Look beyond ordinary analysis
In this article I would like to share with you what I learned when I first started to trade binary options.
I will describe my binary options trading strategy that I used for almost two years.
The strategy made me over 150% annual returns while risking 5% at the time.
I will also share with you something very extraordinary.
Something your broker doesn’t want you to know.
This is a “trick” that will allow binary option traders to shift theodds their way!
Stick around because this is very interesting indeed.
Let’s start from scratch
I won’t be going into technical details of what an option is and how it works. A binary option is simply just another derivative of the common option traded across the global markets.
Your binary option broker;
CALL and PUT
The trader buys the option at the so called “the strike price”.
If the trader bought a CALL option, he/she bets on the price going higher – above the strike price. If the price is above the strike price (even by one pip), the trader wins the bet at the expiry date.
The same stands for short positions.
The trader buys a PUT option if he/she believes the market is going lower. If the market price is lower than the strike price at the expiry, the trader wins the bet.
The guy who invented this industry is a genius indeed!
The very basic premise the industry works off is:
In a very long time frame the amount of buyers (Call options) equals the amount of sellers (Put options).
Based on the above principle, the broker will never lose money, assuming he will be in the business long enough to overcome possible exceptional markets swings.
The simple genius of the binary option industry is:
For every loser there must be a winner so:
In this scenario:
The broker charges the looser 100% and pays out 70%-80% to the winner, keeping a whopping 30%-20% of every bet in his own pocket.
To get some perspective – your ordinary FX broker charges you a paltry 3 pips!
What a loser he is!
If you buy the option for $100 -and you lose, your $100 is gone but
the guy who is on the other side of your transaction wins.
He receives an $80 payout from the broker.
The broker cashes $20 no matter what happens! This is a fat margin indeed!
All the binary option broker needs to do is to maximise the trading volume to increase profits and lower the risk.
This is why the industry offers such a wide selection of expiry dates. Traders can trade anything from 1 min to 6 months. As more often as better!
I guess, most of the volume is weighted towards intra-day expiry as the industry attracts gamblers looking for a thrill rather than long term professional traders.
This is Genius, genius, genius!
The other, even more interesting feature of this industry is the marketing spin
“HIGH – UP TO 80% PAYOUTS!”
The marketers are spinning “HIGH” – up to 80% pay-out as exceptional and attractive.
Twitter is littered with display ads full of hot chicks and luxury yachts.
People seem to go for it like there was no tomorrow.
Remember one simple thing:
Getting anything less than 100% of the money you risked is simply bad economics.
80% pay-out risking 100% every time will drain your account within no time.
It’s insane to believe you can sustain long term profits getting less than you risk every time! The guy above will not make it!
A good binary options trading strategy is naturally one that brings profits on a regular basis.
There are a few tasks to be performed before deciding on your trading strategy.
Since break-even is achieved when the total amount won equals the total amount lost, it can be calculated using the following formula;
0 = Winning% X Average Return – (1 – Winning %) X Average loss
Say the traded amount is constant (same every time), average return 70%, and the loss is 100% of the betting amount therefore;
0 = Winning% X 70% – (1 – 70%) X 100% therefore; Winning % = 59%
With a strategy which has an average return of 70%, you will need a winning accuracy of 59% or more to be profitable in the binary options trading industry.
A more general way to analyse any binary options trading strategy is computing its expectancy. This is a single number that combines the winning percentage with the average return. This number tells immediately if the trading strategy is worth pursuing or not. If the expectancy is greater than 0, you should consider it, if it’s not – move on from it.
Expectancy = Average Return x Winning trades % – (1 – Winning trades %)
Say; binary options trading strategy has average return 70% and 65% accuracy
Expectancy = 70% X 65% – (1 – 65%) ; Expectancy = 0.105. The strategy should be considered sound.
It’s a well know principle of basic risk management to keep losers smaller or equal to winners. This applies across all markets. Every trader works very hard to keep losers smaller or equal to winners.
It is impossible to keep your losers smaller or equal to winners trading intra-day binary options. Your pay-out will always be 80% of your money at risk.
These are facts. You need to think harder to stay ahead in this market.
Trader must go against the odds and design a binary options trading strategy than generates more winners then losers to compensate for the unfavourable pay-outs.
It is not always possible.
If the trader is able to generate more wins than losses with the average loser being less or equal to the average winner, it is definitely a recipe for a financial independence.
It is a statistically sound approach and it is sustainable in the long run.
Apart from the points above, the trader should consider other variables like trading times, asset class, brokers etc. It is important to get all variables tested before deciding to use them. Profitable binary options trading strategies combine only the most efficient choices.
This is the technique I developed trading binary options. This is the technique I want to share with you today.
This technique generated 150% return by risking only 5% per trade
Back in 2013 I started to experiment with strategy and different expiry options. I tried every time frame offered by the broker. 1,5, 10 minutes, 1 hr.
I have tested each strategy and tried to match them with the expiries.
My trading logic was sound and I could be more than 60% accurate in the short term but I knew I might not always sustain 60%+ accuracy.
I would struggle to generate profits in the long run due to poor pay-outs.
