hammer as demonstrated towards the top-right of the next diagram.
Entry conditions are defined as follows. 1. Open a new ‘PUT’ binary option after you identify a bearish engulfing pattern and EMA9 is lower than EMA50. Close your position at expiration or when you detect either a candlestick bearish reversal pattern or the EMA9 rising above EMA50. 2. Open a new ‘CALL’ binary option after you identify a bullish engulfing pattern and EMA9 is higher than EMA50. Close your position at expiration or when you detect either a candlestick bullish reversal pattern or the EMA9 dropping below EMA50.
Use well-proven risk and money management concepts to determine your position size so that you do not risk more than 2% of your entire equity per position.
7.6 Fake out Strategies 7.6.1 Concepts and Objectives One of the most favorite trading strategies is the breakout which has already been discussed in this chapter. A primary reason why this strategy is so popular is because price must develop large momentum in order to breakout from a tight trading pattern. If it is able to accomplish this feat, then price is then usually capable of advancing a significant distance in its new preferred direction. Quality entry points are also easy to identify using this technique. Basically, since price has been range trading between a ceiling and a floor, traders just need to wait for it to penetrate either of these constraints before opening a new position in the direction of the breakout. The following diagram shows an example of a breakout.
The crucial issue confronting investors when deploying this type of strategy is that breakouts can convert rapidly into fakeouts generating losses. This occurs whenever price reverses back into its previous trading range. However, in many cases price will subsequently progress even further in the opposing direction to the initial breakout.
Such movements will subject new trades to intensive pressure.
The next figure demonstrates such a development.
7.6.2 What causes Fake outs? Many traders have tried to determine why fake outs occur because if they could do so, they could increase the profitability of their breakout trading. Numerous theories attribute the creation of fake outs to technical analysis failing at the point of the breakout. However, such events are bound to happen sometimes because the financial markets are so unpredictable. The best that any trader can hope to achieve is to determine the probabilities of such actions occurring. This is because fake outs will always be generated for a percentage of the time. If you accept this fact, then you need to use a good money management strategy to protect your account balance. For example, many such policies advise that you should never risk more than 2% of your entire balance per trade when you are trading breakouts. Other theorists claim that fake outs are caused by large trading institutions creating them deliberately in order to stop-out smaller retail traders. However, there is no real evidence vindicating this accusation. 7.6.3 Trading fake outs Fake outs are events that happen so frequently that some traders have designed trading strategies specifically to profit from them. The rest of this section will explain some of these ideas. One negative feature about trading fake outs is that when you open positions you will be trading against the trend. As this is a dangerous practice, techniques will be introduced to minimize the risks involved. In addition, a strategy will be presented that solves this problem completely by allowing you can trade fake outs in the same direction as the trend.
Here is a method which will introduce you to a number of the main concepts of this type of trading. Usually, price advances some distance in its preferred direction before it begins to range-trade by residing within a consolidation zone. Consequently, investors must initially detect such formations by identifying an horizontal trading range limited by a support and resistance. The gap between these two levels is normally very compressed. The chart above illustrates an example of such a formation.
When price is confined within a consolidation zone, it begins to generate momentum. As such, when price finally penetrates either the support or resistance levels, many investors try to benefit from this breakout by opening a new position instantly. They are lured into performing such an action because the potential rewards can be impressive while risks are minimal. Nevertheless, you are recommended not to perform identical actions. Instead, you must exert patience and allow sufficient time to expiry in order to assess if the breakout is genuine or whether it will transform into a fake signal. You can identify a fakeout by detecting if the initial surge weakens before price reverses so that it eventually re-enters its old trading range. During a bullish breakout, the initial resistance transforms into the new support. Consequently, you can identify a fake signal whenever price retracts beneath the support level. The opposite also holds good for bearish breakouts, e.g. the former support converts into the new resistance. By delaying any further actions until the original breakout becomes fully developed will allow you enough time to identify fakeouts. A real breakout will bounce against the consolidation box before proceeding in its original direction. You now have a technique for both distinguishing between breakouts and fakeouts as well as detecting when a fakeout has been created. The next question to answer is what is the best way to exploit this knowledge? To answer this question, consider the following. You know that horizontal trading channels are restricted by support and resistance levels.
You also know that price frequently breakouts only to reverse soon afterwards. This spike movement often causes new binary options to expiry â€˜out-ofthe-moneyâ€™. You can benefit from such situations by executing new binary options in the opposing direction to most investors. This concept is effective irrespective if price advancing within bearish or bullish trends.
You must initially identify the support and resistance levels of a consolidation region and then track it by utilizing either hourly chart. For instance, in order to detect a fake out during a bullish breakout, monitor price closely to verify that it initially breaks above resistance before reversing back beneath it. Activate a CALL binary option at that location. However, if price plummets very rapidly then wait for it to bounce decisively against support before implementing a PUT binary option. The next figure presents an example of such events.
7.6.4 Fake outs with the Trend The main worry about trading fake outs is that you will frequently be trading against the trend. As stated before, you can create significant protection against such
management strategy. Is it possible to trade fake outs in the trendâ€™s current direction? Yes, it is. For example, here is one method. Envisage that the price is trading in an upwards bullish channel defined by a lower trend line or support and an upper trend line or resistance. The faster moving EMA50 is also higher than the slower moving EMA100 providing additional confirmation that price is moving in an upwards channel. The following chart displays such a trading setup.
You will notice that price breakouts of the bullish channel in the middle of the above chart when it pierces beneath the lower trend line. However, you must not enter a short trade at this point because you will then be trading against the trend. Instead, you should wait to see if the breakout transforms into a fake out by observing price closing back inside the bull channel, which it does in this case. You should then open a long trade as shown in the above diagram. The major point to notice is that your new long position will be trading in the same direction as the trend. Trading fake outs successfully requires good timing which is not always easy to achieve. This is normally because emotions such as anxiety and nervousness can impair trading judgment. You can use these following ideas to minimize these influences: 1. Using the hourly trading charts, wait for the current candlestick to fully complete during which the breakout occurred. Only then consider whether to open a new binary option or not. 2. Also use technical indicators, such as Fibonacci retracement, to determine entry points. Section 7.2 presents several examples.
Constructing a Binary Options Strategy
Chapter 8: Constructing a Binary Options Strategy This chapter will now show you how to construct an effective binary option strategy that will detect and then advise you about the occurrence of high quality entry opportunities. In addition, this tool will be both easy to understand and use. Alternatively, you could opt to select one of the many signal services available on the internet that could provide you with similar alerts. However, even if you do so select this option, you should still find that the procedures outlined in this chapter will provide you with many invaluable insights into how such service operates. As advised, the prime intention of the strategy will be to notify you when new quality trading opportunities arise. As such, the design of such a tool is based on essential components that will achieve that objective. For instance, the daily timeframe will be used in the construction because the quality of its associated statistics and technical indicator readings are superior to those of its shorter time-frame counterparts. After you have acquired some experience in trading this strategy then you should find that this specific feature will provide you with an enhanced sense of confidence whenever you deploy it to trade binary options. Very importantly, you need to understand now that you will not be using the trading notifications provided by the strategy to execute new positions immediately. This is because such actions would not prudent moves until you have acquired enough knowledge and skill to really know what you are doing. In contrast, you will primarily be using this tool as a method to inform you of the preferable direction in which to trade an asset, i.e. either go long (buy) or short (sell). Let us now delve into construction of the strategy which will be done in a series of simple steps. Basically, each component required to create this tool will be identified and defined before the specific selection is presented.
8.1 Picking the ideal expiry time You must initially determine just how much time you can dedicate to your binary options trading on a regular basis. For example, you will require an expensive period of time to monitor your active positions if you intend to instigate scalping strategies, which are based on the shorter timeframes. If you are a novice then you are firmly advised to develop your strategies by using the longer expiry times starting from the 1 hour and higher. You will then have the ability the take advantage of the better quality statistics related to these timeframes permitting you to identify crucial price structures more easily. Consequently, you can gauge your risk exposure per binary option significantly better allowing you to provide the best possible defense for your trading capital.
8.2 Which Technical Indicator to Select You have the capability to pick from a sizable selection of technical indicators. Basically, you should check as large a number as possible with the purpose of assessing which ones best fulfill your ambitions and goals. You can realize this mission by exploiting a free demo account and fine-tuning the key variables of each tool in sequence. After each test, you should then determine the effectiveness of the chosen device by calculating both its new win-to-loss ratio and expectancy value of your modified binary options plan. If you plan to assemble your strategy completely from start-up, then you must dedicate a sufficient period of time in order to perform these studies effectively.
The following daily chart displays a binary options strategy that deploys the EMA9 and EMA50, exponential moving averages, as its primary technical indicators.
8.2.1 Activating the Exponential Moving Averages This is an easy and straight-forward procedure which you will master in no time whatsoever. On the toolbar directly above your trading chart, locate the â€˜Technical Indicatorsâ€™ symbol.
In the diagram above, it is the central symbol depicted by a green mountain range. Click on this button and a pop-box similar to next diagram will appear.
Next locate and click on the â€˜EMAâ€™ technical indicator as shown in the above diagram. Another pop-up box will appear similar to the next diagram.
For EMA9, enter 9 for the ‘Number of periods’ and choose a suitable color. Now press ‘OK’ and your EMA9 will appear on the chart. Repeat this entire process for EMA50 but by entering 50 for the ‘Number of periods’ and selecting a different color. 8.3 Which Assets to Trade? You will discover that each underlying asset offers its own distinctive trading characteristics. Additionally, your broker will impose a fee each time you execute a new binary options. The charge equates to the difference between the payout and return ratios of all assets on offer. Consequently, you are recommended to identify a broker who persistently offers the most competitive return-to-risk ratios (Payout to Refund Ratio) as possible because their accumulative costs will definitely impact the size of your future profits. Furthermore, you should choose those supporting assets boasting the best reward-to-risk (R/R) ratio. You will discover that the EUR/USD is usually an outstanding selection because it presents one of the most competitive R/R ratios available. You must understand that if you attempt to trade binary options supporting much larger R/R ratios, then attaining reliable profits will be a more challenging undertaking.
For instance, if the existing R/R ratio of a specific asset is 0.75, then you have to acquire a win-to-loss ratio of almost 60% just to break breakeven. Under such circumstances, your brokerâ€™s fee will be the difference between the return and the rebate ratios, i.e. 0.25. This is probably the major reasons why you are advised to trade the EUR/USD because its R/R ratio generally much closer to unity, i.e. 1.0. In comparison, other more unusual assets have R/R ratios as low as 0.50 requiring win-to-loss ratios exceeding 70% to just breakeven. Also search for assets exhibiting high liquidity. This is a vital facet because it will enable you to execute binary options at any time because other investors will invariably be present to back your orders. Consequently, professionals advocate, especially if you are a newcomer, that you should attain or devise trading strategies that will assist you to utilize assets possessing both high liquidity and low spreads. If you are a new to binary options, then you are well advised to start trading the financial markets by concentrating on an asset, such as the EUR/USD currency pair, for the reasons defined above. 8.4 Designing a Confirmation Strategy After you have successfully completed the first three actions, you will then possess a rudimentary trading strategy structured on your choice of underlying asset, technical indicator and expiry times. Consequently, you will be able to identify high quality entry opportunities for new binary options displaying minimal risk exposure but optimum profit prospective. Nevertheless, you now must defend your equity balance even more by utilizing enhanced protection against phony events, e.g. fakeouts. You can accomplish this goal by creating a validation process that you can easily integrate into your binary options strategies.
