In the last articles we introduced you to some trading strategies and analysis methods. Most of the systems presented were based on market technology, because binary options are preferably traded on a short-term basis. In this article, we present two special strategies that are also based on market technology. However, the special thing is the applicability on several time levels.
Never trade during the opening, but afterwards
It is well known among day traders that price volatility at the opening of the markets, in Germany for example by 9: 00, is extremely high. This is due to the fact that many orders that were entered at the close of trading on the previous day or within the closed time are now being executed.
It is generally believed that never speculate about the opening. In particular, day traders who only make small changes in their course can break their necks due to high volatility, because they are usually very tightly hedged. This means that their stop-loss orders are not far from the purchase price. With high volatility, it is safe to be "stopped", which results in a loss.
But what day traders can increasingly use is the fact that this volatility decreases again within about 30-45 minutes (provided there is no economic news there) and in most cases a countermovement is initiated. The price then very often moves towards the opening price. It corrects, so to speak, the exaggeration that has arisen from the accumulated orders at the opening.
If we look at the DAX future in the 5-minute chart, we find that the price is exactly at 9:00 a.m. has risen very sharply. However, since we as experienced traders assume that there is a high probability of a correction to the opening price, this results in a good chance of a successful trade.
We now only have to do one binary option to look for the DAX. For this purpose, we choose the provider 24Option and choose a binary option on the DAX via the trading platform.
If we follow our example, we know that the course will have moved back at the latest one hour after opening. This is the first requirement for our binary option and concerns the time window or the term of the binary option. A put option with a running time of 30 minutes would also be conceivable here.
We therefore have a good chance of getting a hit. Incidentally, this strategy is very popular and is practiced by many successful day traders such as Birger Schäfermeier.
Course correction ahead
As just described, a correction usually sets in after an exaggeration, This fact is known among traders and is often incorporated into trading. This knowledge can therefore also be used for other strategies.
Our second strategy, which we will introduce to you, is therefore very similar to the first. More than that, one could say that this is the same technique. However, only on a higher time basis, i.e. with a longer term for the option.
We are talking about gap trading. A gap is a gap in price. Basically, gaps are created after opening a market (e.g. often also for individual stocks). The extreme demand is brought about by placing orders during closed markets. According to a study, 70% of such gaps are closed again. And many traders take advantage of this.
When gaps are formed, they are of different sizes. Therefore, trading is often only possible on a longer time basis, as the closing of the gap can drag on throughout the day. In currencies, gaps often occur after a weekend, e.g. when relevant news is brought within the closed markets.
In our second example we see a gap in the currency pair Eur / Usd that developed after a weekend. The 1-hour chart also shows a subsequent sideways movement, but with an upward trend. The gap was closed within six hours.
We would have had two options to act based on this knowledge. Namely with a call option to close the gap and with a put option to continue the trend after the gap has been closed. Which of the two options you choose here is up to you. However, the second variant is recommended, since experience has shown that there is a greater probability that the trend will continue after the gap is closed. Because it is known to be a correction.
Forex. Real earning
How do you manage the risk?
In trading futures and other instruments, risk management is the alpha and omega of day traders therefore according to setups (samples) where you can protect yourself very closely. That would be the case, for example, just above or below resistance or support. However, when trading with binary options, we have no option to place additional stop-loss orders. But this is not necessary either, because the structure of binary options is already secured. You can only lose a certain amount and this is already certain.
Nevertheless, you can learn a lot from day traders, because their strategies often aim at a high risk-reward ratio in addition to risk management. Specifically, it means that they are looking for patterns in which the chance of winning is greater than the possible loss. And that can also be wonderfully retrofitted with binary options.