binary options strategies-how-make-money-in-binary-options-trading

Binary Options Strategies:

How to Make Money in

Binary Options Trading

BINARYTOPGUN.COM IQ OPTION RICH PAGE

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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 Scammer’s Playground ........................................... 14

2.5 Defending Yourself Against Scammers ......................................................... 16

2.6 The Killer Problem ........................................................................................ 17

2.7 Understanding Novice Trading Habits ........................................................... 20

2.8 Why Standard Methods Do Not Work ............................................................ 22

Chapter 3: Analyzing Strategies and Tools ................................................ 29

3.1 Are all Price Feeds Identical? ....................................................................... 29

3.2. Introducing the MetaTrader 4 Platform ....................................................... 31

3.3 Secrets about Optimization? ......................................................................... 33

3.4 Square Pegs and Round Holes ...................................................................... 35

3.5 Real Time Issues .......................................................................................... 38

3.6 Trading Binary Options using BULL Strategies .............................................. 39

3.7 Trading Binary Options using BEAR Strategies ............................................. 42

3.8 Expert Advisors & Signal Services ................................................................ 45

3.9 Using a Demo Account Properly .................................................................... 47

3.10 Optimizing the Usage of Trading Charts ..................................................... 49

Chapter 4: A Cornerstone for Success ....................................................... 54

4.1 Memorizing Your Trading Guidelines ............................................................ 56

4.2 What Makes a Successful Trader? ................................................................. 57

4.3 Preparing Mentally For The Challenges Ahead .............................................. 59

4.4 Historical and Live Trading ........................................................................... 60

4.5 Never Stop Learning ..................................................................................... 61

4.6 Optimizing your Trading Performance .......................................................... 62

Chapter 5: Introducing Fundamental Analysis .......................................... 65

5.1 Defining Fundamental Analysis .................................................................... 65

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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 naïve conceptions that you may possess

thinking that binary option trading is a source of easy money. The main reason for

doing this is so that you will become more conducive to lateral thinking and will

then be more likely to consider methods that will enable you to trade binary options

more effectively.

Consequently, one of the main objectives of this book is to show you that

you could invest considerable amounts of your time and energy if you attempt to

trade 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 broker’s trading platform, tools and services, etc.

Validate the proficiency of the support provided by calling them and asking

pertinent questions. How did you rate the courtesy and quality of your received

replies?

2.2.3 List of Assets

Top-class brokers offer a comprehensive selection of underlying assets which

you can utilize to activate binary options. Premier companies usually support over

100 such items, which are normally diversified between the four main trading

categories, i.e. indices, commodities, stocks and currencies.

2.2.4 Returns and Refunds

Confirm that your potential broker consistently supplies competitive returns

and refunds. For example, seek profit payouts of 80+% and rebates of 10+%.

2.2.5 Leverage

Your preferred broker must provide you with an excellent leverage facility in

order for you to capture worthwhile profits, as defined in 2.1.2.



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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 broker’s platform will always be stored securely. Verify how

this task will be accomplished.

2.2.8 Trading History

You need a tool capable of storing all the critical details of every binary

option that you will ever activate. You also require additional resources to assist

you in analyzing this information in order to enhance your trading skills.

2.2.9 Trading Platform

You must have access to a top-class trading platform that will permit you to

implement your trading decisions reliably and promptly. Test out such facilities by

utilizing a demo account, if possible.

2.2.10 Web-Based Access

This attribute is highly relevant especially if you plan to trade on the move.

You will then be able to operate at anytime and anywhere by simply using any

computer facility boosting an internet connection.

2.2.11 Withdrawals and Deposits

Confirm that you will not endure any problems when transferring money out

of and into your trading account.



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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 naïve 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 autoresponder-

generated emails supported by idiotic titles.

