Strategies

Strategies

Strategies for Binary Options

 As I write about my experiences trading binary options, I will discuss the various strategies tried by others and try them out for myself. This page lists the details of each one attempted and my success scores.
 

If you intend to put any effort into trading binary options and want to give yourself the best chance of winning, then it is suggested to use a few tools to help yourself. I think most traders would agree that the single-most important tool are charts.  The brokers you will use, even the good ones, use barely acceptable charts. They enable you to know when to place a ‘put’ or a ‘call’ but that’s about it. 
 
 
 This page discusses the various strategies for binary options trading. This section will not talk about the day-to-day tools used for trading in binary options which can be found here. Or if you would like to know about tried and trusted brokers, have a look here.
 

 

The ‘Losing’ Martingale Strategy

The Martingale Strategy peaked my attention over the first weekend I went searching for strategies. On the surface, it seemed a strong strategy and a certain winner when used under certain circumstances. After watching the video below, I thought I could give it a try but with a skeptical hat on. I decided from the outset that I would be very carefully dipping my toes in the binary options water!

 

 

Martingale is probably one of the most talked about strategies of all time, a long-fabled system. It’s amusing that no matter how favourably some binary options strategy websites dress it up to be some new and wonderful system, it’s actually been around since the 18th Century when it was a heads or tails coin toss. People (wrongly) assumed that if the toss came up ‘heads’ several times in a row, then logic must follow that there are better odds of ‘tails’ coming up next.

To this day, amateur gamblers at Casinos make the same mistake when gambling at the roulette wheel. If seven blacks were to appear in a row, they might assume the next spin of the wheel is more likely to drag the ball onto red. I’m sure most of you know that this isn’t the case, that in fact black has a perfectly equal 50% chance of coming up a ninth time and so on. And yet, if you spin the wheel 10,000 times, red and black are likely to even out at around 50/50 all the same (not taking into account green zero). But it doesn’t stop the gamblers doubling-up their bets in order to ‘chase’ the win.

So Martingale on binaries options, at first glance, is never a good strategy for the same reasons. The strategy assumes that if you ‘put’ the price on a 60-second expiry and lose, that you should double your money and bet the again the same way for a smaller profit. The idea is that you double up your money indefinitely until you win, betting on the same price direction every time. So your betting goes something like, £10, £20, £40, £80 and so on until you win.

If you’re a trader and not a gambler, then you will know this is a terrible system. You need infinite time and infinite money to be assured of winning.

But wait… Surely if we can tip the odds by favourable, technical analysis of the market’s price direction, in all likelihood, we could win, right? Well that depends on how good the information is and whether you can be absolutely certain of getting it right, at least once, in about five trades. After five trades, the bets spiral too high out of control. So if the odds are mathematically probable in your favour of winning the trade, then the Martingale system might be a good one.

IF YOU LOSE   IF YOU WIN IF YOU WIN IF YOU WIN
ATTEMPT NUMBER LOSS SO FAR is… BET REQUIRED GROSS PROFIT RETURNED NET PROFIT TOTAL
1st £0.00 £5.00 £3.70 £8.70 £3.70
2nd -£5.00 £10.00 £7.40 £17.40 £2.40
3rd -£15.00 £25.00 £18.50 £43.50 £3.50
4th -£40.00 £60.00 £44.40 £104.40 £4.40
5th -£100.00 £150.00 £111.00 £261.00 £11.00
6th -£250.00 £360.00 £266.40 £626.40 £16.40
7th -£610.00 £860.00 £636.40 £1,496.40 £26.40
8th -£1,470.00 £2,100.00 £1,554.00 £3,654.00 £84.00
9th -£3,570.00

To demonstrate how quickly the Martingale double-up bets can be a poor strategy if it takes over five attempts, have a look at the above table. I thought we would use the same model that the above hyped-up video example talks about. The table assumes the lowest bet you can place is £5 and has a 74% payout if correct. The table also assumes you want to make some kind of profit, no matter how small. By these assumptions, if you then trade five times in a row and lose, you will have lost £250 altogether, which for a £3.70 gain – Is it worth it? If you then go on to try a sixth time, your loss is now £610. If you fail on the eighth attempt – You’re now £3,570 in the red! Ouch!

So to conclude, if you are confident that your thoroughly tested system has an average losing streak of about three trades, then you might be on to something with Martingale, if not – Avoid like the plague.

 

The RSI Strategy

Brokers for Binary Options don’t provide any sort of usable charting service. In order to practice this strategy you will need a professional charting service with a live stream. In particular I recommend MT4

For the purposes of following this strategy, all but one of the indicators come pre-loaded on the standard MT4 platform, and you can download the non-standard custom indicator I use from this link.

To get the best out of this system, choose a broker that offers 15 minute expiries and identify which Forex pairs are offered by them.  Because no broker offers all the pairs, and some offer more than others, you might prefer to use more than one broker.  Check the list of pairs offered, and open a 15 minute chart for each pair.

Choose one pair to load up the following indicators and then build a template so you can quickly load up the same indicator setup on your remaining pairs.

