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TABLE OF CONTENTS
Chapter 1: Introduction .............................................................................. 2
1.1 Scope and Purpose ......................................................................................... 2
ii
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
iii
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 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 1
Introduction
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Chapter 1: Introduction
1.1 Scope and Purpose
Binary Options Strategies: How Make Money in Binary Options
Trading is basically aimed at novices and introduces all the main concepts of
binary options trading in an easy-to-follow style. The prime mission of this book is
to help you to trade binary options successfully and profitably. Specifically, you will
be presented with concepts and strategies that will assist you in optimizing your
returns.
Binary options are heavily endorsed by widespread marketing promotions
stressing how simple it will be for you to make an additional stream of revenue, if
not a fortune, from trading the financial markets. However, you must understand
from the very beginning that binary options trading is an involved topic and
speculating on it successfully is certainly not a forgone conclusion.
Binary Options Strategies: How Make Money in Binary Options
Trading is the book on binary options that you have been waiting for. This is
because it will completely sweep away any nave conceptions that you may possess
thinking that binary option trading is a source of easy money. The main reason for
doing this is so that you will become more conducive to lateral thinking and will
then be more likely to consider methods that will enable you to trade binary options
more effectively.
Consequently, one of the main objectives of this book is to show you that
you could invest considerable amounts of your time and energy if you attempt to
trade
binary
options
directly
using
standard
techniques.
Binary
Options
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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 2
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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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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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You are well-advised not to risk any of your own money without
What type of accounts do they offer, e.g. mini, micro or MetaTrader 4/5
(MT4/5), etc.?
-
How efficient and effective is the trading platform supported and how good
are its facilities and tools?
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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.
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2. If you study marketing literature carefully, you can then deduce whether
they have been produced by scammers. For example, are any real trading
results presented that you can readily verify?
3. You are almost certainly reading about a scam if you have be provided with
a long drawling sales letter backed by a sequence of autorespondergenerated emails supported by idiotic titles.
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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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full
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You should also hunt for proof of performance. For instance, are you able to
validate any of the products specification and results independently before you
commit to a purchase? If, instead, you find yourself studying just a prolonged
drawling sales page, then you are well-advised to disregard that specific item as yet
another scam.
Scammers will try to lure you by utilizing remarkable adverts comprising
keys words that have powerful marketing and promotional influences. For instance,
as the word secret is a particular favorite, look out for titles such as the ten
secrets that trading professionals have not explained to you or these secrets about
binary options will stun you. The only real secret that scammers possess is how
they find so many ways to generate such huge amounts of junk. If you have any
concerns, then do not buy.
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So, here is the basic problem. Do Jane and Joe Average have any hope of
earning a constant flow of rewarding profits by trading binary options since the
odds are piled so much against them? With a restricted budget of just a few
thousand dollars, they will definitely not possess the amenities of a hedge fund.
This goal can be accomplished in numerous ways. However, in doing so
every facet of trading binary options has to be considered in a totally different light.
For instance, you cannot proceed to spotlight 60sec trades as most beginners are
inclined to do.
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Binary
Novices also believe they do not need to apply any genuine effort into
mastering the complexities of binary options trading.
Most newbies do not realize that one of their prime priorities must be
to utilize well-proven money management principles as a way to
supply the best possible defense for their trading capital.
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period
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.
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As 95% of all traders fail at binary options trading, why would you exploit
a strategy advising you to open positions based primarily on their
recommendations?
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Deeper
investigations
demonstrate
that
you
could
sometimes
be
If you also utilize the shorter time frames, then you will be basing your
trading decisions on noise-generated price movements as opposed to
those created by real fundamental and technical events.
The fundamental conclusion you can make if you apply such an approach is
that you will have no real idea what your win-to-loss ratio will be at any given time.
You certainly cannot confirm that it exceeds 50%. In contrast, if you want to make
consistent profits then you must know precisely what this figure is at all times.
The Martingale concept adds further fuel to this chaos. This idea was
conceived by gamblers playing casino games, such as roulette, in 18th century
France. Basically, there can only be two results, i.e. the ball will land on red or
black. Consequently, if after each loss you keep doubling your bet then eventually
you must win enabling you to recoup your earlier losses.