Experts recommend that you can adhere to this stipulation by trying out other technical indicators that are capable of providing enhanced protection. You must not disregard this task because it can substantially help you to maximize the protection of your trading funds. You are advised to choose a technical indicator that fulfills the primary objectives of your binary options strategies. You may need to embark on a comprehensive investigation in order to discover the perfect choice. Many professionals use candlestick technology to assist them in validating the trading recommendations generated by their main technical indicators. For example, a strategy could be constructed utilizing resistance and support levels to act as its confirmation tool. As these levels will be produced on trading charts using the daily time-frame, you can be assured that they will provide very strong indications that price has the potential to proceed further in its current direction whenever they are decisively broken. The ensuing figure illustrates this method in process by distinctly presenting the key support and resistance levels.
However, you must always adopt caution in order to protect your trading capital from fakeouts and price retracements. You should not ignore this vital process because it will provide you with enhanced confidence from knowing that your new binary options will exhibit the optimum potential to record ‘in-the-money’ results. 8.4.1 Installing Resistance and Support Levels Once again, this is a relatively easy process to learn. Detect and then hit the same ‘Technical Indicators’ button precisely as you previously did, see next diagram.
However, on this occasion you must now strike the ‘Pivot (Pivot Lines)’ button and the ensuing pop-up box will be displayed.
Now you just need to click the ‘OK’ button and your Resistance and Support levels will materialize on your chart. 8.5 Rules for Opening and Closing Positions Your next task will be to define a set of rules which you can easily use to identify the entry and exit points of new trading opportunities. For instance, imagine a strategy structured on the next simple-to-implement set of opening and closing rules identifying the entry and exits of new quality positions: 1. Open a ‘CALL’ binary Option only when an asset is advancing in a BULLISH trend. You can detect such circumstances whenever EMA9 has climbed above EMA50, as displayed by the subsequent chart.
2. You should then implement a â€˜CALLâ€™ option after price has initially jumped decisively above Resistance 1. 3. Your position will close at your chosen expiry time which should be long enough to allow price to strike Resistance level 2. The following chart shows point 2 and 3 in action.
4. Open a ‘PUT’ binary Option only when an asset is advancing within a BEARISH trend. You can identify such circumstances whenever EMA9 is beneath EMA50, as displayed on the subsequent chart.
5. You should then implement a new ‘PUT’ binary option after price has initially broken decisively below Support Level 1. 6. Your position will close at your chosen expiry time which should be long enough to allow price to strike Support level 2. The next figure illustrates points 5 and 6 in action.
7. Do not wager more than 2% per trading capital per trade. The ensuing examples will now demonstrate how a strategy can be deployed to trade the financial markets proficiently. Example 1: On the subsequent EUR/AUD chart, you will initially detect that the EMA9 is beneath the EMA50 indicating you must only activate ‘PUT’ binary options. Such a position was initiated after price broke under the S1 level. At expiration, the trade was closed after price had already struck S2 by recording an ‘in-the-money’ result.
Example 2: In the following example, you can verify that price is progressing within a bullish trend epitomized by EMA9 residing above EMA50 as presented on the USDCHF daily chart. You should subsequently observe that a ‘CALL’ option was instigated after price climbed assertively above R1. At expiration, the trade expired after price had just hit R2 generating an ‘in-the-money’ status.
8.6 Reducing Your Risks Trading specialists vigorously recommend that you simply cannot dismiss this facet of your binary options trading. This is because if you do not instigate procedures with the express intent of limiting your risk exposure per trade then your odds of success are slim. Essentially, you need to formulate a straightforward money management strategy so that you will always know exactly what your risk levels will be for each trade that you activate. Money management is a crucial element of all binary options strategies. Regrettably, most newbies fail to fully grasp the importance of this critical feature and consequently a sizable number of them lose their introductory funds quickly. One of ideal methods to assure success at trading binary options is to develop or obtain a strategy containing techniques that are effective at coping with the core facets of trading: mind, method and money. For example, you need a management policy to check and protect your balance (method).
You must also boost your mindset (mind) so that you can maintain sufficient levels of patience and self-control which are necessary to control your trading strategy productively. Lastly, you should devise a well-proven money management strategy (money). Even if newcomers do attempt to create a binary option strategy then they have a tendency to generally focus on the method element only because they normally base their designs on trading charts. Consequently, they completely disregard the significance of the money and mind functions. This mistake means that their end strategies are usually defective and eventually lose cash over the long haul. For instance, your main job as an investor is to shield your trading capital constantly because without it you will be unable to trade binary options any more without implementing further deposits. Nevertheless, natural norms of behavior will seduce you into concentrating on profits primarily as opposed to focusing on handling your losses. Additionally, most novices harbor a subconscious belief which makes them think that all their trades will generate winners. Consequently, they are entirely unprepared for any unforeseen complications. As the monetary markets can create extreme degrees of volatility, you must recognize that losses are practically inescapable. You should for that reason realize that experts are those that learn the ability to restrict their losses by handling them effectively. This is the crucial reason why you must obtain a proven money management approach that will assist you in reducing your risk exposures as well as optimizing your profits. You must acknowledge that accomplishing this goal is critical in your efforts at recording success at binary options trading specifically because of the excessive levels of leverage and high volatility involved. You should keep in mind the renowned trading saying that recommends:' control your losses first and your profits will subsequently take care of themselves'. In particular, trading binary options is primarily about probabilities and that you only have full command of your own equity until the moment you activate a new position. From that point onwards, price rules the day since you will never be totally certain whether your trades will result in profits or losses.
Nonetheless, you are able to evaluate, by utilizing a well-designed and tested money management plan, the biggest losses you could encounter should your binary options expire â€˜out-of-the-moneyâ€™. You should devise such a tool by basing it on two simple ideas which are precise position-sizing and an impressive reward-torisk ratio. The first parameter determines the proportion of your trading capital that you should sensibly risk per position. In addition, you should aim to use strategies that exhibit a minimum rewardto-risk (RR) ratio of at least 2 to 1. If you can acquire enhanced ratios, then that is certainly desirable. For instance, imagine that your current trading strategy supports a win-to-loss ratio of 50% which means that you will record ten wins out of every sequence of twenty binary options. As such, you must target returns in accordance with a 2:1 reward-to-risk ratio in order to ensure constant and meaningful profits. Binary options are comparable to all other forms of investment in that they involve
Nevertheless, you will find that they exhibit above normal levels of risk which tend to surpass those of many other trading mechanisms. This is because binary option trading involves both excessive volatility and leverage. Therefore, you are always under an endless threat of sustaining severe losses whenever price abruptly advances against your active positions. You must appreciate that you can never entirely eradicate risk from your trading regardless of all the tools and strategies which are available these days. As a result, you must apply well-tested money management plans that will supply your trading capital with optimum protection. Specifically, you should never risk borrowed funds or money that you cannot afford to lose. You will learn that this industry involves a diversity of risks. For instance, in spite of all exertions, the binary options marketplace still remains inundated with scams with many unscrupulous promoters continuously advertising expert advisors, training courses and books of doubtful quality.
Additionally, you are encouraged to always conduct detailed assessments on any potential Binary Options broker. For example, your analysis must verify that a broker is, at the very least, a sub-division of a major financial corporation; is listed on-shore and is an affiliate of acknowledged and recognized regulatory authority, such as the Commodities Futures Trading Commission, National Futures Association or Better business bureau. In addition, you must make sure that all prospective brokers offer a worldclass exclusive price feed that supports very tight spreads. After you have chosen and signed up with a broker, you must then deposit an initial investment into your new trading account before you can commence trading. After this task has been accomplished, you will then be supplied with a substantial leverage capability that could be greater than 1: 100. Leverage will allow you to execute binary options of considerable worth by merely using a minimum deposit. Nevertheless, you must understand that such a service harbors major risks in that you could experience substantial monetary losses if price suddenly changes course and advances against your trades. As such, you must bear in mind that because Binary options can produce the most intricate price formations within very brief time frames, you must always trade defensively and cautiously. In addition, you must appraise the hazards that could occur if all or part of your trading platform malfunctions. For example, how would you handle situations where you could not exit your active trades or where you could not execute new ones at critical moments? If the link with your platform is by means of an internetbased resource, then you could experience margin calls or even fraudulence if you were not able to control your binary options trading at all times. In order to contend with the issues detailed above, you must devise a money management policy as a primary objective. Your initial step in creating such a tool will be to adhere to professional advice by not wagering more than 2% of your trading capital per position.
The key reason why this percent figure is recommended is that if you would still possess almost 82% of your balance should you suffer ten consecutive losses. In contrast, your equity would crash to almost 34% if you wagered 10% per position under identical circumstances. Consequently, such a proven money management plan would significantly reduce the requirement for you to deposit new funds on a consistent basis, which is a habit you should attempt to avoid at all costs. 8.7 Operational Advice In order to fulfill the objectives stated in this chapter, you will need to improve your patience by learning specifically how to focus on the pitfalls involved when you instigate a new binary option in contrast to merely dreaming about incredible profits. Why is patience so important when trading binary options? To address this query, you should evaluate the differing trading methods utilized by beginners and professionals. For instance, newbies regularly search for exhilaration and excitement by attempting to execute a substantial quantity of new binary options over very brief time periods. Consequently, they have an inclination to initiate new trades far too early after making decisions using trading charts based on the shorter time-frames. As such, their new positions consequently exhibit excessive levels of risk. In comparison, skilled investors understand that the potency of critical price levels, such as resistance, pivot levels and supports, decreases drastically whenever the shorter time-frames are deployed. Whenever you utilize a strategy, you should always attempt to target only achievable objectives at a consistent basis as opposed to aiming to acquire unrealistic profits. One method that you can utilize to accomplish this goal is to construct your trading strategies on charts supporting the longer time-frames from the daily upwards.
8.8 Pitfalls to Avoid
Let us know consider some potential problems that you should attempt to avoid whenever you are designing a binary options strategy.
8.8.1 A standard specification Consider the requirements of the follow simple strategy: 1. The strategy deployed was based on these technical indicators: the 20-period Exponential-Moving-Average (EMA20), the 10-period (EMA10), the 3-period(EMA3) and the Moving-Average-Convergence-Divergence-(MACD). 2. The EUR/USD was selected and displayed on the one minute chart. 3. The prevailing trend will be detected by assessing if EMA10 is above the EMA20 (long trade) or EMA10 is beneath the EMA20 (short trade). 4. If price is climbing accompanied by the MACD crossing above EMA3 then wait until a subsequent bullish candlestick opens and closes above EMA3. 5. If confirmed, execute a long trade when price climbs a further 2 pips above the closing price of this candlestick. 6. Likewise, a short trade should be activated under bearish conditions; the MACD is below the EMA3; a bearish candlestick opens and closes beneath EMA10 and price falls 2 pips beneath the closing price of this candlestick. 7. The profit-target for each position is 5 pips and the stop-loss is 20 pips.
8.8.2 What can go wrong? Nonetheless, analysis demonstrated that there is a fundamental fault with this strategy, as illustrated in the following test chart. The blue line approximately represents the MACD whilst the green one is the EMA3. Although they are not exact, they clearly show the problem. Test Chart 1 On the below diagram, you will first note that a climbing crossover happens to the left of the figure. Ideally, the optimum opportunity for acquiring consistent returns would be by executing a long position just after the crossover. However, when the current design often satisfied its entry criteria, price had already risen substantially within its current fluctuation. You can identify this aspect by confirming that the implementing valve of the long trade close to the ‘Very Late Entry’ label on the chart below.
This development often created a problem since the new binary option was subsequently susceptible to a major price retracement, which did happen in this case, as illustrated by the above diagram. You can also verify the impact of this issue by noting that the trade was finally expired ‘out-of-the-money’. Test Chart 2
The above chart shows a similar series of events but for a short position this time. Basically, the present design is leaving new positions vulnerable to price retractions because of its late entry points within the current price oscillation cycle. This is definitely not a desirable feature. This is because as the current design has a reward-to-risk ratio of 1 to 4, we simply cannot afford for it to post too many losses. If we do, then the climb back to just breakeven will become increasingly more difficult. However, the above charts 1 and 2 illustrate that the current design creates entry conditions that are particularly prone to price retractions. During further research, â€˜out-of-the-moneyâ€™ results were such common outcomes, that steady returns were a very difficult to accomplish.