Don’t forget to use Candlesticks (not bars or lines).D

 

When you open up a 15 minute candlestick chart, add the following indicators:

  1. RSI (the indicator which comes with your platform) with a setting of 4; additionally, add lines of 25, 50 and 75 (all of this is covered on the video if you don’t know how to perform this task)
  2. Stochastic (with the default settings of 5,3,3)
  3. FiboPiv v.2 (a custom indicator found at this link)

Once you have these three indicators on your chart, create a template (right click on the chart, select Template, then choose “Save Template” from the options that follow…use a name like Binary Setup or something easy for you to remember).  Now load the template on all your remaining 15 minute charts (again, right click on each chart and select Template, then choose the template name for your Binary setup…this will automatically load the setup on each chart, including switching each chart from bars to Candlesticks).

 

Now you are ready to trade.

What we are looking for are those times when price action causes the RSI line to close above the 75 line we added in, or below the 25 line.  When price closes above 75 it is said to be Overbought, and a selloff in price is likely to happen soon.  When price closes below the 25 line, price is said to be Oversold and traders will likely begin Buying in the very near future.

Once you’ve found the current RSI line segment closing above 75 or below 25, look at your stochastic.  If the Blue Line segment is crossing (or even threatening to cross) the dotted Red Line segment, this is when you place your trade.

So if the RSI is above 75 and the Blue Stochastic line is about to cross down through the red Dotted Line, you enter a trade with your broker that says you think price will close BELOW the current price (a SELL or PUT option).

If the RSI line is below 25 and the Stochastic Blue Line is crossing UP through the Red Dotted Line, you enter a trade that tells your broker you think price will close ABOVE the current price (a BUY or PUT option).

The FiboPiv indictor draws a Blue Pivot Line and three Green Resistance lines and three Red Support lines on your chart.  I have been watching the lines drawn by this indicator for years now and found them to be very accurate in locating those points where price will either stall out or simply turn around and head the other way.

For our purposes, if you find a trade where the RSI and the Stochastic are both in agreement, but price is butting up against or near a FiboPiv line, I recommend you pass on the trade.  15 minutes is like an eternity when price is bouncing around a FiboPiv line, and you will have multiple trade opportunities each day where the FiboPiv lines do not come into play, so save yourself some aggravation.

And remember, this is not a normal Forex trade where you need price to move 3 or 4 pips just to get to break even.  If price moves even 1/10th of a pip in your direction at the close, you win.

CogBay opinion: The best strategy we have found so far for winning at Binary Options.

 

The Zombie Hour Strategy

This is a strategy I picked up on my own through experimenting. I thought ‘zombie hour’ sounded better than ‘happy hour’ but you get the gist. This is a ranging strategy. In other words, it is only successful when the asset is ranging between two points over a period of time. It’s one of my favorites to pick up some extra cash, especially if I’ve had a losing day. I’ve had a lot of success with it, but there are issues to watch out for. I’ve even made a video to show you a live trade of working this strategy in action.

‘Zombie Hour’ is when all the exchanges are closed but the market is still open. There’s very little volatility, very little movement in the market. There are no ‘market makers’ manipulating the market, they’re home with their wives and kids – The ‘bots’ are left to look after the markets which employ algorithms to stem some movement in the price. However, the shift works out to be a pattern, especially on the 15 minute time frame (TF) chart.

Many traders don’t trade during this period – Even scalpers would have a problem making anything at all due to the very slight movements. However, as Binary Options traders, we don’t need lots of pips to make money, we just need to be right by the smallest point or blip! This is what makes this technique especially interesting and rewarding.

Remember that this usually happens when the exchanges are shut, so the best time for me to trade doing this is about 22:00 GMT until about midnight just before the Asian market opens. Although, you can continue to find forex pairs during the Asian session that exhibit this same behavior.

What to look for

What we are looking for is a range of 15 minute candles that are all fairly neatly stacked next to one another, preferably with nice extruding wicks extending top and bottom. You need at least several candles to identify and confirm the confined boundaries of the range. I recommend you watch the video below to learn more on identification and confirmation.

When to take the trade

You have your 15 minute MT4 window up and watching the chart like a hawk. You also have your broker page up next to it, signed in, asset up, direction already in, trade size already in – So you are ready to pounce.

The idea is that you wait it out until the price moves to either extent of its current path and then quickly place a ‘call’ or ‘put’ in the opposite direction. By taking it on the extremities, you give yourself the best possible chance of a win as the price then begins to settle back into its favored routine. You need lots of patience for this. You need to be watching the candle for the entire 15 minutes and waiting for the point that it peaks or troughs outside of its normal working range.

What’s also good is that you can also take it on the other extreme boundary for an opposite trade. This is especially useful since, should the range break during your trade, you will severely limit the damage of the trade going wrong.

Words of caution

  1. You need to be aware that the price can break out of this range during any of the 15 minute periods. The chances of it happening on your very first one are small. But if you win the first, you may as well continue on subsequent candles until the price does eventually break. Hopefully you will have caught it enough times to be profitable in the time before it eventually breaks the pattern. You can also limit the damage of this happening by trying to ‘hedge’ your trade in on both sides of the boundary if possible. However, in my experience, this is rarely possible as it usually only touches one of the extremeties during the 15 minute period.
  2. Some of the brokers have become aware of this practice and have severely limited the options and the times you can trade them. My guess is that they lose a lot of money on these types of trades as they can be very effective. However there are still many brokers that offer the options during the time periods. I’m still doing it

In the video below I demonstrate this practice and open up a live trade so you can see it performed in action. The video is best viewed in HD (open it to full page view and select a resolution size of 1080p or 720p). It’s hard to watch otherwise.

CogBay opinion: This strategy is not as effective as the RSI method mentioned above, however I have always managed to profit safely from it.