However, although binary options appear similar in nature to roulette in that
you must select either an upwards or downwards direction, there is an important
difference. This is that price action is time dependent. For example, during one
minute, the value of price can fluctuate dramatically by recording varying values at
different seconds, e.g. 11th, 19th and 34th seconds, etc. In addition, the sequence
that you are advised to implement in the case of losses is often similar to the
following:
$12, $30, $70 and $150
This sequence infers that if you suffer a first loss of $12 then you should
execute your next trade by risking $30 and so on. However, what is often not
explained is what happens if you keep registering losses, as follows:
$12, $30, $70, $150, $400, $900, $2,000
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In order words, you could easily lose over $3,000 if you suffered just 7
consecutive losses by adopting this Martingale approach. Can this easily happen?
Yes, is the answer! For instance, envisage that your win-to-loss ratio is 50% and
assume you opened 100 trades. Now, although fifty of them will be winners, you
have no control over in which order they will happen. This means that you could
easily encounter a sequence of 10 successive losses before a new winning streak
occurs.
In conclusion, this strategy is definitely worrisome. You can now begin to
understand why nearly all novices lose their deposits by implementing it.
2.8.3 What should you do?
The answer is quite simple. Before implementing any trading actions
whatsoever, you must ensure that you optimize your Reward-to-Risk Ratio so that
it preferably exceeds unity by as much as possible. However, if your binary options
trading platform will always offer payouts in the region of 75% compared to losses
of 100%, can such a result be readily achieved?
Yes, it can! However, you will need to alter your entire perspective about
binary options trading in order to achieve this objective. The following table
presents an example of a strategy, capable of realizing this objective, using a live
trading account displaying results for the first three full trading weeks of 2014. By
studying the figures displayed, you can confirm the following:
Win-to-Loss Ratio = 11/14 = 78%
Average Win = $9; Average Loss = $6; Reward-to-Risk Ratio of 1.5 (>
unity)
Consequently, profits are consistently recorded enabling the account to grow
exponentially.
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Chapter 3
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Does it not strike you as odd that hardly any promoters of automated
products inform you about this critical point? They ought to do because the
implications can drastically impact your trading performance as the following figure
reveals.
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This problem is the blight of numerous strategies and robots that are
presently being promoted on the market nowadays. Why do their designers not
inform you about this significant problem which can unquestionably impact the
efficiency of their tools? The primary reason is that many of them are not aware of
its presence and even if they were, they do not possess the knowledge to resolve it
proficiently?
How can you safeguard your trading capital from the effects of this issue?
Well, essentially you must discover whose trading platform was utilized to build the
applicable software tool. You must realize that there exists a strong possibility that
you will not be able to reproduce historic results and worthwhile future profits if you
trade using the trading platforms of other brokers. Additionally, when you are
analyzing the performance reports of any tool or strategy, you must carefully
record the exact trading platform deployed during the investigation.
You can supply yourself with added protection by picking strategies and tools
that function best by deploying the higher time-frames from the daily upwards. The
reason for this is that their performances will more independent of which trading
platform you are trading. In addition, the technical indicators included in their
designs will not have such a distinctive bearing on profitability.
This popular and revered tool can be used to create, modify and compile
source code produced using the MetaQuotes Language 4. Many designers utilized
this platform to develop automated products to trade the financial markets. For
example, they devise Technical Indicators, Experts Advisors and Scripts for the
specific intent of automating the process of trading currencies, stocks, commodities
and indices.
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Customized toolbar;
Pre-views results
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The table above shows a good example of this problem by presenting the
trading results for a famous robot. You will observe that as the month of August
advanced, the quantity of losses increased significantly. This was because
increasingly market anxiety and uncertainly started to have an escalating impact on
creation of the price structures for the EUR/USD currency pair. As this tool was
optimize to trade under more standard market conditions, its performance
deteriorated when confounded by the new price formations primarily created by
market dread and anxiety.
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The above figure displays a series of trades taken from a larger collection of
results. They were generated by a binary option trading strategy applying a seventier Martingale concept. This feature implied that the bet size of each loss would be
continuously doubled until a seventh consecutive loss was recorded. At that stage,
a loss would be registered.
