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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 Scammers 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

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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 Tops and Bottoms 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

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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

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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 nave 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

binary

options

directly

using

standard

techniques.

Binary

Options

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.

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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 Binary Options Strategies: How Make Money
in Binary Options Trading 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.

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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.

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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.

CHAPTER 2

Brokers, Scams and Why


95% of Traders Lose

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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.?

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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.

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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.

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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 brokers 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.

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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 brokers 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.

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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.

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Regrettably, many newbies endure severe depression after reality demolishes


their nave 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:

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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 Scammers 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:

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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

structures

and

formations.

Regardless

of

these

significant

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.

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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

full

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.

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You should also hunt for proof of performance. For instance, are you able to
validate any of the products 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.

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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.

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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.

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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.

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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.

Binary

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 gurus 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.

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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

period

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:

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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.

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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?

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Deeper

investigations

demonstrate

that

you

could

sometimes

be

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

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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.

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Chapter 3

Analyzing Strategies and


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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 head and shoulders 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.

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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.

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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.

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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;

Customized toolbar;

Syntax compiling and checking

Identifies and displays compilation errors

Creating executable object files

Pre-views results

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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.

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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.

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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.

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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 traders
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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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However,

this

method

is

susceptible

to

distortion

because

historical

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 scammers 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 brokers 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.

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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.

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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.

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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.

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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 CALL 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
-

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

normally

management.

makes

it

easier

to

analyze

price

movements

and

risk

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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 open,
low, high and closing 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 the


former is often utilized when deploying the longer time-frames.

Although technical analysis can be applied with any time-frame, it is


far

more

effective

with

the

longer

ones.

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Chapter 4

A Cornerstone for
Success

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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 right side 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.

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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.

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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.

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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.

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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 PUT 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.

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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.

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As the above illustrations evidently indicate, there is good value in practicing


your trading guidelines using your minds 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.

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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

about

their

brokers,

financial

markets,

new

strategies,

their

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.

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62

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 experts 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

leading

traders,

regardless

of

the

markets

they

trade,

have

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.

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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.

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Chapter 5

Introducing Fundamental
Analysis

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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

to

associated

good

news

while

it

declines

in

response

to

bad

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.

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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

on

assessing

how

all

major

business,

economic

and

political

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.

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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
countrys

economic

health, either directly or indirectly,

and are

generally

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:

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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:

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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.

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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.

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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

most

traders,

especially

novices,

should

not

attempt

to

trade

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.

1.

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.

2.

You may have to fine-tune your entry values as price often drifts
slightly before the posting.

3.

As soon as one of your positions is opened following the release then


cancel your other trade.

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4.

Your activated binary option should have expired in-the-money.

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.

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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.

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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.

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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.

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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.

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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 worlds oil supply and especially impact correlated currencies, such as
the Canadian dollar (CAD).

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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 countrys 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 presidents 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.

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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.

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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 Americas 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

will

be

immediately

turned

towards

the

released

figure

of

the

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.

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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.

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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.

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In particular, the USA Trade Balance identifies the gap between its exports
and

imports

and

supplies

important

insights

into

the

current

and

future

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.

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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 countrys currency into the domestic
currency of the invested nation.

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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.

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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.

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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.

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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.

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Chapter 6

The Importance of
Technical Analysis

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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:

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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:

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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.

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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.

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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.

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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 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.

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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.

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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.

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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 CALL 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.

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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 markets 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: purchase low and sell high 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.

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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.

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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.

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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.

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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 assets 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.

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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.

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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.

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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.

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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 traders
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.

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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 do not risk too much of your balance at any one time.
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 systems positive profit expectancy
over the long haul.

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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.

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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.

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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

statistics

are

more

dependable

than

their

shorter

timeframe

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 Elliots 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.

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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.

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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 individuals
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.

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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.

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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.

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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.

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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 traders 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.

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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.

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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.

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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

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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.

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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.

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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.

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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.

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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.

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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:

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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.

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CHAPTER 7

Popular Binary Options


Strategies

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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.

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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 out-of-themoney. 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.

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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.