2.4 Expert Advisors are the Scammer’s Playground

If you are new to binary option trading and are intent on buying an

automatic trading program then you must be cautious because when doing so you

will be stepping into the world of the scammer. These individuals are typically

unsuccessful traders who have not managed to grasp the complexities of this

involved subject. Consequently, you need to understand that most of them have

just created their products by utilizing their deficient trading strategies. This is the

key reason why such a significant percentage of these items fail to meet their

promotional hype.

For example, if you were to trust all the claims included in the adverts for such

expert advisors then you should deduce that their owners should already be very

well-off and retired. However, studies and reality present a far more demoralizing

image by displaying that in excess of 95% of these tools fail. Even those that do

register any reasonable results, only do so for a restricted time period. A recent

study disclosed the subsequent performance details after screening numerous well-

known 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 product’s specification and results independently before you

commit to a purchase? If, instead, you find yourself studying just a prolonged

drawling sales page, then you are well-advised to disregard that specific item as yet

another scam.

Scammers will try to lure you by utilizing remarkable adverts comprising

keys words that have powerful marketing and promotional influences. For instance,

as the word ‘secret’ is a particular favorite, look out for titles such as ‘the ten

secrets that trading professionals have not explained to you’ or ‘these secrets about

binary options will stun you’. The only real secret that scammers possess is how

they find so many ways to generate such huge amounts of junk. If you have any

concerns, then do not buy.

2.6 The Killer Problem

Why do so many investors fail at Binary Options trading? The figures are

daunting as they illustrate that nearly 95% of people do. Is there a core

explanation that will help explain this specific trend? Yes, there is as you will always

be confronted by a specific issue when trading binary options which can not only

consume your entire deposits but render your goals and dreams useless as well.

This section sets about identifying this sinister facet of Binary Options

trading. Comparable to the majority of us, you may well have been captivated by

advertising campaigns promoting the idea that you can easily make 75%+ returns

in just minutes by trading binary options. This feature is, in truth, quite genuine

because you can. However, you must also understand that you can equally lose

100% of your investments in comparable periods of time.



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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 Reward-

to-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.



20


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.



21


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 guru’s trading

method.

- Novices also believe they do not need to apply any genuine effort into

mastering the complexities of binary options trading.

- Most newbies do not realize that one of their prime priorities must be

to utilize well-proven money management principles as a way to

supply the best possible defense for their trading capital.



22


- 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:



23


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.



24


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?



25


- 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



26


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.



27




Chapter 3

Analyzing Strategies and

Tools

29


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 range-

trading 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.



30


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’.



31


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.



32


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.



34


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.



35


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 well-

known 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.



36


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 trader’s

balance is totally exhausted, as demonstrated in the next diagram.

The above figure displays a series of trades taken from a larger collection of

results. They were generated by a binary option trading strategy applying a seven-

tier 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.



37


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.



38


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 real-

time 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.



39


3.6 Trading Binary Options using BULL Strategies

This strategy can be implemented whenever gold starts to advance upwards in a bull ish channel. Binary options and currencies pairs based on gold supp ly you with outs tanding opportun ities to profit from bull strategies. Fir st, you must detect those times when gold is proceeding in a bullish channel.

Imagine that after searching all the assets suppor ted by your broker, you detect that the XAU/U SD (gold /US D ollar currency pair) is producing the formation that you need by advancing upwards, as shown on the fol lowing 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, you must study this trend in greater detail. Basically , you 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 upper 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.



40


Basically , you can easily produce the upper trendline. Just join the sequence of higher highs ; see above diagram. Next, connect the series of higher lows to create the lower trendline.

Your bull strategy is now ready for use. Keep tracking the chart unti l 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 you in assessing the most app licable amount to wager on this trade. You w ill then need to choose 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 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. T he reward-to-risk ratio is then $140 :$180. T his implies that this ini tial trade can generate a win of $140 compared to a loss of $180.

Sometime later, gold did indeed climb and the init ial pos ition is in-the-money . You next detect gold s triking 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.