8.8.3 Solutions leading to more problems Test Chart 3
The above diagram illustrates a further problem with this strategy. To overcome the hitches exemplified by figures 1 and 2, numerous delays and other techniques were tried in order in an attempt to ensure that new positions would be activated only when the new criteria were satisfied. However, as the above chart illustrates the main problem that then arose was that this scalping strategy missed out on large profits. The above chart demonstrates this problem for long trades while the next chart shows it for short trades.
Test Chart 4
This irritating feature of the strategy again had a significant adverse influence on profits. Basically, whereas experts recommend ‘let profits run and cut losses quickly’ the current strategy traded in the complete opposite way by ‘letting losses grow and cutting profits quickly’. This is not a viable concept because the strategy cannot post too many losses because of its poor risk-toreward ratio.
8.8.4 Stressful Designing
Efforts were also made that would allow this design to continuously capture small profits by utilizing a very short expiry time, as displayed on the following diagram. However, a price reversal will always happen at some time which can harshly affect the returns because of the very weak 1:4 reward-to- risk ratio. Test Chart 5
For instance, the figure above shows the optimum circumstances for this strategy to trade because it record nine consecutive wins recently. However, as such an impressive result does not occur frequently, it can readily countered by a string of losses. In this case, the nine wins were followed by a series of 3 losses and 2 wins.
As such, 11 wins were recorded registering a profit of about $500 each while the 3 losses were generated $2,000 each. Consequently, a total loss of $500 was achieved despite attaining 11 wins.
Trading More Effectively Using Binary Options
Chapter 9: Trading More Effectively Using Binary Options Binary options offer numerous attractive features which will now be introduced in this chapter. 9.1 The Advantages of Using Binary Options
If you trade binary options, then you can gain from a number of impressive benefits that they exhibit. For that reason alone, you will then learn exactly why this trading mechanism has grown to become the fastest expanding and most wellliked sector within the investment market nowadays.
framework. Consequently, you will always know exactly the amount of your prospective refunds and returns even before your trades are instigated. Therefore, you will be able to evaluate your risk level per position with accuracy because this trading mechanism supports a built-in well-structured money management policy? What other form of investment offers you such an amenity? Additionally, you will be provided with a specific contract listing precisely your prospective losses and profits before your trades are initialized. Consequently, you will constantly possess a full sense of security whenever you trade binary options.
Essentially, you will be able to effectively manage your risk levels because the size of your losses will not rise with increasing price movements. If you do experience a loss, then you will be aware of its precise size even before your trade is implemented. No other kind of investment can provide you with such a level of comfort.
Higher potential profits - Binary options offer you the opportunity to activate very large trading positions by investing only minimal cash deposits.
forecasting just the direction in which price will advance and not the size of its movements. For that reason, you will discover that trading binary options is much easier than other forms of investment choices, such as trading the currency markets directly. For instance, consider that you suspect that the price of the EURUSD is about to climb after obtaining a tip from your signal service provider. As such, you choose to buy the EURUSD at 1.3500 by investing $1,000. You subsequently purchase thirtyfive micro lots at $3.5 per pip in accordance with your money management method. If you were now to conduct this EUR/USD directly on the currency markets then envisage that you secure a profit of 25 pips after 60 minutes. As such, you would have recorded a return of $3.5 * 25 = $87.50.
In comparison, if you were to risk $1,000 by activating a ‘CALL’ binary option, based on the EUR/USD, then you could acquire a pre-defined profit as large as 80% of your investment. Essentially, you could collect a return of $800 if price expiries just one pip above its opening value, i.e. 1.3500. Instant earnings – By utilizing your broker’s state-of-the-art and sophisticated mobile and internet platforms, you can rapidly respond to all new
implementing binary options instantaneously and with accuracy. This feature implies that within very short time periods, you have the impressive prospects of capturing 80% returns of your wagered amount. Now that is an exciting result! Easy to trade – ‘Binary’ represents the number ‘TWO’. When related to binary options trading, this feature infers that your trading decisions will be relatively easy to make because you only have to determine in which direction price of your chosen asset will advance, i.e. downwards or upwards. Consequently, you do need to perform any comprehensive analysis or assess involved stock surveys in order to forecast the size of price movements. User friendly and flexible trading platform – Your broker’s premier trading platform will undoubtedly be feature-rich yet instinctive and simple to utilize. From the coziness of your own living quarters you will be able to function as an expert trader with the knowledge that your new positions will be instigated almost instantly and with great accuracy.
Furthermore, a comprehensive range of technical tools and asset historical data will always be immediately accessible. From any location on the globe, you can utilize your brokerâ€™s webbased trading platform to trade binary options around the clock.
9.2 Binary Options Strategies You will find that trading binary options is an easy method to speculate on the monetary markets when compared to forms of investments. As such, you will have enhanced chances of generating rewarding and regular profits by trading them. Specifically, if you enroll with a binary option broker then you will have the means to achieve as much as 85% return on your risked deposit per position as fast as 1 minute, despite the fact that you could be just a complete beginner. You can boost your profit expectation even more and reduce your risk level per trade simultaneously if you devote sufficient time to analyze and learn binary option trading strategies. This section highlights and examines a number of the most favored strategies which will be of great help to you regardless of whether you are a newcomer or skilled binary options investor.
1. Pairing: Also referred to as hedge and double position is an ingenious strategy which presents you with opportunities to acquire exceptionally high profits at minimum risk exposure. For instance, envisage that you have executed a â€˜CALLâ€™ binary option, structured on the EUR/USD which had an opening value of 1.4000. Sometime later, imagine that you have attained an encouraging position by being inthe-money with the price posting a current value of 1.4050. Nevertheless, you are concerned that a severe price retraction could subsequently happen which could not only erase your total profit but could also generate a loss.
To defend your profits from such a prospect, you could, at this stage, initiate a new ‘PUT’ binary option and link it with your initial ‘CALL’ trade. In so doing, you would generate a window of opportunity ranging from 1.4000 and 1.4050. If price should now expiry within this window then you will collect a double payout, i.e. one from both the CALL and PUT positions. Additionally, you would also considerably lower your risk levels because if price expires outside this window then the return percentage of one of your binary options will almost entirely counter the loss of the second one. 2. Binary options betting: You should opt to implement this strategy immediately after any of your preferred assets have generated a notable price spike unexpectedly. This strategy specifically exploits the fact that many investors have a tendency to trade in a very foreseeable manner following the occurrence of such events. 3. Stop-loss trading: Many experts utilize binary options as a technique to hedge their bets with other types of assets because they have a successful track record for this service. For instance, consider that you have backed the EUR/USD directly on the currency markets and that you are contemplating instigating a stop-loss in order to safeguard your trading capital from severe drawdowns. . As opposed to positioning a normal stop-loss, you could, in contrast, execute a binary option, also based on the EUR/USD, but in the opposing direction to the original position you opened on Forex directly. By performing such an action, you would generate substantial protection for your initial EUR/USD trade.
Nevertheless, even though such a strategy looks easy to implement at first sight, success depends on the quality of your knowledge and skill about vital attributes, such as asset performance, risk tolerance, prevailing market conditions and your own trading style.
4. Index-asset divergence trade: This is yet another favorite strategy that involves hedging a binary option structured on a currency pair with one whose underlying asset is a trading index positively correlated to this asset. For instance, consider that you have activated a ‘CALL’ binary option, based on the EUR/USD, because you have assessed that it will climb in value imminently. To hedge this wager and if you have also evaluated that the Dow Jones Index will drop during the same time period, then you could implement a ‘PUT’ binary option, using the Dow Jones Index as its underlying asset. This is because the EU/USD and Dow Jones are negatively correlated, i.e. when one increases in value, the other declines. As such, this strategy permits you to enhance your belief in your original EUR/USD trade. Furthermore, you can present yourself with the possibilities of increasing your payouts and decreasing your risk exposure. For example, with the illustration just defined, you could attain a double pay-out if your computations prove accurate.
5. Competitor relative value trade: This strategy can assist you in profiting trading binary options by taking advantage of the opposing price actions of two rival firms. For instance, envisage that Microsoft is scheduled to launch a new device that is anticipated to generate a substantial increase in its stock valuation.
Additionally, you conclude that competitors, such as Apple, could endure a serious decrease in its portion of the relevant market sector as a direct reaction to the Microsoft development. Such an outcome could adversely impact Apple’s shares. After undertaking a comprehensive technical and fundamental analysis, you execute a ‘CALL’ binary option, structured on Microsoft and a ‘PUT’ trade, based on Apple. This process subsequently generates an opportunity for you to receive a double return should your evaluation prove correct and both positions finish 'in-the-money'. 6. Commodity stock affect trade: Numerous investors rate this technique as a very effective and successful binary options strategy. Essentially, the concept is to take advantage of the deviation in the price actions of products and the firms, whose businesses on centered on them. For instance, major price movements in aviation fuel can significantly impact the price of correlated currency pairs, such as the USDCAD. As such, if you detect that a price spike in this commodity is impending then you could implement
Additionally, you could hedge this trade by instigating a PUT binary option, using the USD/CAD as its underlying asset, if you deduce that this currency pair will slump as a direct consequence of this event. In conclusion, if you invest some time to assess binary options strategies, such as those defined above; then you will discover that this is a fulfilling venture that could substantially enhance your earnings. This is because you can supply yourself with viable trading opportunities capable of boosting your income while reducing your risk levels at the same time.
9.3 Differences between Binary and Traditional Options Binary options are similar to traditional options because payouts are based on their values at expiration. Specifically, binary options require that you only need to predict the direction of their price movement. In contrast, you must determine the size and direction of price movements when trading vanilla options. Therefore, the main difference between a binary option and traditional options is that you are required to predict the size and direction of price movements with the latter but only the direction of price with the former. This critical variance ensures that Binary Options trading is definitely easy to implement. Although your potential profits may be limited, more significantly, your risk levels per position are minimized. As a consequence, binary options are often known as fixed rate options since contracts have predetermined fixed rates of return and losses. Always remember that trading experts first take care of the downside of their trades before thinking about how much profit they can make. Other critical differences between binary and traditional options are now listed:
9.3.1 Expiry Times Traditional Options terminate on a monthly basis. Binary Options are supported by an extensive choice of expiry time extending from 60 seconds to intra-month.
9.3.2 Size of Payout Traditional Options offer variable returns depending on the final value of price at expiration. Binary Options support fixed returns which are known prior to execution time.
9.3.3 When are Payouts made With Traditional Options, trades are closed at times which are calculated using a complex formula involving the opening and final values of price. With Binary Options, forecasting the time of expiration is significantly simpler as they are defined even before trades are opened.
9.3.4 Can you personally initiate payouts? Traditional Options: Yes you can as these options can be terminated before expiration. Binary Options: No, you cannot since these options can only be closed at expiration and not beforehand.
Live Binary Options Trading
Chapter 10: Live Binary Options Trading Now that you have been introduced to the merits of binary options, this chapter will demonstrate the advantages of trading them. This goal will be accomplished by presenting strategies, techniques and examples that will assist you in deriving the most out of this trading mechanism. To commence this process, additional features of a well-proven and tested binary options strategy will be discussed.
10.1 More About Binary Options Strategies In order to devise such tools proficiently then you are well-advised to base it on the following key features:1. Always activate positions in the direction of the prevailing trend. 2. Exploit the advantages of the longer time-frames. 3. Aim to grow your account balance at a realistic rate. 4. Utilize the power of compound interest. 5. Devise a well-tested money management policy. Quite an impressive list you must agree. However, a powerful strategy must also offer other key benefits. For example, such a tool will normally operate best by utilizing the daily time-frame and above because the associated statistics are superior to those of their lower time-frame counterparts.
