Ideas for trading with binary options
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  1. #1
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    Ideas for trading with binary options

    How to create profitable trading method for binary options?

    First of all, we have to know parameters of our strategy – they should correspond to opportunities that binary option can give.

    Profilt/loss ratio

    As you understand – we have to have higher quantity of profitable trades to at least cover our costs. So, we should have strategy that would generate large quantity of winning outcomes – it should not be necessarily big moves, just small deviations in our favor.

    Trading hypothesis:

    To formulate rules for robust trading strategy, we have to formulate trading idea that would benefit from certain market conditions observed on a daily basis. Also, this idea has to be pretty simple to execute.

    If we look at distribution of daily price action on, say, popular currency pair EURUSD, we would notice that rotation of the price occurs when price returns to average sessional price, that can be easily found with EMA indicator. For example, on 5-minute chart of EURUSD, decision making points look like shown below:

    average_prices1.png

    I have to mention that day was pretty volatile – in many cases there would be much more decision making points, especially if price would trade within consolidation area.

    For sixty-second options, it’s possible to build simple scalping strategy that would be impossible to execute in conventional forex trading. If price touches 21-period EMA, we might observe at least slight pullback within next 2-3 minutes (price holds above EMA). Therefore, our trigger for entering long trade (buying «call» option) is a moment when price touches 21-period EMA from above (we can buy «put» option when price touches it from below).

    opening_calls.png

    We are talking about small pullback that does not exceed 5-10 pips, it can be 3-4 pips in most cases. So, it is considered as a «noise» for many intraday traders. In fact, if you target is 5 pips per trade, it would be tough to trade – first you have to cover your spread, then capture 2-3 pips and go away- even 1/1 profit/loss ratio can not be easily achieved in such type of trading. It does not make sense in traditional trading.

    But for binary options, it can bring some profit. You have to have at least 1 pip above strike price to realize profitable scenario – you get guaranteed 70% per bet. As you understand, it can not be achieved in traditional trading.

    But of course, we should not only find profitable pattern, but rather know – what market conditions are risky for our strategy? In other words, we have to know when price moves through moving average without any pullbacks.

    For example, it occurs after important news announcements. Below is a chart of GBPUSD after news announcement:

    volatility_gbp_eng.png

    Therefore, you have to know periods within a day when you are not trading.

    Also, after elongated consolidation areas market can become extremely volatile – you have to take such periods to consideration as well. The more elongated such period was, the more volatile price action will be – also it means risk for such type of scalping strategy:

    Sometimes, period of reduced volatility pre-defines good trending move, we can use pullbacks to open positions in the direction of the trend.
    This example shows that you can build a trading strategy on short-term options (120 seconds). Also, you can use higher timeframes for your strategies using long term options with other expiration dates.

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    Last edited by Value trader; 09-03-2014 at 03:08 PM.

  2. #2
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    What other ideas for binary options can be applied for trading?

    As we could have seen from previous post, binary options allow to build strategies that don’t make sense in conventional forex trading.
    Now let’s talk about second type of options – «long term». Robooption platform allows to execute option trades with expiration in a few days (expiration date is defined manually, expiration time is standardized).

    Let’s take for example options with expiration on the next day.

    The simpliest (but not «easiest» - there’s nothing easy in trading) strategy is a level-based strategy that assumes trading near areas of support/resistance.
    Important note! Support and resistance are considered to be areas, not levels – in most cases traders draw a line and consider it as support/resistance, placing their protective stops above or below this line. Not surprisingly, their stops are captured by rapid market moves in many cases:

    false breakout.png

    It can explained by mechanics of interbank Forex market – volume of orders is sometimes so large (there are large institutions operating on Forex), that there’s not enough liquidity for immediate execution near certain price leves – that’s why large market participants have to «run stops» - that’s the way they accumulate their positons with. Nonetheless, they can’t drive price too far from the certain area – area of support and resistance.
    So, much more frequently we can observe the following price action:

    support_area.png

    As you can see, we can't say clearly where the price will reverse – in other words, borders of this area are not clearly defined, that’s why placing reasonable stop loss is a tough task in such circumstances (if you trade against such areas). Some traders prefer to place stop on «quite a distance», some traders don’t place any stops – both approaches are fragile to rapid trending market moves. What if you are wrong in your analysis? In this case, you will have to experience deep drawdown.

    However, you can solve this dilemma by limiting your risk with a binary option trade.

    As soon as you have defined support or resistance area, you can place an option trade («Call» or «Put») with expiration on the next day, and just wait. If you have properly defined area of support/resistance, you will see at least pullback form such area in many cases. It’s not that you have to spot a reversal (it’s not that easy) – all you really need is a short-term pullback:

    In traditional Forex trading you will have to cover you risk an get at least 3/1 profit/loss ratio. In options trading you don’t need to be so picky – you will receive your payout even if price will be located 1 pip above/below your strike price.

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    Last edited by Value trader; 09-11-2014 at 06:23 PM.

  3. #3
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    I am very interested in binary option trade. I am very happy that roboforex finally equipped with this options. This trading is relatively easy and more profitable than normal forex trade. But I think here the risk factor is more than forex trading. Here you know time is another parameter that comes in action.

    Thanks valuetrader for your nice and informative thread which surely help me and other traders who are interested in binary trading. Yes, here only 1 pip matters which distinguish between win and loss.

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    Last edited by nkhan2810; 09-05-2014 at 11:45 AM.

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    friends Robo forex is a unique forum which give you all you have required, so their is another services which is binary options, you have to do trade in robo forex account through binary options. you have to do small trades through binary options. it's a good way for us. for making profit.

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    I have tried binary options with another broker but did not find it much interesting because first of all we can not put our options instantly (not at least in that broker). The instant option we can put is 10 minutes from now which makes it a bit difficult to earn and it totally relied on luck then. Forex trading has more advantages as we can hold our trades in loss if we want to for days, weeks or months. But in binary options as an option is expired its profit or loss is given to us straight away.

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    i tried binary option. it was good.anyone can make money by binary option in short time.we can also use signal for option trading to make good profit.

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    I think we have to understand support and resistant then all would be nice and self control are very good and all will be well and focus would be nice and it would be very good and patient will be very nice and it would be very nice.

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    I think Binary option trading is a very good part of the forex trading but one should do it very carefully because hardly anyone set long timing for the binary option trading so you have to be very good in reading the chart and predicting the upcoming price of a particular currency.

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    I suggest that we need to practice. I do feel that option is more of for advance trader. I do earn some how trading in currency pairs for three years now and I still have hard time earning in option trading because theirs a time limits. So if the time expires and you are in loses then you are in loses. This is how option works. But if you know how then you can make good income.

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    This is a great clue for traders that thinks they can get success in binary option within a short time limit. You can not be successful with binary option without a good trading system. And once you have developed a successful trading system that will help you, you will need a plan on management. Always try as much as possible to trade little part of you money, and by that you will win at times and lose sometimes too. If you are good, more winning will now make you successful.

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