41


A little time later, price did indeed climb and the initial position is ‘in-the-

money’. 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 posit ioned on the diagram above by deploy ing the identical features as the original trade. However, you once more wait for a couple of minutes to verify the lower trendline remains secure.

As gold would 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 risk was present that price would plummet downwards and drop beneath the strike pr ice of CALL 1.

Consequently , the new reward-to-risk ratio is $280:$40 . This is an excellent status to achieve as it fulf ills expert recommendations that always counsel reducing your risk exposure at every possible opportunity . Concentrate on your loss poten tial first and allow your profits to look after themselves.

After a short interval, the go ld price has again appreciated and both options are recording winning pos itions. Again you observe price striking the lower trendline. You now execute a th ird 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-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 payout of $1020, includ ing the deposits.

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’.



42


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-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 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.



43


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.



44


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 ‘out-

of-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-the-

money’ 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 well-

known 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 scammer’s heaven.

You may have already been inundated by the intensive marketing promotions of

more than one of these products and/or services. However, you must appreciate

that the majority of software tools only attain profits for very limited time-periods.

A newly released study produced the next operational results:

- Software devices recording profits for periods up to 3 months - 70%

- Products producing revenue for their designers only - 5%

- Tools creating modest profits which are swamped by broker slippage -

10%

- Devices not creating any profits at all - 5%

- Services and robots optimized to particular 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 makes it easier to analyze price movements and risk

management.



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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.



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.



55


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.



58


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.



59


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 mind’s eye. You should also attempt to take your

new prospective trades through a rigid mental rehearsal in the same way to that

adopted by leading sportspeople.

Once you have been subjected to the initial phases of a standard

methodology, you now need to evaluate just how effectively you have mastered its

key principles. You can accomplish this task by making use of demo accounts that

the majority of binary option brokers support.

Probably the most critical point about trading a demo account is to be self-

disciplined 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 top-

class investor, you will need to dedicate time and energy to constantly cycle

through all the phases of your chosen methodology.



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 expert’s trading existence when they encountered rough patches or went

into a downturn. A sound methodology can assist at those times by helping you

rebound rapidly back to your maximum performance.

All leading traders, regardless of the markets they trade, have a

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.



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

country’s 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. Unfortunately, many beginners do just that. As you can now

concluded, 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 back-

testing 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 non-

farm 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 world’s 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 country’s government can lead to enhanced levels of

speculation concerning whether old financial policies while be replaced by new ones.

You will also find that, during a USA presidential election, that the financial markets

will adopt a very quiet profile until traders and economists are able to analyze the

full implications of the final results.

For example, should a new government be elected then the markets will

need to gain a sound understanding of the new president’s financial stance before

committing to a serious course of action. As you will never be able to predict when

random events will occur, with any degree of certainty, you must always take

measures to protect your active positions and account balances by always utilizing

a well-tested money management policy.



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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 America’s Gross Domestic Product (GDP). Economists and trading

professionals study this parameter very closely because monthly changes in its

value can signify whether the health of the USA economy is declining or improving.

This is because the NFP indicates whether US businesses are employing extra staff

or shedding jobs on a monthly basis.

You will find that investors respond more speedily to any discrepancies

between the expected and released NFP figures than any other economic

parameter. In fact, you can expect price surges of hundreds of pips under such

circumstances.

5.5.5 The Unemployment Rate

If the NFP produces a worse number than expected, then you will find that

attention 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 country’s 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.



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 business-

like 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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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.

The Doji

comprises no real

body and

represents Market

indecision.

Spinning tops

have small bodies

with little or no

wicks or tails

promote Market

indecision.

Marubozu

possesses no tail

or wick but has a

long body. Black

favors Bears

whilst White

favors Bulls

Shaven Head

possess a long

tail, small body

with no wick and

indicates a bullish

reversal.



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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 re-

examine 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 time-

frame. 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 time-

frames.