10.2 Trading Guidelines Over extensive periods of time, professional investors have devised wellproven procedures which they always instigate whenever trading binary options. This section will introduce them to you because they are so effective that you will definitely enhance your trading ability from utilizing them. Your primary mission when trading the financial markets will always be to reduce your losses to a minimum.
You can accomplish this goal by gaining trust in your strategies. Specifically, you must always attempt to plan your binary options and not just trade your plan. Never risk funds that you cannot afford to lose. In addition, you can trade more objectively if you learn to think in terms of points captured as opposed to cash. Remember that you are the boss. As such, activate wise decisions structured on your well-tested strategies in contrast to speculating widely on your gut feelings. You can achieve this objective better if you prevent yourself becoming obsessed with your trading. As such, you must learn to relax and enjoy your life. Concentrate on detecting just a few high quality entry opportunities instead of succumbing to adrenaline rushes by activating as many trades as possible. Your profits will increase by doing so. Organize your trading activities well so that you have all pertinent information at your fingertips. Finally, always remember to treat the financial markets with great respect and not just as another gambling pursuit.
10.3 What You Require to Trade Binary Options You will need a top-class trading platform allowing you to speculate on assets using binary options by permitting you to conduct informed and quality judgments on every position you plan to activate. Additionally, such an amenity must support, as a basic requirement, secured, rapid and precise execution; status monitoring and the presentation of quality financial news and commentary. You must also be able to withdraw and deposit funds out of and into your trading account efficiently with no unexpected difficulties. Essentially, you require a premier trading platform which is fully dependable and not susceptible to frequent sown-time or consistent crashes. To accomplish this task, many brokers have invest sizeable sums of money developing top-class platforms specifically for trading binary options.
Consequently, they are very assured that the sophisticated and state-of-theart facilities and tools offered by their platforms will assist you in commencing a profitable and successful career in trading binary options. You will also discover that as your experience improves, then you will have access to more specialized facilities that will aid you in elevating your game even higher. When creating their trading platforms, the main stipulations of most brokers were to guarantee their ease-of-use as well as presenting a robust trading environment. As a result, their registered customers can utilize some of the most powerful tools available on the financial markets these days.
10.4 You are the Main Component After novices have traded binary options for any length of time, they begin to realize the significance of a major point, which is regardless of whether they are trading a strategy or a robot, they will always have to assert some form of judgment themselves.
For instance, if they are using a trading strategy that is
based on a technical indicator then it is they who will need to evaluate the significance of its readings in order to decide whether they to open and close trading positions. In short, the ultimate choice rests with them. Similarly, if you are trading an automated robot then you will also have to make important decisions despite the substantial reduction in the levels of trading judgment required. For example, you will need to determine which combination of its settings will provide the optimum trading results and whether you will obtain improved profits using a virtual private server or your own computer. A level of trader judgment will always be required no matter which method you used to trade binary options. Consequently, you must always maintain a high level of concentration in order to achieve consistent success. One of the main reasons why so many traders struggle to create successful trading plans or execute trades profitably is their lack of focus.
You simply cannot allow yourself to procrastinate or to become easily distracted by the next best indicator, program or enticing email that comes your way. To overcome these types of problems, this book will shortly advise you about how to construct binary options strategies proficiently so that you can start to trade binary options successfully. The ultimate purpose in doing so is to inspire you to become the best trader that you possibly can. If you learn the concepts and techniques described, then binary options trading could well provide you with an unlimited and exciting future! Always remember that no matter which strategy or method that you decide to use, you will always remain a central component. In other words, getting to know your own objectives, strengths and weaknesses as a trader is one of the first steps to success.
10.4.1 Fast Track Trading You will discover that this feature is especially valuable if you are a novice at binary options trading. Basically, numerous premier brokers will support a fast track facility allowing you to activate quality trades with optimum payouts rapidly by merely hitting a couple of key buttons. Their platforms are frequently updated with quality recommendations which are generated by their own experts. You will be supplied with all the necessary details to implement binary options without the necessity of undertaking extensive research or conduct difficult decisions. For example, you will be informed about which assets to trade, which direction to select and the most suitable expiry times. You just need to determine the optimum bet to wager on each position. If you adhere to professional advice by not risking more than 2% of your trading capital, then even this task is relatively easy to undertake. As such, if you are searching for quick returns, then you could find that this facility could be your ideal solution.
10.5 Examples of Binary Options Trading Let us now review a number of straight-forward binary options trades using currency pairs as their underlying assets. By doing so, you can confirm the increased simplicity that you would have experienced by trading them using binary options as opposed to opening positions directly on Forex. The first example involved opening a position using the EUR/AUD currency pair as shown in the next diagram.
If you had attempted to activate this position directly on forex then you would have had to conduct numerous involved trading actions. For instance, you would have had to precisely locate profit-targets and stop-losses. You may also have had to endure sizeable stress waiting for price to hit your target. In addition, you would have had to calculate the ideal amount to wager in compliance with your money management policy.
In contrast, if you then used binary options instead then you would have found this process much simpler. For instance, your trading strategy would notify you, as soon as price had fallen 20 pips below S1 that you should open a new ‘PUT’ binary option, based on the AUD/USD. As you would also know that your maximum potential loss would be about 85% of your investment, you could determine easily the size of your deposit in order that it complied with your 2% maximum risk per trade money management strategy. Let us assume that this figure is $1,000. In addition, as the recommendation produced by your strategy was based on observations made using the daily timeframe, you could safely select an expiry time of 1 hour. So you would simply need to implement a ‘PUT’ binary option, based on the AUD/USD, supported by an expiry time of 60 minutes. As the chart above demonstrates, the opening price of your position was 1.3281. After the expiry time of one hour elapsed, if the value of the AUDUSD had been just one pip below its opening price at 1.3280 (which it was), then you would be in-the-money and would receive a payout of $800. Not bad for one hour work. If you had directly traded the currency markets, then you would have needed to secure almost 330 pips in order to produce a similar payout by utilizing a $1,000 bet. A very important feature that you need to grasp is that everytime you initiate a binary option you will activate a contract which identifies predefined refunds and profits. For instance, you will collect a rebate of about 15% of your bet in the case of an ‘out-of-the-money’ outcome. As such, if you want to risk just two percent of your equity per trade, then your deposit will equal your total current account balance times 2.35% (including the 15% refund).
You will notice that this calculation is all you have to perform in order to provide full protection for your equity in accordance with your money management plan. In addition, as you are only interested in the direction in which price will move, you just need it to finish one pip above its opening price for a ‘CALL’ binary option and one pip below for a ‘PUT’ option. As you do not have to undertake complex tasks such as determining the positions of stop-losses and profit targets, the entire trading process is dramatically simplified by exploiting the benefits of trading binary options.
The next example displayed in the above chart shows a Sell position traded using the NZD/USD currency pair. Again, a significant number of complex decisionmaking would have been involved if you activated this trade directly on Forex. In comparison, imagine that your strategy had notified you that the price of the NZD/USD currency pair has just breached S1 by an addition 20 pips. You were subsequently advised to activate a ‘PUT’ binary option, structured on the NZD/USD currency pair.
Envisage that you did, indeed, activate such a trade supported by an expiry time of 1 hour and a deposit of again $1,000. As the price at the expiry time was lower than the opening one by at least one pip (much lower in reality) then you again could have received about $800 as a pay-out. Again notice that when you select the size of your deposit, you can use the simple formula displayed above. That is your deposit will equal your total current account balance times 2.35% (including the 15% refund). As such, you will have no need to determine complex positioning for stop-losses and profit targets. The above examples should clearly indicate to you just how much easier it is to trade Forex by utilizing binary options with a well-tested strategy. In addition, the rewards are much higher while your risk exposure per trade is greatly reduced.
Increase Profits by Exploiting Volatility
Chapter 11: Increase Profits by Exploiting Volatility Many experts attempt to exploit volatility with the express intent of optimizing their profit potential when trading the financial markets. This is because enhanced volatility can produce significantly large price surges generating entry prospects exhibiting larger monetary payouts. Nevertheless, under such conditions you must still adopt caution, especially if you are a beginner, because your levels of risk per position will also increase dramatically. After you have successfully trade binary options using a trading strategy, you could then consider deploying more volatile underlying assets in order to increase your profits. One of the most favorites utilized to achieve this objective is gold and this chapter will explain why this is so. You will be introduced to the main attributes of this commodity that make it a prime choice to improve your earnings. This chapter demonstrates that although trading the gold XAU/USD currency pair has exciting profit potential, you will have to overcome a considerable amount of complexity if you were again to try doing trading it directly on Forex. The analysis presented illustrates vividly that higher levels of volatility imply that you will have to greatly improve all the skills needed for trading any asset under such circumstances. The conclusion that you should deduce after reading this chapter is that an approach using binary options is definitely required if you intend to profit from trading gold.
11.1 Gold trading is more volatile
One trading skill distinguishing Forex experts from novices is that the former group has developed an excellent understanding of the concepts of risk and money management. Obtaining proficiency in this subject is essential in order to safeguard your account balance form heavy losses.
This is especially so when you are trading gold using the XAU/USD currency pair. This is because in any set period of time, Gold trades through a significantly larger number of pips that other currency pairs, such as the EUR/USD. This effect is explicitly demonstrated in the following charts which display a Gold candlestick which is 531 pips in length and a EUR/USD one equally 52 pips over similar timeframes.
Risk and money management are complex issues. This chapter is meant to help you understand their main ideas so that you can readily integrate them into your own gold trading strategies. The recommended approach to achieve this objective is that you should apply your new skills in order to control the profit potential and risk exposure of every new position that you will activate. By learning to implement this process well, you will be able to attain optimized account protection by minimizing your risk exposure.
So, what is the beat technique that you can adopt when applying risk and money management concepts? Professional traders endorse the following process. Determine the maximum level of risk exposure that your account balance may have to endure resulting from the excessive volatility generated by gold trading. Gold has the capability to create price surges of thousands of pips on a daily basis generating structures that are complex to analyze. The subsequent diagram illustrates that gold can readily travel in excess of two thousand pips during a single trading day.
Imagine that you possess an account balance of $10,000 and you open a new gold position using the XAU/USD currency pair risking $5 per pip with no stop loss protection. Assume price advances 500 pips against your position before you exit. If you were unfortunate enough to endure such an outcome then you would have just lost $2,500 or 25% of your entire equity. Consequently, you must calculate your risk exposure more accurately as this strategy is clearly flawed especially when you are trading the XAU/USD currency pair.
11.2 Volatility and Risk Exposure
Your prime objective when your start trading gold is to defend yourself from financial losses. There are a number of techniques that you can use to achieve this objective. For instance, one approach is to consider the difference between the mindset of beginners and that of experienced traders. An essential discrepancy is that the latter concentrates on how much money they can potentially lose per gold trade while the former dream about how much money they can make. Let us analyze the following trading situation in order to obtain a deeper understanding of this concept. Envisage that on the daily XAU/USD chart that the Relative Strength Index (RSI) has just plunged beneath below 30 and is now starting to rise back above this level, as depicted on the following diagram. After analyzing this chart, you could easily conclude that as the RSI bounces back above 30 a strong buy signal is created. However, you still cannot afford to merely implement a quick decision and open a position without properly consulting your money management policy. This is because you need to protect your equity against false signals or fakeouts by the accurate positioning of both a stop-loss and profit target. In addition, you must always remember that as gold trading generates excessively more volatility than other assets, then you must adopt an even more cautious attitude.
However, many beginners would jump straightaway into a new trade, at this point, without proper consultation with any well-tested trading strategies of any type. Consider that price first moves against their trade by 100 pips before the trade eventually realizes a profit of 50 pips. Assume that four wins are obtained in a row with exactly the same profit before a fifth trade produces a loss of 300 pips. Now, although the novice could have achieved an 80% win rate by trading the XAU/USD gold currency pair, a loss of 100 pips would have been produced by this sequence of results. Sadly, many beginners win more trades than they lose only to still squander money in the process.