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You can observe such an outcome in the above diagram which shows that all
seven positions eventually failed causing the trader to suffer a very large loss. In
normal gambling such an event rarely happens because the odds of a win are
roughly 50%. However, this statistic does not apply to binary options trading
because of the complex price formations that can be produced in real-time.
The trading results of software tools utilizing the Martingale concepts have
been mainly very disappointing. The reason for this is as follows. A Martingale
system can be very effective when deployed to play a game such as roulette. This
is because the chance of correctly picking red or black is practically 50:50 ignoring
the house slots.
However, the financial market is a completely different entity despite the fact
that superficially price can only move upwards or downwards. As the number of
paths that price can move to over a specific period of time is practically infinite, this
means that it is statistically quite capable of producing trading patterns that can
regularly activate 7-tier losses, which is a premier feature of the above Martingale
strategy.
In addition, any martingale strategy based on such a risk profile requires its
user to deposit a substantially large financial reserve in order to support it. What is
be even worse is that the trader can only invest a small proportion of this balance
to fund an initial trade because a significant amount would have to be held in
reserve in order to service all 7 tiers.
This reserve problem also means that the initial trade can only support a
very small lot size. Consequently, all users of such a Martingale strategy would be
in a very undesirable position because they could only open relatively small trades
despite possessing sizeable trading capital. Consequently, although an expert
advisor based on this concept could secure many wins, their size would pale into
insignificance compared to the extremely large ones of losses. This is the
fundamental reason why the reward-to-risk ratio of such tools is so appalling bad.
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In summary, you are well-advised that when you are evaluating any products
or strategies to assess if their central concepts are full compliant to the trading
environment of binary options. This is exactly what professional traders do. If you
should detect any discrepancies then you should reject deficient products as you
will only experience mediocre results, at best, over the long haul.
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Now, y ou must study this trend in greater detail. Basically , y ou need to detect major technical features, such as trendlines. For ins tance, the next chart illustrates the movement of the gold with the lower and up per trendlines overlaid upon it.
Next, you must analyze this formation in more depth. Essentially, you need
to verify the presence of key technical features, e.g. trendlines. For example, the
following figure displays the directional movement of an asset bounded by its lower
and upper trendlines.
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Basically , y ou can easily produce the upper trendline. Just join the sequence of higher highs ; see above diagram. Next, connect the series of hig her lows to create the lower trendline.
Your bull strategy is now ready for use. Keep tracking the chart until go ld strike s the lower trendline since th is will be an excellent po int to execute a CALL op tion. However, verify the lower trendline remains intact by confirming that price does not brea k beneath it before implementing any further action.
If confirmed, then activate a CALL binary option. Utilize a well-tested management policy to assist y ou in assessin g the most app licable am ount to wager on this trade. You w ill then need to cho ose an appropriate expiry time. Expert consensus advises selecting one in excess of 30 minu tes so that any fundamental considerations have enough time to propel pr ice forward in y our preferred direction.
Consider that the in-the-money pay out is 70%; the out-of-money refund is 10% and the wagered amount is $200. T he reward-to-risk ratio is then $140 :$180. T his implies that this initial trade can generate a win of $140 compared to a loss of $180.
Sometime later, gold did indeed climb and the initial pos itio n is in-the-money . You next detect gold s trikin g the lower trendline once more, as shown on the next diagram.
Essentially, you can simply create the upper trendline by just joining the
series of higher highs, as shown on the above chart. Next, link the sequence of
higher lows to generate the lower trendline. Your bull strategy is now set to be
implemented. Keep monitoring the trading chart until price hits the lower trendline,
which will be an outstanding place to initiate a CALL option. However, verify first
that price does not break below the lower trendline before executing any
subsequent actions.
If the lower trendline does remain intact, then implement a CALL binary
option. Deploy a proven management strategy to help you determine a sensible
amount to invest on this new position. You will then need to choose an appropriate
expiry time. Expert consensus advises selecting ones in excess of 30 minutes so
that any fundamental considerations have enough time to propel price forward in
your preferred direction.
Consider that the in-the-money payout is 70%; the out-of-money refund is
10% and the wagered amount is $200. The reward-to-risk ratio is then $140:$180.
This implies that this initial trade can generate a win of $140 compared to a loss of
$180.