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 market’s next move, you are, in fact, stacking the odds against yourself

and, as such, will almost certainly lose. In addition, a currency market, such as the

Forex, advances in a way that prices cannot be predicted. As a consequence,

scientific theories should be utilized with caution and, then, in conjunction with

other proven trading resources.

Other investors structure their methodologies on the favorite trading maxim

which states: “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 asset’s inherent value but

instead make use of trading charts to recognize price formations that can help

predict its future activity. You will discover that Technical Analysis can assist you

substantially in enhancing your binary options performance.

Technical analysis is an effective resource that can help you forecast the

future directional actions of the price of underlying assets by examining their past

trading behavior. Basically, you will strive to obtain a thorough comprehension

about the trading formations and trends produced by the price of these securities.

Even investors who endorse strategies constructed on fundamental analysis will

often deploy the principles of technical analysis as confirmation tools. You must

initially understand that Technical Analysis is based on a limited number of key

concepts.

For instance, this analytical technique focuses particularly on the price

activities of assets and does not, by any means, take into account the emotions or

outlooks of investors. Technical analysis depends largely on the perspective that the

price history of an asset boasts a robust urge to persistently reproduce itself by

generating foreseeable formations. As a result, your primary objective will be to

identify new quality entry prospects for binary options by mastering how to identify

these repeatable patterns.

6.4.2 Fundamental Analysis Defined

You will find that many investors utilize the concepts of fundamental analysis

to help them develop binary options strategies. Essentially, this study tries to

forecast the future directional movements of assets by analyzing the economic,

political, economic environmental trends that will most impact their demand and

supply.



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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 trader’s

account balance. Margin trading can be a very powerful technique because it

enables you to utilize leverage that allows you to activated trades of substantial

worth by utilizing just a small deposit. For instance, if your binary options broker

supplies you with a leverage of 50 to 1, then you could open a $50,000 position

with just a deposit of $1,000.

This sounds great but you must understand that there are significant risks

involved when using leverage should price move against your open positions. In the

worst case, a margin call could be produced resulting in all your open trades being

automatically closed. How can you avoid such calamities?

To do so, you need to develop sound and well-tested risk and money

management strategies that will guarantee that you will never overtrade by

restricting your risk per trade within well-determined limits. You must also mater

your emotions such as greed that can make you generate poor trading decisions.

You can easily fall into this trap because the enormous daily Forex turnover can

easily seduce you into making unsubstantiated large gambles.

You must also understand that price has a very dynamic nature that can

generate levels of extreme volatility that are significantly larger than those

produced by other markets. You must never underestimate this combination of high

leverage and volatility because it can easily cause you to overtrade with

devastating results.

Basically, a money management strategy is a statistical tool that helps

control the risk exposure and profit potential of every trade activated. Money

Management is one of the most important aspects of binary options trading and its

successful deployment is a major skill that separates experts from beginners.



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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 Elliot’s wave theory has already been validated by a

comprehensive variety of trading strategies and tools. This Elliot Wave Oscillator

was primarily devised by using the critical discovery that assets have a tendency to

progress in 3 and 5 wave patterns and that important directional changes in price

often occur at Fibonacci resistance and support levels.



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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 time-

frame 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 ‘down-

volume’ 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.



http://www.investopedia.com/terms/c/crossover.asp

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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 13-

day 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.



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-the-

money’. 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 breakout’s intentions by waiting for the close of the time

period within which it occurred. This will help protect you from fakeouts. Before

entering the trade, you must select an achievable expiry time from studying

historical data records of the relevant asset.

You need also to realize that many times price will retest its old resistance or

support levels before proceeding further. So you need to be prepared for this

mentally. If the level holds then a new price channel could well be formed. If not, a

fakeout could occur and you need to exit using your predetermined expiry time. If

after a period of time e.g. one day, no clear confirmation of the breakout has

materialized, then you should consider closing your position, preferably without

loss, and moving onto your next opportunity.