In contrast, experts would study the same position by consulting their gold trading strategies that possess both positive win-to-loss ratios and expectancy values. They would also assess acceptable losses and realistic profits by applying sound money management strategies. They would then use their findings to select optimum entry points and well-position stop-losses. They will next calculate their position-size that will ensure that their total risk for this new trade is kept within the 2% risk recommendation of their money management strategy. Experienced traders also know that, in order to achieve long-term profits that the total value of all their wins must exceed that of their losses by at least by two to one. As they have designed and geared their management strategies to achieve these goals, in our example, they could register two losses totaling 500 pips compared to two wins equating to 1,000 pips. Consequently, their money management policies would have successfully provided them with a 2:1 reward-torisk ratio. Although every type of investment involves a degree of risk, you should always consider gold trading as especially risky because it can generate levels of volatility and liquidity that are much greater than those of other currency pairs. For instance, once you have signed up and joined a broker, you could have access to leverage that can be as high as 100:1. Such a facility will allow you to control positions of substantial size by supporting them with just a minimum deposit. However, unless you instigate well-proven money management policies you could suffer serious losses that could even erase your trading capital. Gold trading can generate such excessive volatility that it can create fast moving and erratic price formations, as demonstrated on the ensuing chart.
The above chart vividly demonstrates why you must exert so much caution when trading gold using the XAU/USD currency pair. Specifically, you should carefully note the sheer size of the fluctuating trends. A bullish channel is initially produced, comprising over seven thousand pips, which is subsequently followed by a bearish trend consisting of nearly four thousand pips. Another bullish channel is finally created consisting of almost 5,300 pips. Such large swings of thousands of pips do produce significant profit potential but only if you can control the substantially large risk exposures. Consequently, as you will find that the task of forecasting the future movements of gold accurately all the time is practically zero, you must always trade in such a way as to provide your account with maximum protection. Here are some risks that you need to consider and always be on your guard against:
1. As your broker determines execution prices, you are very much dependent on their honesty for fair values. Forex differs from other markets in that it has no central marketplace with visible and definitive regulatory controls. 2. You must always be aware about the problems that could occur should your trading platform fail. For instance, if your system crashes then you may not be able to execute new orders or cancel active ones at vital times. As a consequence, you could experience significant financial losses or even fraud. 4. There is also a risk associated with sudden shifts in the interest rates of the two countries comprising a currency pair. In addition, should a bank or financial institution go bankrupt then a credit risk could occur. Country risks can also happen should governments decide to limit their currency flow. You must provide yourself with as much protection as you can in order to defend your account balance against such risks. As even experienced traders cannot foresee, with any degree of certainty, future changes in gold, you should always employ tools that can restrict and limit your losses for all your gold transactions. Many experts even produce their own business plans in order to focus on their gold trading objectives especially controlling their risk exposure.
11.3 The Complexities of Trading Gold normally You will gain many benefits in learning how to use a well-proven trading methodology. Essentially, you first need to enhance your skills so that you specifically concentrate on the risks involved when you open a new position as opposed to its potential profits.
For instance, imagine that you have identified that gold is coming under stress after your fundamental analysis has indicated that some of the peripheral member countries of the Eurozone are experiencing substantial debt issues. In addition, you have detected that this precious metal has fallen over the last few days. If you now study gold trading charts using the daily time frame, you may still clearly detect that a strong bull channel is evident. In addition, you could also verify by utilizing a technical indicator that no new bearish trend has yet been created despite the recent Gold weakness. In contrast, if you had analyzed a gold trading chart based on a 15-minute time frame, then you may have already gone short because a bearish crossover was flagging you to do so. As a result, you may have entered a trade possessing a considerable risk element because you would be trading against the long-term trend. Novices waste excessive quantities of time and energy pursuing trades with little real profit potential but exhibiting high risk. For instance, they could open one hundred trades resulting in 70 wins but gaining an average profit of $5 while the 30 loses had an average loss of $20. This sequence of results generates an expectancy value of -$2.5 implying that they will lose -$2.5 for every $1 risked over the long haul. Such an outcome would be appalling and very demoralizing after so much hard work. In contrast,
experts formulate their trading decisions by utilizing the
superior statistics attributed to the longer time frames from the daily upwards. As such, they are prone to open fewer positions but of higher quality. For example, over the same time period they may activate just 10 trades producing 8 wins with an average profit of $100 while their two losses produced an average loss of $50. As such, the expectancy value of their trading strategy would be equal to $70. After many novices have traded gold for any length of time, one point that they come to realize is that regardless of whether they are trading a strategy or an
automated robot, they will always have to assert some form of judgment themselves. For instance, if they were using a trading strategy that is based on a technical indicator then they would need to interpret its readings in order to decide whether they should have open and close trading positions. In short, they make the ultimate choice. Similarly, if you are trading a robot then you will also have to make important decisions despite the substantial reduction in the levels of trading judgment required. For example, you will need to determine which combination of the productâ€™s key settings will provide the optimum trading results and whether you will obtain improved profits using a virtual server or your own computer. A level of trader judgment will be required no matter which method is used to trade gold. Consequently, traders must always remain focused in order to achieve consistent success. One of the main reasons why so many traders struggle to create successful trading plans or execute trades profitably is their lack of concentration. You simply cannot allow yourself to procrastinate or to become easily distracted by the next best indicator, program or enticing email that comes your way. To overcome these types of problems, you need to attain an easy-tounderstand methodology that will start you on the track to successful trading. Such a tool will inspire you to become the best trader that you possibly can. If you learn the concepts and techniques comprising such a methodology, then gold trading could well provide you with an unlimited and exciting future! Always remember that no matter which gold strategy or method that you decide to use, you will always remain a central component. In other words, getting to know your own objectives, strengths and weaknesses as a gold trader is one of the first steps to success.
11.4 Improving Your Gold Trading Results Professional traders recommend that you should master the excellent routine of recording and frequently updating a gold trading diary. You will then be able to appraise your trading behavior regularly in order to detect any enhancements or amendments that you could readily integrate into your binary options strategies. Many premier brokers can help you with this task as they provide you with a comprehensive history of all the trades that you have executed. The following diagram presents an example of this information.
Essentially, you will need to accurately store the main details of each gold trade that you initiate. The three key types of information that you should focus on are: 1. The Time and Date of each gold trade activated. This data can subsequently be used as an index to retrieve the details of any trade quickly.
2. The particulars of each gold trade. The data recorded should include opening and closing prices, expiry times, amount wagered and final status, etc. You can then analyze this valuable data at a later time to evaluate just how well your strategies are performing and if they need updating. You will also be able to answer vital questions, such as â€œDid you overtrade on a regular basis and did you consistently adhere with your money management strategy?â€? 3. Your feelings and aspirations. This information will assist you in assessing your behavioral patterns. For instance, were you in control of your decisions or not? Specifically, the following details at least should be noted in your logbook for each binary option traded: 1.
Reasons for initiating the gold trade
Price at expiration
Result status, i.e. win or lose
Emotions experienced during each trade After you have logged a sequence of results, you can then study this
information with the intent of identifying trading habits, such as: 1. Did you close your positions prematurely? 2. Did you utilize excessive leverage by overtrading?
3. Did your feelings dominate your decision making? 4. Did your gold binary options perform as expected? 5. Did you have to deposit additional funds? 6. Did the publication of key economic indicators interfere with your trades? 7. Did you execute binary options only in the direction of the prevalent trend? 8. Did you panic when price started to advance against your positions? 9. Can your strategies be enhanced by identifying entry opportunities of superior quality? 10. Could you have track and monitor your gold binary options better? Professionals utilize their diaries to undertake numerous vital tasks. In particular, they can more readily implement a more scientific and disciplined approach to their trading. Consequently, they vigorously endorse the consistent upkeep of a logbook because it can considerably improve your skills at trading gold binary options proficiently. You should also try to adopt a professional psychology when trading gold binary options as a top priority from startup. You can achieve this objective by keeping a logbook with the specific intent of helping you to remove your emotions from your trading decisions. In addition, your logbook can assist you in evaluating if your strategies really do work and make profits.
11.5 A Trading Example You can use the USD/CHF currency pair because as the next diagrams show it has a strong correlation with the price movements of gold.
As the above diagram illustrates the Swiss Franc has a strong tendency to track the price movements of gold relatively closely. As gold appreciates in value, the USDCHF drops and vice versa.
Consequently, you will need to adapt your strategy so that it will notify you of long trades in gold as follows:
By studying the above chart, you can confirm that you will receive an alert notifying you about a new long USD/CHF trading opportunity after price breaks higher than 20 pips above R1. Similarly, you will need to adapt your strategy so that it will notify you of short trades in gold as follows:
By studying the above chart, you can confirm that you will receive an alert notifying you about a new short USD/CHF trading opportunity after price breaks below S1 by 20 pips. If you are able to trade the XAU/USD gold currency pair then this would be ideal. Otherwise, you just need to adapt your strategy in a similar way to the USD/CHF as shown above.
Imagine that you have received a notification to open a long (Buy) USD/CHF position after price breaks above R1 by a further 20 pips as displayed above. At that point, you should open a â€˜callâ€™ binary option using the USD/CHF as the underlying asset and select an expiry time of one hour. You can calculate your deposit size by using the formula: Deposit = Account balance * 2.35% Consequently, if your balance is $42,500 then your deposit will be $1000. Note again, that there is no necessity to calculate stop-losses and profit-targets for your binary option as your potential profits and losses are predetermined and agreed even before your binary option is executed. As the first daily USDCHF chart shows, price surged and closed much higher than the required 1 pip above the opening price after the 1 hour expiry time had elapsed. There is a much greater chance that this result will be achieved if you trade gold because of the higher levels of volatility associated with it. You will now be in-the-money and will receive as high as 80% of your initial deposit as a pay-out. In other words, you would have gained a profit of $800 within 1 hour. Using binary options to trade Forex also had the advantage that your risk exposure
Trading Specific Markets (including Pair Options)
Chapter 12: Trading Specific Markets (including Pair Options) 12.1 Stock Trading using Binary Options Many traders opt to trade stocks using binary options instead of speculating on this asset class directly. This is because they can implement binary options to trade the price activities of stocks in an identical way to that which they would deploy by using the stock exchanges. Nevertheless, there are major variances between trading shares on the stock markets and utilizing binary options to accomplish this task. One of the primary differences is that, with the former, you will possess a part ownership of a firm after you buy a stock holding in contrast to the latter whereby you will only obtain the 'rights' to sell or purchase the shares of your selected business at a determined price. Essentially, shares are distributed by their parent companies in contrast to stock options which are merely secured by market makers and are not related directly to their associated firms. You can either initialize 'CALL' or 'PUT' binary options, based on the stocks of companies. The 'CALL' variant permits you to purchase stocks while you should utilize a 'PUT' binary option to sell them. The value of a stock option is termed a premium. There are numerous advantages related to speculating using in stock options as opposed to trading stocks directly. For instance, you only need to determine the direction in which price will progress before expiration and not the magnitude of the movement. This feature by itself eliminates a substantial level of doubt from your trading and significantly minimizes the quantity of analysis you need to accomplish for each trade you plan to implement. This is because the specific shares of firms can generate the most intricate price formations as a result of the substantial large number of factors influencing them. Whenever you trade shares directly you need to review these features in detail while there is no need to complete such an analysis when utilizing binary options.