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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.

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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.

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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.

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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 breakouts 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.

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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 strategys
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.

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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.

2.

The expiry time chosen is the 1 hour.

3.

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.

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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:

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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.

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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

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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.

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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-

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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.

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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.

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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.

2.

The expiry time is the 1 hour.

3.

The primary indicator will be the Fibonacci level.

4.

Two exponential moving averages will be deployed to ascertain the


current direction of the prevailing trend.

5.

The closing value of the active candlestick will be used as a verification


process.

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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.

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7.3 Tops and Bottoms 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.

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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.

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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.

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4. The

EMA20,

exponential

moving

average,

will

be

utilized

as

150

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
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Similarly, open a new CALL 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.

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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.

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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.

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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.

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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.

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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 real body. 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.

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A candlestick can exhibit numerous formations with each one possessing a


unique interpretation. A series of famous patterns are now presented.

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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.

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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.

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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.

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Activate the daily USD/CHF chart and install the EMA50 and EMA9
exponential moving averages. The ensuing figure presents such a setup. A CALL
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.

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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.

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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.

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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.

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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.

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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 out-ofthe-money. 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.

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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.

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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

undesirable

conditions

by

instigating

well-proven

risk

and

money

management strategy. Is it possible to trade fake outs in the trends 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.

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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.

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CHAPTER 8

Constructing a Binary
Options Strategy

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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.

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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.

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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
Technical Indicators symbol.

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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 EMA technical indicator as shown in the above
diagram. Another pop-up box will appear similar to the next diagram.

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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.

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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 brokers 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.

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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.

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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.

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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.

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2. You should then implement a CALL 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.

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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.

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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.

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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.

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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).

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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.

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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 out-of-the-money. 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

extensive

risks

and

the

significant

chances

of

monetary

losses.

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.

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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.

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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.

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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.

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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

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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, out-of-the-money results were such common outcomes, that steady
returns were a very difficult to accomplish.

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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.

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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.

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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.

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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.

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Chapter 9

Trading More
Effectively Using
Binary Options

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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.

Risk control

Binary

Options

offer

pre-defined

payment

and

loss

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.

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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.

Additionally,

you

only

need

to

concentrate

on

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.

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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 brokers state-of-the-art and sophisticated
mobile and internet platforms, you can rapidly respond to all
new

global

economic,

financial

and

political

catalyst

by

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 brokers 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.

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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 brokers 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 CALL 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.

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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.

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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.

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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 Apples 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

CALL

binary

option,

constructed

on

this

commodity.

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.

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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.

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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.

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Chapter 10

Live Binary Options


Trading

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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.

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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.

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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.

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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.

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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.

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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).

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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.

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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.

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CHAPTER 11

Increase Profits by
Exploiting Volatility

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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.

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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.

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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.

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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.

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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.

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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.

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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:

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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.

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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

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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 products 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.

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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.

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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 Did you overtrade on a regular basis and did
you consistently adhere with your money management strategy?
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.

Date

2.

Time

3.

Reasons for initiating the gold trade

4.

Opening value

5.

Expiry time

6.

Amount wagered

7.

Price at expiration

8.

Result status, i.e. win or lose

9.

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?

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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.

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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.

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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:

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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.

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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 call 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

would

have

been

greatly

reduced.

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CHAPTER 12

Trading Specific Markets


(including Pair Options)

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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.

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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.

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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.

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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

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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 Commodity Stock Affect Trade, 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

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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

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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
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 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.

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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 prices 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%.

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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.

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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%.

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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.

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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.

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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.

In

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.

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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.

Consequently,

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Chapter 13

Trading Different TimeFrames

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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

that

the

outcome

should

be

bullish

by

beating

market

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%.

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- 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.

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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.

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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.

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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.

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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.

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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.

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Your

trading

strategy

must

incorporate

good

risk

and

money

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.
-

Day-trading

can

produce

some

very

nerve-racking

situations.

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.

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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.

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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.

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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.

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If you do undertake such a task then you must not make the beginners
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.

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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:

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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.

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Chapter 14

Summary

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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

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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.

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