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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 strategy’s

expectancy value and win-to-loss ratio and then subsequently consider this task to

be a central part of your plan. Once you have determined these parameters for

your initial configuration, you can then compare them to the values generated by

all your future modifications and updates.

You can calculate the expectancy value and win-to-loss ratio of your trading

strategy by using the following formulae:

Expectancy = (%Win X Avg_Win) - (%Loss X Avg_Loss)

% Win = % of positions that are winners

% Loss = % of positions that are losers

Avg_Win = average winning amount

Avg_Loss = average losing amount

Win-to-Loss Ratio = (no. of wins)/ (no. of losses)

This should be done first by using historical data for your chosen asset before

advancing onto demo trading. Designing a profitable breakout strategy takes time

but as many successful binary options traders will tell you, the effort is well worth

it.



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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


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


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 a

resistance/support.

5. The ‘close price’ of the current candlestick will be used as a confirmation

signal.

Open the 1 hour GBP/USD chart and install the ADX14 and EMA20. The

diagram above displays a strong bearish trend demonstrated by the ADX14

recording a value greater than 30. Entry conditions are defined as follows. The

ADX14 has to be in excess of 30 in order to indicate a robust trend. Next, you need

to delay any further actions until price bounces against EMA20, which performs as a

major resistance level during bearish trends. Then validate that the EMA20 level

remained intact and that price is recommencing its downward journey by verifying

a candlestick close beneath EMA20, as displayed in the above figure. Once

accomplished, you can then activate a ‘PUT’ binary option using the GBP/USD as its

underlying asset.



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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


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 reward-

to-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


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


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-of-

the-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 a well-proven risk and money

management strategy. Is it possible to trade fake outs in the trend’s current

direction? Yes, it is. For example, here is one method. Envisage that the price is

trading in an upwards bullish channel defined by a lower trend line or support and

an upper trend line or resistance. The faster moving EMA50 is also higher than the

slower moving EMA100 providing additional confirmation that price is moving in an

upwards channel. The following chart displays such a trading setup.



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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.



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 time-

frame 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 broker’s fee will be the difference between the return and

the rebate ratios, i.e. 0.25. This is probably the major reasons why you are advised

to trade the EUR/USD because its R/R ratio generally much closer to unity, i.e. 1.0.

In comparison, other more unusual assets have R/R ratios as low as 0.50 requiring

win-to-loss ratios exceeding 70% to just breakeven.

Also search for assets exhibiting high liquidity. This is a vital facet because it

will enable you to execute binary options at any time because other investors will

invariably be present to back your orders. Consequently, professionals advocate,

especially if you are a newcomer, that you should attain or devise trading strategies

that will assist you to utilize assets possessing both high liquidity and low spreads.

If you are a new to binary options, then you are well advised to start trading

the financial markets by concentrating on an asset, such as the EUR/USD currency

pair, for the reasons defined above.

8.4 Designing a Confirmation Strategy

After you have successfully completed the first three actions, you will then

possess a rudimentary trading strategy structured on your choice of underlying

asset, technical indicator and expiry times. Consequently, you will be able to

identify high quality entry opportunities for new binary options displaying minimal

risk exposure but optimum profit prospective. Nevertheless, you now must defend

your equity balance even more by utilizing enhanced protection against phony

events, e.g. fakeouts. You can accomplish this goal by creating a validation process

that you can easily integrate into your binary options strategies.



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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-to-

risk 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 reward-

to-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 world-

class 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 internet-

based 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-to-

reward 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.



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 well-

liked sector within the investment market nowadays.