I had to be over 60% accurate at the 80% pay-out to break even.
On the top of that I had to account for human mistakes, missed trades, losing streaks and loss of confidence and more.
I was ready to give up when I discovered “END OF DAY” OPTION!
“End of Day” expiry options changed everything.
You can close End of Day binary option before it expires getting back some premium on losing positions.
And this is not something your broker is advertising!
I bought $100 CALL option at 5:30pm expire end of day – 10pm.
If it was an option less than one-day expiry (1,5,10 min, 1hour), I would lose my full $100 if the option expired “out of money” nor I would be able to close the option before it expired.
“End of day” binary option holds some value during its lifetime and it can be can closed before it expires.
In the case where the market going against me, I can close the “out of money” option and get back some premium.
This means that if I bought a CALL option of $100 and it went against me, I would be able to close it before it expired and I would get back $10-$20.
In this scenario, my losers are getting closer to my winners and I shift the odds in my favour.
I traded “End of day” binary options for almost two years generating awesome returns.
I manged to keep my losers as big as my winners and my accuracy was outstanding.
You can close your positions up to 15min before the exchange closes. The closing time varies between the brokers. Please check opening hours before you start trading
See some notes from my journal.
Please pay attention to the accuracy and the average loss vs an average gain.
I managed to retain a long term average accuracy of the system with 11 winning positions against only 5 losses. The average loss also met expectations and stayed well below the pay-out amount.
My trading account grew astonishing 36.4% in just four weeks.
Placed 21 trades in May, this included an astonishing 16 winning positions and only five losers, giving an overall accuracy of 76%! This is beyond the long term average accuracy of the system.
The average loser amount remained within expectations and stayed below the average winning payout.
Total nominal winnings amounted to €3530.3 and loses showed €-911.68.
The account growth rate doubled since the last month and reached 63%
Had maximum two consecutive losses in May recorded in the trading account.
Trading was performed in the live environment applying strict money management techniques.
Recorded 17 winnings and one loss. This accounts for 94% accuracy in the month of July! My Trading account added €3,948 fresh equity and gave up only €70.1 in the process.
From 08th July to 30th July I recorded 14 consecutive winning positions. It is needless to say, this is outstanding result and all time achievement.
The monthly account growth read 67% and remained within long term expectations.
As of today, the total equity accounts for €11,393 and stand for 570% growth in two quarters.
All signals allowed a decent amount of time to fill the positions and provided an easy opportunity to trade.
The above signals performance is 100% live traded.
21 trades in August, only 6 ended the day in money and 3 resulted in loss. Had 9 trading days with no signals and 3 of the trades did not fill due to fast moving prices.
September 2014, as expected brought back to the more normal trading conditions.
I placed a total of 19 trades. Recorded 14 winning positions and incurred 5 losing trades. This accounts for almost 74% accuracy. This is slightly above the long term average.
Unfortunately, the average loss climbed above the average win this month.
This was due to higher than normal volatility during the US session.
I grew the account by a healthy 35%.
These are only a few months of notes but its needless to say that trading “End of day” options are the way to beat the binary markets.
For most of my trading I manged to keep loses near or below winners and keep the accuracy way above 60%.
As you can see from the figures, this is a really profitable technique.
So now you know how to shift the odds to your advantage. All you need now is a trading strategy that generates over 60% winners.
I developed a few things about the strategy to trade these specific options. I used to place only one trade per day between 3 – 5pm gmt and I let it expire if it was in money or I closed it if I knew it was going to expire out of money. I was right on balance and got better with my judgment over time.
The binary options are priced based on time and volatility. More volatility in the price action causes the premium to disappear.
It is important to avoid high volatility day when using this strategy. As less is going on the market, as more profitable the strategy gets.
A FEW FEATURES
I believe you are a professional trader and you could try any of your own methods. There are many trading techniques to apply, for example:
but if you like to get this trading method together with MT4 indicators and templates.
I will email you my full binary options strategy description and instructions with indicators and templates for MT4.
With all my heart
I ADVISE YOU TO STAY AWAY from trading intra-day maturity binary options.
You will not succeed in the long run. The maths simply don’t add up.
This kind of “trading” is a pure gamble and it lacks basic risk management features.
But if trading binaries suits your personality, you can still enjoy it, but please lower your risk and
use only “End of Day” or longer options.
I am not sure how many brokers use this kind of option today.
The one I use is – stockpair.com
I found them reliable and never had any issues with withdrawals or execution.
You might ask me – how come I don’t trade it anymore full time? Well I do…
but now I use it rather to hedge my cash positions in FX. This is now part of a bigger trading approach I take.
I do like FX better!
I can generate less profits from trading FX but I take less risk. I like to trade less and keep my winning positions for longer. I suppose my risk appetite is changing with my age.
Every trader needs to find a strategy that suits him/her.
If you liked this article
I would really appreciate if you could share it with fellows traders.
I hope this will help them to beat the game in the long run.
Learn how an Elliott Wave Forex trader applies the theory to trading successfully and profitably. These are EXACT price patterns I used for years to steadily grow my trading account while taking minimum risk.
9,019 total views, 39 views today
9,020 total views, 40 views today