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A little time later, price did indeed climb and the initial position is in-themoney. You next detect price striking the lower trendline once more, as shown on
the next diagram.
You then select to implement CALL 2 b inary option as po sitioned on the diagram above by deploy ing the identical features as the original trade. However, y ou once more wait for a couple of minutes to verify the lower trendline remains secure.
As gold wo uld have advanced upwards by some considerable amount before CALL 2 was executed, this implies that CAL L 1 is well in- the-money . Should the lower trendline remain steadfast at CALL2 then only a minor ris k was present that price would plummet downw ards and drop beneath the strike pr ice of CALL 1.
Consequently , the new reward-to-risk ratio is $28 0:$40 . This is an excellent status to achieve as it fulf ills ex pert recommendations that alway s counsel reducing y our ris k expo sure at every possible opportu nity . Concentrate on y our los s poten tial first and allow y our profits to lo o k after themselves.
After a short interval, the go ld price has again appreciated and both options are recording winning pos itions. Again y ou observe price striking the lower trendline. You now execute a th ird CALL binary option po ssessing matching parameters to those of the original two. Again, y ou first verify that the lower trendline remains intact.
The reward-to-risk ratio no w signals a maximum profit of $420 if in-the-money at expiration and a profit of $100 if out-of-the-money . After the expiry time finally elapses, three winning trades were registered producing a pay out of $1020, includ ing the depo sits.
You then opt to activate the CALL 2 binary option, as located on the chart
above by utilizing a similar procedure as before. Again, you must wait for a short
period of time in order to verify that the lower trendline remains secure. As price
would have advanced upwards by some considerable distance before CALL 2 was
executed, this implies that CALL 1 is well in-the-money. Should the lower trendline
remain steadfast at CALL2 then only a minor risk is now present that price would
plummet downwards and drop beneath the strike price of CALL 1.
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At this point, you must analyze this trend in greater depth. Fundamentally,
you should identify key technical features, such as trendlines. For example, the
following chart displays the directional movement of price bounded by its upper and
lower trendlines.
Fundamentally, you can easily create the upper trendline by simply joining
the series of lower highs, as shown in above diagram. Next, link the sequence of
lower lows to generate the lower trendline. Your bear strategy is now set for use.
Continue monitoring the chart until price hits the upper trendline since this will be
an outstanding point to implement a PUT option. Nevertheless, confirm that the
upper trendline stays intact by verifying that price does not break above it before
implementing any additional steps. If validated, then trigger a PUT binary option.
Deploy a well-tested management plan to help you determine the most suitable
figure to gamble on this position. You will then need to choose the ideal expiry
time.
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You then opt to activate PUT 2 binary option, as located on the figure above
by implementing the same functions as the initial trade. Nonetheless, you once
again wait for a few minutes to verify that the upper trendline stays unbroken. As
price would have already dropped downwards by some significant amount before
PUT 2 was executed, this feature means that PUT 1 is well in-the-money. If the
upper trendline now remains intact at PUT 2, then the chances are minimum that
price will spike upwards and break above the opening price of PUT 1. Therefore,
the new reward-to-risk ratio is $280: $40.
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This is a great position to attain as it complies with expert advice that always
recommends lowering your risk exposure at every feasible opportunity. Focus on
restricting your losses first by permitting your profits to take care of themselves.
After a limited period, price has fallen even further and both binary options are now
recording in-the-money statuses. Once again, you notice price hitting the upper
trendline. You now activate a third PUT binary option featuring identical attributes
to those of the initial two. Again, you first verify that the upper trendline stays
intact. The reward-to-risk ratio now supports an optimum profit of $420 if in-themoney at expiry and loss of $100 if out-of-the-money. At expiration, three wins
were registered creating a payout of $1020, including the deposits.
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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
Tools creating modest profits which are swamped by broker slippage 10%
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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.
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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Search for structures and formations that help forecast future price
direction
normally
management.
makes
it
easier
to
analyze
price
movements
and
risk
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3.10.1 Conclusions
The following list contains important factors which you will find useful
whenever you utilize trading charts.
-
Candlestick and Bar charts are structured on four key prices open,
low, high and closing for each time- frame
more
effective
with
the
longer
ones.