Additionally, you will also possess a full understanding of your precise profit and risk potential whenever you trigger stock options. You will be aware that you will collect a pre-defined return when your positions expiry 'in-the-money' which can be up to 85% of your wagered amount. Otherwise, you will obtain a rebate between 0% and 15% of your deposits if your trades are 'out-of-the-money' at expiration. Consequently, you reap the benefits of an inherent money management policy when you deploy stocks options. This is a major edge when compared to speculating on stocks directly which entails you developing your own defenses to limit your risk exposure. You will succeed using 'CALL' binary options if the price of your chosen share expires by just a single point above its initial value at the time your trade was activated. Alternatively, you require 'PUT' binary options to close at least one point beneath their opening values in order to collect a pay-out. You can enhance your earnings at trading stock options considerably if you master relevant trading strategies. Below are a few popular ones which have enabled numerous investors to achieve success. 1. You can combine 'CALL' and 'PUT' binary options to supply yourself with opportunities to double your gains whilst reducing your risks. For instance, visualize that you have executed a 'CALL' stock option with an opening value of $20 and you are presently 'in-the-money' since it has climbed in value to $24. Nevertheless, you are concerned that a price retraction might happen before expiration. You can protect your gains by implementing a 'PUT' stock option at this point. Consequently, you would have created a range of opportunity between $20 and $24 wherein you would obtain a double payout if both options expiry inside it.
2. You can also use strategies that will help you hedge our ventures. For example, suppose that you that identified that the stock of Apple will surge higher because of the release of a new mobile device. Additionally, you deduce that this development could detrimentally impact the market portion of competitors, such as Microsoft. For that reason, you could hedge a 'CALL' binary option, structured on Apple with a 'PUT' one based on Microsoft. As the examples detailed above illustrate, numerous powerful strategies already exist that can substantially increase your returns while limiting your risks when you trade the stock markets using binary options.
12.2 Trading Commodities using Binary Options If you speculate on commodities by utilizing binary options, then you will acquire exciting opportunities to trade products, such as gold, oil, copper and silver, etc. In addition, you will discover that there are numerous advantages to this approach as opposed to instigating positions directly on the commodity markets. For instance, when you trade commodities using the traditional approach, then you will have to determine the size and direction of the associated price movements. In comparison, commodity options reduce complexities since you now will only need to forecast in which direction price will advance without fretting about the magnitude of the movements. Nevertheless, despite this appealing feature you must still exert restraint because commodity trading encompasses significantly higher levels of volatility compared to other major asset classes, such as indices, currencies and stocks. For instance, the fluctuations of gold prices can easily surpass those of the EUR/USD by over twenty times within identical time-frames. This key characteristic offers you outstanding prospects to acquire substantial returns but only if you can handle the high levels of risk exposure.
As such, the real secret to success when speculating on commodities using binary options is still thorough research and analysis. For instance, if you are confident that the price of gold will appreciate in value consistently over the following couple of months, then you could assertively implement a ‘CALL’ binary option based on this commodity. Equally, if you conclude that a new substantial increase in the global manufacturing of electrical and industrial equipment is imminent entailing a significant boost in the consumption of copper wiring, then you should instigate a ‘CALL’ binary option, constructed on this metal. The significance of staying constantly up-to-date with all the new advances affecting commodities is imperative if you want to achieve consistent success at trading this asset class by utilizing binary options. Essentially, you must acquire a deep understanding about how to detect when commodity prices are about to change directions. You will need to embark on comprehensive research into the global supply and demand of all commodities of interest, irrespective if they are fuel sources, metals or natural gas, etc. Basically, the process required to trade binary options, constructed on commodities, is precisely the same as all other asset classes. The only key distinction is that you need to carry out more substantial analysis so that you can proficiently exploit the increased levels of volatility created by commodities so as to boost your profits and decrease your risks. Nonetheless, although there are elevated risks involved, there are also outstanding prospects to capture rewarding and regular gains by utilizing binary options to speculate on commodities in contrast to trading them directly on the financial markets. This is because 'CALL' binary options only need to expiry at least one point above their opening values for your trades to finish 'in-the-money'. In the same way, 'PUT' binary options just need to close at least one point beneath their strike values to collect a payout.
Additionally, binary option brokers support an extensive number of expiry times extending from 60 seconds to multi-month. As such, if you are self-assured
that a commodity will rise in value over any specified time-frame, then you have the opportunity to initiate several very lucrative 'CALL' binary options. In addition, you can enhance your capability to produce even larger returns by learning and practicing binary option strategies such as the â€˜Commodity Stock Affect Tradeâ€™, see section 9.2 for details and examples.
12.3 Index trading using Binary Options Index trading has grown in popularity in recent times because it offers numerous benefits compared to other forms of investments. For instance, you can learn and implement Index trading very quickly. In addition, you can instigate trades from any computer, possessing an internet access, anywhere and at any time. Your profits will also be subjected to a lower tax band compared to those of other investment mechanism. As such, trading indexes offers outstanding business prospects. You will also be able to generate profits equally well under both bullish and bearish trading circumstances. So, what exactly are indexes? They are fundamentally a collection of stocks that have been arranged together in accordance with specific requirements. For instance, the standard and Poor (S&P) 500 consists of those shares of the leading 500 biggest businesses on the globe whereas the Dow Jones Industrial Average (DIJA) incorporates the topmost thirty most traded shares. Every index analyzes and monitors the monetary markets by utilizing numerous methods and resources. Index trading specifically meets the needs of those investors who prefer to focus on the volatility of the stock exchanges but do not have the interest or time to conduct thorough research into separately quoted firms. For that reason, you will still be capable of producing knowledgeable judgments regardless of whether you activate 'PUT' or 'CALL' binary options by acquiring a much larger perspective of the stock markets. You may then monitor the actions of your selected indexes regularly by checking data changes and revisions provided by renowned sources, such as
Reuters. By investing using index options, you can open positions based on a broader market perspective by performing only one analysis and decision at any given time. This procedure contrasts drastically from trading stocks directly when you have conduct a comprehensive study into all those firms of interest. Therefore, the benefit of trading the stock exchange by utilizing index trading is that you can evade extensive levels of fundamental and technical analysis. Additionally, you have the opportunities of trading indexes 24 / 7. Many investors exploit this feature as a way to acquire extra insights into exactly how Wall Street will respond to overnight trends when it reopens at 9. 30am EST. You can boost your chances of success at undertaking this exercise if you attain an sound understanding about what key driving catalyst influenced the markets during the night. You should also learn the opening times of all the leading global stock markets. For example, if you track the twenty-four hours around the world then the initial stock exchange to open will be the Japanese Nikkei followed next by the Hang Seng in Hong Kong. As such, if you can acquire a deep understanding about which key influences dominated price actions on the Asian markets, you can then attempt to exploit these details by helping you assess their impacts on the S&P500 and Dow Jones Indices when they become active later in the session. Index options trading were presented to the monetary market in 1981. Comparable to equity options, which are structured on the stocks of companies, index options are constructed using major financial indices. One of the primary benefits of trading index options is that they enable you to be diversified your trading into the entire stock market or just to focus on one specific market sector at a time. By doing so, you can activate binary options proficiently by just conducting a limited number of decisions at a time.
In comparison, if you dealt with the stock
exchange directly, then you would need to undertake an assessment and determination for every firm of interest. A popular binary options trading strategy involves hedging a binary option structured on a currency pair with one whose underlying asset is a trading index
positively correlated to this asset. For instance, consider that you have activated a CALL binary option, based EURUSD, because you have assessed that it will climb in value imminently. To hedge this wager and if you have also evaluated that the Dow Jones Index will drop during the same time period, then you could implement a â€˜PUTâ€™ binary option, using the Dow Jones Index as its underlying asset. This is because the EU/USD and Dow Jones are negatively correlated, i.e. when one increases in value, the other declines.
As such, this strategy permits
you to benefit from your belief in your original EUR/USD trade. Furthermore, you can present yourself with the possibilities of increasing your payouts and decreasing your risk exposure. For example, with the illustration just defined, you could attain a double pay-out if your computations prove accurate.
12.4 Trading Currency Pairs using Binary Options Trading the currency markets has become very popular in recent times. This is because numerous newbies are lured towards Forex because of its colossal daily turnover, which is alleged to exceed $3 trillion. They think that they should easily be able to snatch just a small portion of such a gigantic sum of money. However, real live trading and statistics clearly demonstrate that such dreams are merely delusional by disclosing that only a few traders actually succeed. This is because many catalysts exist that can intensely impact the creation of major price structures and formations of currency pairs making them difficult to analyze and forecast accurately. Therefore, beginners face a significant learning curve which they must conquer in order to attain success.
A major task that they are constantly confronted with is that they must constantly determine both the direction and size of price movements. This can be a serious stumbling block especially for beginners. Alternatively, many investors have commenced using binary options to speculate on Forex because of the many simplifying advantages that they present. For instance, executing binary options, structured on currency pairs, requires that you only need to concentrate on predicting price’s preferred direction since you do not need to assess that size of the movements. This vital feature implies that, in the case of a ‘PUT’ binary option, price just needs to finish only one pip lower than its opening value at expiration for your trade to expiry ‘in-the-money’. Equally, you require price to close just 1 pip higher than its opening value for your ‘CALL’ binary options to register an ‘in-the-money’ status. Another critical assignment that you must perform proficiently when trading Forex directly is to develop a well-proven money management policy so that you can handle your risk levels per position professionally. In contrast, if you trade the currency markets utilizing binary options then you are not require to undertake this daunting task since you will always understand precisely the size of your predefined returns and rebates even prior to your trades being initiated. Let us now consider a specific binary option trade in order to show you exactly what you need to do in order to action such an investment. Imagine that your broker has just notified you that you should open a new long (buy) position using the EUR/USD currency pair. Consider that the price of the EUR/USD is currently 1.2750 and that you conclude that it will continue to rise during the next hour. Consequently, you open a CALL binary option using the EUR/USD as its underlying asset with an expiry time of 1 hour. The opening price is 1.2750 and your deposit is $1,000. The payout ratio is 80% and the refund is 10%.
Whenever you trade binary options, there can be only two distinct outcomes. Either you will win a predefined profit or lose a sizeable portion of your deposit. After one hour has elapses, the EURUSD stands at 1.2760 which is higher than the opening price and you are in-the-money. Your broker pays you $800. However, if the EUR/USD had finished below 1.2750, then you would have been out-of-themoney and lost your deposit but would have received a refund of $100. 12.4.1 Forex Direct vs Binary Options With a huge daily throughput of about $3 trillion, Forex has caught the attention of a swelling band of new investors in recent years. Aggressive and intensive advertising and marketing campaigns have attracted most of them with dreams of instant riches. Regrettably, reality paints a vastly different picture since almost all these beginners lost their preliminary deposits rapidly. In truth, just a few evolve into expert traders. The key reason behind this dismal result is that currency pairs are powered and influenced by numerous complicated variables which can generate very intricate price waveforms that are challenging to forecast with regular accuracy. As opposed to offering a simple path to wealth, perfecting Forex trading effectively entails a substantial amount of dedication, energy, money and time. For instance, investors must evaluate both the direction that price will advance as well as the magnitude of its movements. In addition, they have to devise techniques to restrict their risk levels in order to supply maximum protection for their trading capital. This procedure usually involves creating or obtaining a money management program that delivers rules about how to precisely locate stop-losses and profitstargets. As mastering such knowledge defined above requires time to grasp, many new investors have a tendency to quit eventually. Is there an easier alternative? Yes, there is! Binary options were specifically designed so that they can simplify this trading operation. For example, you now only have to forecast the direction of price movements and not their size.
Binary options also offer a built in money management plan by permitting you to always totally understand your exact risks before your positions are even executed. In particular, the total of your losses cannot rise while your binary options are active. For that reason, trading Forex by implementing the advantages of binary options has quickly become a preferred route for many investors nowadays. Their advantages can best be appreciated by considering an explicit trading example. As the next hourly chart shows, the EUR/USD has been trading a tight range for some time delineated by a ceiling and floor. Subsequently, you should notice a bearish breakout developing after the pair produces a definitive close beneath the floor level. At that point, you instigate a new ‘PUT’ binary option structured on the EUR/USD, which is labeled on the chart by ‘Bearish breakout’. You select the hourly expiry time and wager $500. Your return rate is presented as 80% and your rebate is 15%.
