If you have studied the forex market
properly, you must have come across the three major ways to analyze the fx market
namely:
Technical
Analysis
Fundamental
Analysis
Sentiment
Analysis.
If you have known this basic analysis, you
could also use it to trade binary options.
Just as simple as that!!!
We will also look at the difference between
trading the Forex market and Binary Options in a nut shell. For now, can we
move on with the technical….?
Technical Analysis
This is strictly the use of chart to analyze
the market. The use of indicators like Moving Averages, Relative Strength
Index, Bollinger Bands, and Stochastic are very important here.
Don't be afraid to use those indicators on
your trading charts when planning to trade binary options.
Indicators help you gauge where price action
may be headed next. These are used across all sorts of trading markets and not
just the currency trading. Just make sure you have a good understanding of how
each indicator works before applying it into your analysis. It could be even
better to use combination of two or more indicators to make your analysis.
You can take a look at my killer setting
below;
It’s simple and has a rule you must adhere to
in order to trade successfully.
From the chart, there are 3 crosses to give
you a signal for a CALL or PUT option.
The first is the MAs. The red must cross from
under the blue for a call or above for a put.
Secondly, in stochastics, the red acts in the
same manner like that of the MAs. There should be a cross from below or above
to warrant a Call or Put entry.
Lastly the RSI must cross the green line
above for a call or below for a put option.
We will learn more about the set-up when we’ve
got to Trading Systems in this blog.
You must wait for the 3 crosses to take place
to warrant an entry. That’s is to say, the three put together gives a reliable
result than depending on only one or two of them.
Is that all?
Oh hell NO!! There is need to study technical
levels and point of inflection to prove your decision making ability when you are
trading binary options.
Have you ever heard of Double Top and Double
Bottom, Head and Shoulder, Bullish and Bearish Peanants, Ascending and
Descending Triangles, Rising and Falling wedge…….etc.
What about the Candlesticks pattern?
Do you know of the Dojis, the Hammer and
Hanging Man, Three inside Up and three inside down, The tweezers….. etc.
One more, you should have some knowledge
about Fibonacci, Support and Resistance levels.
You may ask; can I learn all these?
The only answer is YES. Because it will help
you to make good trading decision
Let's take a look at this example on the
chart below.
Price has just broken down from the head and
shoulder. With this pattern, price normally continues to trade lower at a
distance equivalent to the height of the head and shoulder
In this kind of pattern, you could take on
the One-Touch trade.
Assuming this is GBP/USD and the broker
offers you a strike price between 1.5450 -1.5550, which is within the height of
the H & S, buying a "Put" option might be a setup worth
considering.
Other patterns have different way of
approach, and the type of trade you can apply to it when you come across such
setups.
Let’s take a look at the Fundamental and
Sentimental ways of analyzing your trades.
One
Touch
Option;
This trade
does not require the market to be above or below a certain level at expiration.
What it has to do is just to TOUCH the strike price at least once during the
option contract period for it to be profitable.
No-Touch Options;
This is the
opposite of the former trade. It requires that the market price does not touch the
strike price during the contract period for a trader to make profits.
Touch trades
are offered during certain times of the day, and some brokers offers it during
weekends. This type usually offers higher payouts (between 250%-400% of your
risk premium) than the simple Up/Down option that offers 60% - 90% of your risk
capital depending on the broker in question.
For example,
let's assume that GBP/USD closed at 1.5400 on Friday and over the weekend your
broker offers a “CALL” option where you will profit if GBP/USD touches 1.5750
at least once next week and a “PUT” option where you will profit if the pair
touches 1.5050 at least once at the same expiration period.(next Friday at
market closure)
You decide
to take the call option and you find that during the option period GBP/USD had
reached a high of 1.5780 before it closed at 1.5390. The truth is that since
the market reached the call option's strike price (1.5750) within the option expiration
period, you would have won the trade even if it didn't close above the level.
On the
contrary, those who took a No-Touch option on the same price would have lost
their trades since the pair touches the strike price at least once and then
falls below the open price. Do not get confuse here, whether it closes above or
below, it’s not your concern. All you care about is that price has touched the
strike price, and that’s it.
Touch trades
typically work out well when volatility picks up while no-touch trades are
ideal for pairs that have a tendency to consolidate.
If you are
not still exciting about this, I would want to let you know about the Double Touch/Double
No-Touch
options. They are very similar Touch/No-Touch options with slight difference of
having two strike prices. The asset's price has to touch (or not touch) two
different levels for a trader to win the trade. The payout is also greater. Can
you try this?
Range/Boundary/Tunnel Options
Trading
Range or Boundary or Tunnel options is a lot running 100 meters race where
athletes maintain their lines. No one dares to cross to the opponent track and
competitors always maintain their curse at the center of the track.
You may ask
Mr. Bolt if this is not true. Ok let’s take a look at what we have here.
For In Range trades, the market
price must stay within a predetermined range and avoid touching the two strike
prices within the option period in order for your trade to be in-the-money. Conversely,
some brokers do offer Out of Range options where investors can profit if price
breaks out of the predetermined range within the option period.
Let’s take
an example to illustrate this;
Assuming GBP/USD
is currently trading at 1.5400 and the Bank of England (BoE) interest rate
decision is just few minutes away. Let’s say your broker is offering a range
option between 1.5355 and 1.5445 that expires in one hour time.
Now you
think that the BOE's decision is a non-event or cannot effect price movement so
you bought an "in-range" option. If price doesn't reach 1.5355 or
1.5445 within the option period, then you would have won the trade. That should
be great news for you because range options as said earlier usually have the
highest payouts with a few brokers offering between 200%-750%!
Range options from experience are best used when volatility is low, although some
brokers offer the option to take risk on the idea that price will break out of
the predetermined range. Alternatively, a few brokers also offer options on
predetermined ranges that are far from the current market price.