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Chapter 4
A Cornerstone for
Success
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However, as real-life trading does not work in this fashion, this analytical
provides a fake sense of success. Undoubtedly, you must acquire an excellent
understanding of a strategy and how its critical factors operate. However, you will
need to acquire the ability to not only see trades but to also imagine how they will
function when activated in order for you to secure long-term trading profits under
any trading conditions,.
For that reason, professionals have developed, in recent times, an impressive
and highly effective trading methodology that when applied to any automated or
manual strategy can transform it into a profitable tool. Again, novices generally
make the blunder of wasting a significant amount of time investigating into what
are the best indicators, strategies and expert advisors that are capable of producing
the perfect trading results. In addition, many newbies fall into the pitfall of thinking
that if one trader has attained success with a particular automated device or
strategy, then they can as well.
A specific pitfall that is widespread with most present-day manual and
automated techniques is that they are not provided with instructions demonstrating
how to acquire the best possible results from their usage. These resources are, of
course, normally supplied with explicit details describing how to install them and
then how to modify their key variables. However, new users are often not informed
about how to achieve the best performances from trading their new device or how
to incorporate them effectively into manual strategies.
The methodology, that has been created as a way to conquer these issues is
very straightforward but effective. This tool enables traders to be successful with
any trading strategy, whether manual or automatic. Furthermore, this formula can
be proficiently applied to all other financial markets, such as futures, stocks,
commodities and currencies.
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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.
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Expert opinion advises that a list of critical attributes that many prosperous
traders possess is as follows:
1. Competence
2. Self-control
3. Commitment
4. Patience
5. Perseverance
Let us now analyze these characteristics in turn so that we can determine
why they are so crucial to trading.
Competence
As you can imagine, you will not attain success at any human endeavour if
you do not learn the levels of expertise required. The initial step of this
methodology especially concentrates on this essential facet of trading.
For that reason, if you carefully analyze and then memorize the details of a
strategy then you will readily accomplish this objective. In addition, if you
subsequently blend your new knowledge with the other steps of this methodology
then you will begin to advance along the path to success.
Self-Control
Understanding how to manage your emotions is a major feat to accomplish if
you want to trade binary options viably. For instance, you cannot surrender to
greed which is a common pitfall to fall into. For example, the substantial daily
turnover of the financial market causes many investors to adopt a gung-ho attitude
causing them to gamble instead of applying professional trading procedures.
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However, you can quite easily acquire the levels of self-control that are
needed simply by mastering and then practising a sound methodology. This is
because such tools have been created specifically to assist traders manage their
feelings permitting them to trade in a more business-like manner.
Commitment
Investing in a well-regarded form of binary options education should be a
vital facet of your trading methodology. Possessing a need to study as much as you
possibly can will place you in an excellent position to kick off a successful trading
career. When doing so, keep in mind that there is a sizable amount of free quality
information available on the internet.
Patience
Nowadays, many individuals do not take enough time to attain the degree of
patience that is necessary to achieve success in most areas of human pursuits.
Instead, they tend to be too centered on "instant gratification."
Specifically, many traders lose their initial deposits quickly because they do
not hold out until market conditions are ideal to execute new trades. They permit
their psychological instincts to dominate careful research of both technical and
fundamental factors. For instance, many circumstances happen when traders
quickly open PUT binary options after negative news is issued only to subsequently
repent their judgments if these broadcasts turn out to be inaccurate.
Perseverance
Binary option trading is not suitable for those who have not developed
perseverance. This is mainly because trading should be considered as a business
since obtaining profits may be a gradual process. As such, traders must exert
enough perseverance combined with competence and patience to register success.
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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.
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.
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.
about
their
brokers,
financial
markets,
new
strategies,
their
methodologies, their expert advisors, their charting software and most crucial of all,
themselves. Most methodologies are defined in a linear manner. However, the truth
is that they should really be introduced using a circular structure because when you
have arrived at the final phase, your studying is far from over. To become a topclass investor, you will need to dedicate time and energy to constantly cycle
through all the phases of your chosen methodology.
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62
One of the most amazing facets of binary options trading is that you can
acquire instant feedback about how you are performing. There occurs an occasion
in every experts trading existence when they encountered rough patches or went
into a downturn. A sound methodology can assist at those times by helping you
rebound rapidly back to your maximum performance.