Binary options provide only two eventualities. Either you will receive a profit if your trade wins or you will lose your deposit but collect a rebate in the case of losses. Your trade finishes in-the-money at expiration as price is well beneath its strike price as identified on the above chart by the label ‘in-the-money’. Subsequently, you receive a profit equating to $500*80% = $400. To capture the same return by trading Forex directly, price must have advanced by over 250 pips in your favored direction. As the EUR/USD could take many hours to achieve such a result, your position would remain very vulnerable to many volatile events during that time. Consequently, as you can conclude after analyzing this example, binary options can definitely reduce the complexities of trading Forex directly. This is primarily because your profit objectives will be much better defined and far more obtainable. In addition, your decision-making will be greatly simplified. However, binary options have one major downside compared to reading Forex directly. This is that you must devise a strategy exhibiting a win-to-loss ratio of 55% or higher when utilizing binary options in order to merely breakeven over any designated time-period. This is because you will only collect between 65% and 85% when your positions expiry ‘in-the-money’ but will lose 80% to 100% when they closed ‘out-of-the-money’. This very important feature implies that implementing a gambling attitude over any specific length of time will only generate sizeable losses. As this approach is seriously flawed, professionals stress that you must utilize well-tested strategies and tools in order to capture consistent and worthwhile profits. In contrast, you do not need 100% of your positions to be winners in order to be successful at Forex trading. In fact, you can even lose a larger percentage than you win. However, under such circumstances you must ensure that the size of your wins is constantly larger than the size of your losses in order to record a profit over the long-term. For example, your trading strategy can generate profits with a win-to-loss ratio of just 1:1 as long as its reward-to-risk ratio is at least 2:1.
12.5 What are Pair Options? Pair options were only recently released into the market. They offer investors the ability to speculate on which asset out of a choice of two will outshine its opposite number over a specific time period. Traders do not have to worry about forecasting the path in which price will progress as they are required to do with normal binary options. Consequently, pair option trading presents distinctive prospects to accumulate worthwhile profits which are not so readily available with other investment mechanisms. Brokers, who offer pair options, normally support a comprehensive selection of equities traded on both the European and USA stock exchanges. Usually, the two fundamental assets forming a pair are firms whose business activities are positively correlated and which typically function within identical market trading sectors e. g. telecommunications or retail banking, etc. This key aspect infers that traders should be able to easily identify any prices divergences that are forming between the two assets of a pair. These tools are also well supported by an extensive range of expiry times extending from intra-day to multi-month. Pair options have two basic variants which are fixed and floating. Fixed pair options allow traders to decide the expiry times of their options whenever they activate positions. These options always close at a fixed expiry time. The relative performance of the two assets, forming the pair, commences as soon as the trade is executed. Expiry times for fixed pair options range between 1 hour and 150 days from start time. Payouts for fixed pair options, which can be as high as 86%, depend on the assets selected and are clearly advised before execution. Floating Pair Options can be utilized to predict which one of two assets functions best over a predefined time-period, i.e. a day or month, etc. The assessment of the comparative performances of the two chosen assets begins at the start of a preselected period. This feature certainly differs from that of the fixed pair option which commences immediately a position is activated.
The expiry time of a floating pair option occurs at the end of the selected period of time although a trader can be closed at profit before this time. When a position is active, a payout value is constantly displayed which is calculated using the relative values of the two assets, time to expiry and other relevant variables. Payouts can exceed 300%. The following example illustrates how you can trade pair options successfully. Basically, you need to predict which of two companies operating in the same market sector will outperform the other over a selected period. Imagine that you decide to open a pair option comprising the stocks of Amazon and Apple with an expiry time of 1 day. If you deduce that Apple will outperform Amazon then you should activate a ‘PUT’ option using the Amazon/Apple pair. Alternatively, if you opt to back Amazon then you need to open a CALL option. You must then select your option type, i.e. fixed or floating and choose a deposit amount. Imagine that you open a fixed pair option; deposited $1,000 and activated a ‘PUT’ option. At expiration, Apple does outperform Amazon and you are ‘in-the-money’. Subsequently, your broker pays you a profit of $800.
conclusion, pair options function in an identical fashion to normal binary options. The primary variance is that pair options are not based on the movements of price but, in contrast, concentrate on the comparative trading performances of two positively correlated firms over a defined time-period. As such, they present exclusive opportunities for acquiring worthwhile profits by activating inventive trading strategies.
12.6 Pair Options vs Binary Options In the context of binary options trading, the word ‘binary’ refers to the fact that there can only ever be TWO distinct outcomes. You will either receive a predetermined profit or lose a sizeable proportion of your deposit. So, can pair options be classified as a specialized variant of binary options? The two types of options certainly have very different functions as they allow investors to trade specific aspects of the market.
For instance, binary options enable investors to speculate on whether the price of their underlying assets will finish below or above its opening value at expiry time. In contrast, pair options are not focused on the directional movements of price at all but, instead, allow traders to speculate on the relative performance of two closely correlated companies trading within the same market sector over a specified time period. Pair options are available in two main forms which are fixed and floating. Fixed pair options activate the relative performance measurement of the two selected firms on executed. Very importantly, they have fixed expiry times and traders cannot cash-in before expiration. Consequently, there can only be two distinct outcomes possible whenever you trade fixed pair options. At expiry, you will either be ‘in-the-money’ or ‘out-of-the-money’. As such, fixed pair options are regarded to be a variant of binary options. In contrast, floating pair options allow you speculate on the relative performance of two companies over a pre-determined period of time, i.e. day, week or month. However, they do allow you to cash-in before expiration should you find that your option is ‘in-the-money’. This important attribute implies that your trades can have multiple outcomes. For example, if you have selected a predetermined period of one week, then you could have opportunities to close your trade with difference outcomes on Monday, Tuesday or Wednesday, etc. floating pair options are NOT deemed to be binary options.
Trading Different TimeFrames
Chapter 13: Trading Different Time-Frames 13.1 60 Seconds Trading This type of binary option operates exactly as standard ones except their expiry time is just 60 seconds. They have only recently been introduced into the marketplace and are now supported by a number of prominent binary options brokers. They tend to remain within the domain of the expert trader as they require an in-depth understanding of the financial markets in order to utilize successfully. This binary options variant has developed into one of the most popular tools by providing investors with the capability of profiting from the high volatility associated with key economic news publication. This is because these events can generate significant price surges within the matter of minutes. However, you will require professional understanding and knowledge to enable you to trade these releases proficiently. You should also appreciate that experts utilized advanced hedging techniques to increase their chances of success as well as substantially reducing their risks. 13.1.1 60 seconds binary option example - The USA Labor Department is scheduled to present its all-prevailing NonFarm Payroll number imminently. Your fundamental studies strongly suggest
expectations and should provide a boost for the US Dollar. As such, you decide to activate a 60 seconds ‘PUT’ binary option, based on the EUR/USD, in order to exploit this event. - You hit the ’60 seconds’ button on your trading platform. - You pinpoint the ‘EUR/USD’ asset. The present value is displayed as 1.3700. - A return ratio of 80% and a rebate ratio of 15%.
- The present time is 8.29.30. - Expiration will occur 1 minute later at 8.30.30 EST. - You wager $1,000. - You activate a ‘PUT’ binary option using the EUR/USD as its underlying asset. - At expiration, the EUR/USD stands at 1.3684 and your position closes ‘inthe-money’. You collect a total payout of $1,800, including your initial deposit of $1,000. - If, instead, the EUR/USD had risen to expiry with a closing price above 1.3700, then your trade would have closed ‘out-of-the-money’ and you would have received a rebate of $150.
13.2 1 Minute Strategies The 60 second binary option has become increasingly popular since its inception during recent years. Several strategies are now presented that you can utilize to help you trade it successfully. 13.2.1 Support and Resistance Strategy Most assets exhibit a strong inclination to progress in a series of waves with each featuring a crest and a trough. These restrictions are evaluated to be key retraction levels which may be easily recognized by major resistances and supports. A popular 60 seconds strategy is to detect those occasions when price distinctly rebounds against these levels. New binary options can subsequently be executed in the opposite direction to that in which price was advancing before it bounced. For example, the following GBP/USD 60 seconds chart reveals excellent examples about when to implement both PUT and CALL binary options. Basically, anytime price rebounds against resistance then you need to initialize a ‘PUT’ option.
In the same manner, if price bounces upwards after probing support, then you should implement a ‘CALL’ binary option.
Your initial action to implement this strategy is to identify an asset that has been range-trading for some considerable time. You need to then recognize the prominent supports and resistances by either utilizing those displayed on your trading platform or by simply linking the highest peaks for resistances and the lowest ones for supports, as demonstrated on the above diagram. After you notice price challenging one of these levels, you must then wait until the current candlestick verifies a genuine rebound by cleanly closing beneath a resistance or above a support. Adopting this process provides you with some defense against fake alerts. If an effective verification is obtained, then execute a new ‘PUT’ binary option, constructed on the GBP/USD, supported by an one minute expiry time in the event of price rebounding against a resistance, as exhibited on the figure above.
By betting $100 with a return ratio of 75%, you would have received a payout of $75 for both the ‘PUT’ binary options presented above. In fact, your original deposit of $100 would have increased exponentially to over $900 for the four positions identified above within five hours if you had reinvested your profits each time. 13.2.2 Trend Following Strategy Another one minute strategy that has acquired significant popularity in recent times is structured on monitoring trends. This is because such techniques enable you to exploit the benefits of ‘trading with the trend’ and, as such, fulfils the intent of the famous adage, which advises that the ‘trend is your friend’. The fundamental concept is to track a trend and implement a ‘CALL’ binary option whenever price rebounds upwards against the lower trendline within a well-defined bullish channel. Alternatively, you should trigger ‘PUT’ binary options whenever price ricochets downwards after striking the upper trendline in an established bear trend.
For instance, the above one minute trading chart for the USD/CHF distinctly presents a well-defined bearish pattern. As you can verify from analyzing this diagram, four prospects for instigating 'PUT' binary options occurred after price rebounded downwards against the upper trend line. When you utilize a trending strategy, you must initially detect an asset that has been progressing within either a bearish or bullish channel for a while. You then must construct the trend lines by linking a sequence of consecutive lower highs for the upper trend line and successive lower lows for the lower trend line during bearish trends, as highlighted in the above diagram. After you notice price probing the upper trend line, then you should wait until the active candlestick is fully completed so that you can validate that it definitely exits below this level. If confirmed, then trigger a new 'PUT' binary option, based on the USD/CHF, supported by the 60 second expiry time. Visualize that your bet is $5,000 and the return ratio is 75%. The 4 successful positions detected in the above figure would have generated you over $4,700 in about two hours if you reinvested your gains every time. Perhaps now, you can start to comprehend why so many investors have become so excited about 60 second binary options.
13.2.3 Breakout Strategy A popular 60 seconds strategy is attempting to exploit breakouts since they are relatively simple to identify and can produce outstanding profits. The principle concept of this approach is that, whenever the price of an asset has been advancing for some extended time-period within a confirmed horizontal channel, then when it does acquire sufficient momentum to breakout of this restricted range it normally travels in its preferred direction for some significant time.
Your first action to instigate such a strategy is to detect an asset that has been progressing within a limited range for some considerable time. Consequently, you will be seeking a horizontal trading structure that is distinctly demarcated by a top and a bottom, as illustrated in the above AUD/USD 1 minute chart. Frequently, price will rebound against its ceiling and floor several times before it eventually breakouts, as demonstrated once again by the above diagram. A major breakout should therefore be evaluated as a powerful sign to activate a new binary option.