Risk control - Binary Options offer a 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 thirty-

five 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 broker’s 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 broker’s premier trading

platform will undoubtedly be feature-rich yet instinctive and

simple to utilize. From the coziness of your own living quarters

you will be able to function as an expert trader with the

knowledge that your new positions will be instigated almost

instantly and with great accuracy.



http://www.optionrally.com/What%20is%20a%20Binary%20Option



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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 broker’s web-

based 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 in-

the-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 Apple’s shares. After undertaking a comprehensive technical and

fundamental analysis, you execute a ‘CALL’ binary option, structured on

Microsoft and a ‘PUT’ trade, based on Apple. This process subsequently

generates an opportunity for you to receive a double return should your

evaluation prove correct and both positions finish 'in-the-money'.

6. Commodity stock affect trade: Numerous investors rate this technique as

a very effective and successful binary options strategy. Essentially, the

concept is to take advantage of the deviation in the price actions of products

and the firms, whose businesses on centered on them.

For instance, major price movements in aviation fuel can significantly impact

the price of correlated currency pairs, such as the USDCAD. As such, if you

detect that a price spike in this commodity is impending then you could

implement a 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.



Chapter 10

Live Binary Options

Trading

207


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 well-

proven 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.



209


Consequently, they are very assured that the sophisticated and state-of-the-

art 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 time-

frame, 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 decision-

making 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.



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 time-

frames.

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-to-

risk 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 product’s key settings will provide the optimum trading results and whether you

will obtain improved profits using a virtual server or your own computer.

A level of trader judgment will be required no matter which method is used

to trade gold. Consequently, traders must always remain focused in order to

achieve consistent success. One of the main reasons why so many traders struggle

to create successful trading plans or execute trades profitably is their lack of

concentration. You simply cannot allow yourself to procrastinate or to become

easily distracted by the next best indicator, program or enticing email that comes

your way. To overcome these types of problems, you need to attain an easy-to-

understand 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.



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 price’s preferred direction since you

do not need to assess that size of the movements. This vital feature implies that, in

the case of a ‘PUT’ binary option, price just needs to finish only one pip lower than

its opening value at expiration for your trade to expiry ‘in-the-money’. Equally, you

require price to close just 1 pip higher than its opening value for your ‘CALL’ binary

options to register an ‘in-the-money’ status.

Another critical assignment that you must perform proficiently when trading

Forex directly is to develop a well-proven money management policy so that you

can handle your risk levels per position professionally. In contrast, if you trade the

currency markets utilizing binary options then you are not require to undertake this

daunting task since you will always understand precisely the size of your pre-

defined 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-the-

money 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 profits-

targets.

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. Consequently,

floating pair options are NOT deemed to be binary options.



Chapter 13

Trading Different Time-

Frames

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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 Non-

Farm 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 ‘in-

the-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 day-

trading. 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 a 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 beginner’s

mistake of concentrating your analysis on trading charts displaying the very short

time-frames. In contrast, you will fare much better if you study trading charting

using the daily time-frame or higher. This is because you will discover that the

statistics associated with the larger times frames are superior to those of their

shorter time-frame counter-parts.

In addition, you will obtain a better and clearer picture of price movements

and formations because the longer time frames filter out more of the random noise

generate by the financial markets. If you use shorter time frames then you will find

that this noise problem will become increasingly amplified. Many experts even

advise that you should not consider using time frames of less than one hour if you

are a novice. This is because the better quality information displayed by trading

charts using longer time-frames will allow you to identify price formations much

better.

You need to understand that although price may have been advancing in a

trend for some time that it could still generate rapid oscillations and retractions

very quickly. After some analysis, you could deduce that a trend comprises many

smaller price fluctuations within its boundaries. Consequently, the main enemy that

you will need to counter if you consistently utilize shorter time frames is noise

which will constantly obstruct your trading analysis. However, if you choose more

wisely and use longer time-frames, then this problem will be minimized providing

you with better quality trading opportunities.

You also must understand that many beginners opt for the shorter time

frames because they think that the associated increased action produced by the

random noise will present more opportunities for faster success. However, this is a

serious misconception and will only generate major losses over the long haul.



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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 time-

frame 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.



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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