All
leading
traders,
regardless
of
the
markets
they
trade,
have
comprehensive list that they implement to analyze all new prospective trade. For
that reason, they quickly identify if they are not adhering precisely to their own
trading guidelines or if they are not psychologically geared to trade the present
market environment. Also, top investors have the ability to constantly discover new
approaches, concepts and techniques enabling them to enhance their trading.
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You should also experiment with mental rehearsal. If you picture how each
position will perform in your head, then you will discover that you can attain a lot of
information from completing this task. For example, you can assess and compare
the real results to your predicted ones which could allow you to discover important
modifications or enhancements. You should also experiment by trading your
strategy by using a demo account.
Record the results and pertinent details of all your positions opened. If you
study and practise your methodology, as described, then you will start to
experience more success at developing strategies that will generate sizeable profits
on a consistent basis. If you take your time to master the concepts of the concepts,
explained in this chapter, then you will construct a sound cornerstone for success
enabling you to optimize the returns with any strategy that you use.
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Chapter 5
Introducing Fundamental
Analysis
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to
associated
good
news
while
it
declines
in
response
to
bad
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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.
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Consequently, if you can accurately forecast and then profit from the price
movements generated by fundamental data releases, then you will certainly
improve your ability to trade binary options successfully. However, you must
understand that this task is not so easy to accomplish consistently without the
necessary skill and knowledge, especially if you are a novice. This is because large
numbers of investors produce the price movements on the financial markets. In
addition, the majority of them possess their own personal agenda supported by
excessive budgets in some cases. These factors rise especially to the fore during
the postings of economic data that are classified as high importance.
This section will explain to you why this happens and also supply you with
perceptions that you can then use to create effective solutions. To commence this
process, you must attain a good definition about exactly what are economic news
releases. Essentially, they are important items portraying the latest insights into a
countrys
economic
and are
generally
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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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most
traders,
especially
novices,
should
not
attempt
to
trade
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.
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4.
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.
concepts by limiting your risks per trade to 2% of your entire trading capital.
You must definitely enforce this policy when trading fundamental data
releases because their unpredictability can produce so much uncertainty. You
should also record the details of all your trades, concerning fundamental data
releases, into a trading diary. You will then be able to review your results as well as
determine the expectancy value of your trading strategy. You should also consider
developing your confidence in your ability to trade fundamental news by backtesting your trading strategy against historical data.
If you also realize that powerful fundamental events can influence the
direction of price for some considerable time then you may prefer to develop a
strategy that will allow you to successfully trade the applicable asset during these
less turbulent times. Many professionals also recommend that you should always
lock-in your returns by exiting your active binary options, if possible, prior to the
release of the pending news item.
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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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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.
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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In the above diagram, you can confirm that the negatively correlated
USD/CAD plunges, i.e. CAD climbs, when oil prices appreciate in value. Any
potential change of a countrys government can lead to enhanced levels of
speculation concerning whether old financial policies while be replaced by new ones.
You will also find that, during a USA presidential election, that the financial markets
will adopt a very quiet profile until traders and economists are able to analyze the
full implications of the final results.
For example, should a new government be elected then the markets will
need to gain a sound understanding of the new presidents financial stance before
committing to a serious course of action. As you will never be able to predict when
random events will occur, with any degree of certainty, you must always take
measures to protect your active positions and account balances by always utilizing
a well-tested money management policy.
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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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will
be
immediately
turned
towards
the
released
figure
of
the
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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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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.
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As a result, the demand for the currency of those countries, which are
classified as net exporters, appreciates. This is because their international
customers must convert their own currencies into those of the net exporters so that
they can purchase the goods of the net exporters. In contrast, countries that are
net importers purchase more from their international suppliers than they export
to their worldwide customers.
Consequently, they experience trade deficits because they buy more services
and goods than they sell globally. As such, the demand for the currencies of those
countries, which are classified as net importers, drops. This is because they need to
sell their own domestic currencies in order to purchase the foreign currencies with
which they need to buy their imports.