13.3 Day Trading Many traders base their binary options trading strategies on day-trading which entails that all positions are opened and closed within the same day. If you desire to do the same then you will need to undergo serious training in order to ensure success. Do not follow the herd who think that this type of trading will produce them instant profits. The financial markets only allows those traders to prosper who have attained the right levels of education enabling them to develop good trading strategies which they can apply emotionless and with discipline.
However, if you are prepared to make the necessary commitments then the rewards are well worth the effort because you can attain a good lifestyle from daytrading. If that is so, then what is the best route forward you may well ask? You are well-advised to develop your day trading skills by using the following steps: -
You must first learn how to analyze the financial markets competently by gaining a good understanding of fundamental and technical analysis. You are also recommended to design your own trading strategy as opposed to trying to purchase one. This is because you will develop a better feel as well as superior skills in doing so. In addition, you need to select a good binary options broker supporting a top class trading platform.
Next, you are recommended to write a business plan that precisely details your trading strategy. You should also state the prime objectives that you would like to achieve from day-trading. In addition, you should include your risk analysis. Once you start to trade, you must then record all your trading activities, such as your entry and exit values of your trades as well as your profits and losses.
You must next use a demo account to fully test your trading strategy. You should attempt to simulate live conditions but without risking your own equity. You will discover that your many binary options broker will be very willing to provide you with such a facility. If not, then locate one that will.
Once you have gained confidence using your demo account, you should then progress onto live trading by exposing your equity to small incremental steps of increasing risk. You can achieve this by first using a micro live account then a mini and finally a standard one.
management strategy in order to provide the maximum protection for your equity. Many experts advise risking a maximum of 2% of your total equity per trade. -
Consequently, you must strive at all times to keep your emotions under as much control as possible. You can do this be sticking closely to your trading strategy. -
You should constantly seek improvements for your strategy. If you do make any adjustments, then you must re-evaluate its performance by calculating its new win-to-loss ratio and expectancy value.
13.4 Swing Trading If you are still experiencing serious problems caused by not strictly following the guidelines
of your Binary Options trading strategy then do not become
dishearten because there is a solution. You simply may need to change to a trading strategy that possesses features that you can trade consistently and with confidence. Does one exist you may ponder? Yes, one does and it is called Swing Trading. Yet, despite its many inherent features that are especially suitable for novices, you will discover that many of its advocators are still not able to use it with the discipline necessary. As a swing trader, you will seek quality entry opportunities by identifying assets exhibiting short-term momentum. After you have executed new trades, you can keep them active for periods ranging from a few days to multi-weeks. Fundamentally, you will try to trade assets by deploying their monthly or weekly fluctuations between oversold and overbought statuses.
You are recommended to swing trade assets that are range-trading as opposed to tracking a trend. Generally, Swing trading provides a better foundation for a binary options trading strategy than many other popular methods. This is because you can more easily identify new opening and closing levels using the crossover features of renowned technical indicators, such as the Stochastic Oscillator and the Relative Strength Index. Regardless of these significant advantages, you must still display the discipline required to adhere to your trading strategies because many traders fail to do so? This is because you need to be patient when timing new entry points. A study of the historical data records of any asset will clearly illustrate to you that they definitely create well-defined bottoms and tops. As such, from hindsight, trading such formations should be comparatively simple. Nevertheless, you will find that real life presents a very contrasting picture. Additionally, you must develop a trading psychology that can deal with the negative emotions created during serious drops in your trading capital. You must maintain your trust in your binary options strategy even when price significantly moves against your trades. You will discover, however, that this skill is complex to learn because the financial markets generate unpleasant emotions that are very difficult to control. You will need to possess a trading strategy if you want to trade the financial markets successfully. You must also ensure that your strategy is well designed and tested and exhibits a positive expectancy value. If you have little time per day that you can devote to monitoring your trades, then you may find that swing trading is a good solution for you. This is because, it will involve you placing very few trades daily although the ones you do will be of high quality. This strategy is highly recommended for novices because it is easy to understand and to construct a profitable trading strategy based on it. Swing Trading is an investment technique that will require you to open positions with more stable assets and then keep them live for periods that can extended from a few days to a few weeks.
Swing trading can function just as well in stable or volatile trading conditions and depends on the momentum of price and its short-term oscillating patterns. You do not need to wait for price to attain a highest or lowest value to enter new positions. Instead, you base your entry and exit conditions on oversold and overbought positions of assets, which are quite easy to detect. You can also benefit from the fact that the oscillations of assets can exist for days, if not weeks. This feature provides you with ample opportunities to achieve substantial profits, if you can master this strategy proficiently. You will also not have to devote serious amounts of time monitoring your open positions. If you have a full time job, then you should benefit greatly from this attribute. You will just need to monitor your trades a couple of times a day just to evaluate their progress. Expert consensus views swing trading as one of the less risky trading strategies because it allows you to open positions based on consistent fluctuating patterns as opposed to more unstable events, such as fundamental news. Basically, you need to identify assets exhibiting stable trading patterns so that you can profit by opening trades that follow their well-defined oscillators or swings. This is a great strategy to select if you are concerned about your risk exposure. You can take a further step to provide optimum protection for your equity by also utilizing sound money management concepts. You can build a trading strategy that will enable you to undertake Swing trading by using a technical indicator such as the Relative Strength Index (RSI) indicator. This tool identifies overbought conditions of an asset when it registers readings of 70 and above. Similarly, the RSI posts oversold conditions when its readings are flagging 30 and below. You should use this indicator with time frames that extend form the daily and higher because their associated statistics are more reliable than those of lower time-frames. You should execute a ‘CALL’ binary option whenever the RSI drops below 30, bottoms out and then climbs back above the its 30 level. Similarly, you should activate a ‘PUT’ binary option after the RSI climbs above 70, achieves a top and then drops back below its 70 level.
The RSI has gained a good reputation for monitoring the oscillations of assets using Swing Trading. However, you must take care because the RSI cannot guarantee success just on its own and so you must be wary of false signals. You can increase your confidence by utilizing a second indicator as a confirmatory source, e.g. Stochastic Oscillator.
13.5 The Power of the Longer Time Frames When you were first introduced to binary options trading, you may have been lead to believe that because price generates predictable patterns that you could easily predict its future movements. This certainly would be fantastic if it were true because then you could achieve considerable success and profits. This would be extremely desirable state of affairs whether you were a novice or an experienced pro. Is there any truth in this observation and can you really forecast the financial markets that easily? You will find that assets do, indeed, constantly produce price formations that are generated by such events as risk aversion and risk appetite, etc. If you were to research into the trading psychology that creates many of the famous price patterns, such as tops and bottoms, then you could enhance your analytical skills in order to produce more profits.
However, you will discover that this objective is harder to achieve than at first glance. Your main problem is that price does not generate movements that adhere to any type of predictable formula but seem to advance in a form of ordered chaos. If you perform a lengthy analysis of trading charts, then you can certainly verify that assets do definitely produce price trends that do exist for some extensive amount of time. Consequently, you are recommended to try to trade trends instead of attempting to predict their precise point of birth.
If you do undertake such a task then you must not make the beginnerâ€™s mistake of concentrating your analysis on trading charts displaying the very short time-frames. In contrast, you will fare much better if you study trading charting using the daily time-frame or higher. This is because you will discover that the statistics associated with the larger times frames are superior to those of their shorter time-frame counter-parts.
In addition, you will obtain a better and clearer picture of price movements and formations because the longer time frames filter out more of the random noise generate by the financial markets. If you use shorter time frames then you will find that this noise problem will become increasingly amplified. Many experts even advise that you should not consider using time frames of less than one hour if you are a novice. This is because the better quality information displayed by trading charts using longer time-frames will allow you to identify price formations much better. You need to understand that although price may have been advancing in a trend for some time that it could still generate rapid oscillations and retractions very quickly. After some analysis, you could deduce that a trend comprises many smaller price fluctuations within its boundaries. Consequently, the main enemy that you will need to counter if you consistently utilize shorter time frames is noise which will constantly obstruct your trading analysis. However, if you choose more wisely and use longer time-frames, then this problem will be minimized providing you with better quality trading opportunities. You also must understand that many beginners opt for the shorter time frames because they think that the associated increased action produced by the random noise will present more opportunities for faster success. However, this is a serious misconception and will only generate major losses over the long haul.
13.6 Volatility and Time Frames Basically, you will discover that statistics provide more reliable readings the longer the time frame you use on a trading chart. You will also be able to verify that this feature
is especially so when price
is experiencing a stable period.
Consequently, you are advised to base your trading strategies on the daily timeframe or higher. Some traders do utilize the shorter time-frames of 10 minutes and under for specific types of trading strategies although they realize that very short time frames are not recommended for statistical analysis. For instance, scalping is constructed on the premise of very short time frames has been incorporated into the design of many automated robots. You will find that you can develop a trading strategy by selecting from a large number of times frames. If you have constructed or bought a successful trading strategy exhibiting a positive expectancy value then you are advised to stay with it and optimize its performance. If not, then the following information may be of use. You will discover that volatility can produce abnormal price formations. In addition, the larger price movements and spikes that are associated with these violent trading periods dramatically hinder the effectiveness of statistical analysis. You must also realize that even the longer time frames can expose trading positions to sudden sharp price retractions. Unfortunately, many novices view the market conditions produced by increased volatility as just increased opportunities for large profits. However, you must understand that the resultant large price swings generate substantial opportunities for sizeable losses if you do not take the necessary precautions. Consequently, you must alter your trading strategy in order to be able to cope better with these erratic conditions. You can achieve this objective by considering the following types of action:
Use Less Leverage When price is volatile, your top priority is to protect yourself from the demoralizing effects of serious losses. You can achieve this objective by evaluating how your current levels of leverage affect your positions and if you need to alter them.
Choose your new trades with more caution You must not consider opening more positions during volatile times just in order to capture larger profits. You must understand that under these conditions you could easily incur excessive losses. Consequently, you must take extra time evaluating the reward-to-risk ratios of every trade very carefully before you implement them.
Chapter 14: Summary You should now have obtained a good understanding of the primary concepts of binary options trading that should dramatically enhanced your ability to successfully capture a consistent stream of profits. As such, you should now be in a much better position to trade the financial markets with increased levels of skill, knowledge and experience. In particular, you have been introduced to the following pertinent topics:1. How to select a premier binary options broker 2. How to defend yourself against scammers 3. Introduced to an inherent feature of binary options which prevents many traders from attaining success 4. Why many standard strategies fail 5. Optimum methods and techniques that you can deploy to identify winning trading tools and strategies 6. How to define a foundation that you can subsequently operate to develop a successful binary options career 7. The key attributes possessed by professional traders 8. How to optimize your trading performance 9. What is fundamental analysis and how best to exploit it 10. Introduced to a number of important economic indicators 11. How to cope with volatility when trading fundamental events 12. What is technical analysis and how best to exploit it 13.The key differences between fundamental and technical analysis 14. The relevance of money management 15. Introduced to a number of popular technical indicators 16. Presented with the main concepts of numerous revered trading strategies, including breakouts, tops and bottoms, scalping and trend retracements 17. How to design your own binary options strategy using a simple sequence of steps
18. Provided with operational guidelines to use when trading a strategy 19. Pitfalls to avoid when trading 20. The advantages of binary options identified 21. Strategies listed for specific use with binary options 22. Major features pertaining to live trading 23. How to increase your profits by exploiting volatility 24. The benefits of trading commodities, such as gold 25. How best to trade specific markets 26. What are Pair Options and how best to exploit them 27. The key differences between Binary and Pair Options 28. How to trade using different time-frames 29. The power of the longer time-frames 30. How best to cope with volatility when deploying different time-frames.
Armed with the above knowledge, you are now in a superior position to launch your binary options career. Good luck and best wishes for success.
Published on May 21, 2016
This the book on binary options that you have been waiting for. This is because it will completely sweep away any naive conceptions that you...