You should now have gained an appreciation that any changes in the trade
flows of a country can dramatically affect the value of its currency against those of
other nations. As such, if you intend to use fundamental analysis to study price
movements then you will need to carefully monitor this parameter and learn to
understand the influences that it can have on applicable assets, especially currency.
5.6.5 Capital-Flows
Capital-flow represents the difference in the quantity of currency bought
and purchased to service capital investments. A primary attribute of capital flows is
its balance. For example, a nation can possess either a negative or positive capital
flow.
If a nation exhibits a +ve capital flow then this means it is receiving more
foreign investment than it is supplying to overseas countries. As a result, the
demand for its currency rises because inflows exceed outflows. This is because
international investors must convert their own countrys currency into the domestic
currency of the invested nation.
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Another major factor that will contribute to your risk levels is the amount of
time that you can afford to monitor your trading. For instance, if you do not have a
great deal of time at your disposal, then this will certainly affect the quality of your
trading decisions. By evaluating the above activities carefully, you must conclude
that you will have to apply professional and scientific methods of a very good
standard in order to achieve success. This is certainly a quantity of work which
cannot be performed in a short time and is a departure from the quick-rich image
projected by binary options adverts.
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Chapter 6
The Importance of
Technical Analysis
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1. You can arranged your chart to show the very well-known candlesticks
with each one exhibiting the closing, opening, high and low prices for that
period of time it represents, as demonstrated in the next diagram.
Additionally, you need to understand that the distance between the opening
price of the red bearish candlestick and its high value is named the wick while the
distance between its lowest figure and closing price is termed the tail. Candlesticks
are incredibly helpful technical indicators because they have been utilized in trading
for centuries. During that time period, many patterns have been discovered
comprising candlesticks, such as those demonstrated in the ensuing diagram:
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The Doji
comprises no real
body and
represents Market
indecision.
Spinning
tops
Marubozu
have small bodies possesses no tail
with little or no or wick but has a
wicks
or
tails long body. Black
promote
Market
favors Bears
indecision.
whilst White
favors Bulls
Shaven Head
possess a long
tail, small body
with no wick and
indicates a bullish
reversal.
You will attain even greater success with candlesticks if you install them on
trading charts using the larger time-frames from the daily upwards.
2. Alternatively you could choose to study bar charts which also display the
opening price, closing price, high price and low price each selected time
frame as displayed in the subsequent diagram.
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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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6.2.5 Doji
This formation is produced when both opening and closing prices are located
towards the center of the pattern. The Doji has both a wick and tail which can be
fairly long and nearly equal in length, as displayed on the following diagram. By
itself, the Doji is not considered to be either a bearish or bullish indicator and as
such it is usually analyzed as part of a series of three successive candlesticks.
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6.2.6 Hammer
This structure is generated during the final stages of a robust bearish trend
and, as such, usually identifies the birth of a new bullish channel. The hammer
possesses a minute body which is created at the completion of the active timeframe. There is no upper wick but a noteworthy lower tail which is almost double
the distance of the body, as demonstrated in the next figure. Essentially, the
Hammer indicates that the price has rebounded upwards after testing a key support
level.
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You will discover that those candlestick formations possessing either long
tails or wicks with nearly no body tend to be the most effective, e. g. hammer,
hanging man, morning star, hammer and inverted hammer. You are encouraged to
identify these structures on charts displaying the more dependable longer timeframes.
You may deploy these candlestick patterns as follows. For example, if you
have been struggling to initialize any new positions by utilizing your trading
strategies, then you should hunt for one of the patterns listed above. For instance,
envisage that you have discovered a hammer on a daily chart. You should then
investigate the reasons for its development by analyzing all the relevant news
commentaries, fundamental and technical factors. From this study, you may be
able to ascertain if a major reversal is being created or merely a corrective dip.
Occasionally, if you have other various reasons of initiating a new position
then you should consider examining the candlestick formations on the trading chart
of the relevant asset for extra verification. For example, suppose that you were
intending to execute a CALL binary option after researching a trading chart but
observed that a shooting star candlestick was being created. Under these
circumstances, you should reassess your decision and await further developments
before proceeding further.
Using this candlestick technique can assist you in verifying your active
positions, identify new trades or stop you entering trades that will ultimately
convert into losses. Nevertheless, you must understand that candlestick patterns
have restricted use when high priority economic news is scheduled for release.
How can you evaluate the effectiveness of incorporating candlestick
verification into trading strategies? This objective can be accomplished as follows.
First, compute the expectancy value of your strategy on its own and then repeat
the procedure after introducing an extra step of candlestick confirmation.
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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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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.
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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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6.4.4 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.
If you do not master the concepts of money management quickly, then you
will discover that margin calls will be one of your biggest problems when trading
binary options even if you do deploy well-established techniques, such as technical
analysis. You will find that these distressful events must be avoided as a top priority
because they can completely wipe out your account balance.
Margin calls occur when price advances so far against your open trading
positions that you no longer have sufficient funds left to support your open
positions. Such events usually follow after traders begin to over-trade by utilizing
too much leverage. Should you experience such catastrophes, then you will have to
endure the pain involved in completely re-building your account balance back from
scratch. You will not find that this is a distressful experience because, after such
events, you may feel totally demoralized.
This is the exact situation that many novices end up in time and time again.
They scan charts and then think that by doing so they can make quality decisions.
Next they execute trades but without giving a single thought to the risk exposures
involved. They do not even bother to calculate any protection for their open
positions by deploying well-determined stop-losses.
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Very soon, they experience margin calls because they do not have sufficient
equity to support their open positions. Large financial losses follow as a
consequence which are sometimes so big that they completely wipe out the traders
account balance. Margin trading can be a very powerful technique because it
enables you to utilize leverage that allows you to activated trades of substantial
worth by utilizing just a small deposit. For instance, if your binary options broker
supplies you with a leverage of 50 to 1, then you could open a $50,000 position
with just a deposit of $1,000.
This sounds great but you must understand that there are significant risks
involved when using leverage should price move against your open positions. In the
worst case, a margin call could be produced resulting in all your open trades being
automatically closed. How can you avoid such calamities?
To do so, you need to develop sound and well-tested risk and money
management strategies that will guarantee that you will never overtrade by
restricting your risk per trade within well-determined limits. You must also mater
your emotions such as greed that can make you generate poor trading decisions.
You can easily fall into this trap because the enormous daily Forex turnover can
easily seduce you into making unsubstantiated large gambles.
You must also understand that price has a very dynamic nature that can
generate levels of extreme volatility that are significantly larger than those
produced by other markets. You must never underestimate this combination of high
leverage and volatility because it can easily cause you to overtrade with
devastating results.
Basically, a money management strategy is a statistical tool that helps
control the risk exposure and profit potential of every trade activated. Money
Management is one of the most important aspects of binary options trading and its
successful deployment is a major skill that separates experts from beginners.
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One of the best money management methods is the Fixed Risk Ratio which
states that traders must never risk more than 2% of their account on any single
currency pair. In addition, traders must never risk more than 10% of their accounts
on multiple trading.
By using this method, traders can gradually increase the size of their trades,
while they are winning, allowing for geometric growth or profit compounding of
their accounts. Conversely, traders can decrease the size of their trades, when
losing, and thus protecting their budgets by minimizing their risks.
Money Management, combined with the following concept, makes it very
amenable for beginners because it enables them to advance their trading
knowledge in small increments of risk with maximum account protection. The
important concept is do not risk too much of your balance at any one time.
For example, there is a significant difference between wagering 2% and 10%
of your total equity per trade. Ten trades, deploying only 2% of an account balance
per trade, would record a loss of only 17% of the total equity if all resulted in
losses. Under the identical circumstances, 10% wagered would produce losses
totally 65%. Obviously, the former choice generates superior account protection
producing increased survival expectations.
The Fixed Risk Ratio strategy is preferred to the Fixed Money Bet one (e.g.
always risk $1,000 per trade). The second has the inherent problem that although
profits can grow arithmetically, each withdrawal from the account puts the system a
fixed number of profitable trades back in time. Even a trading system with positive,
but still only mediocre, profit expectancy can be turned into a money machine with
the right money management techniques.
Money management is a study that mainly determines how much can be
spent on each trade with minimum risk. For instance, if too much money is risked
on a single trade then the size of a potential lose could be so great as to prevent
users realizing the full benefit of their trading systems positive profit expectancy
over the long haul.
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Traders, who constantly over-expose their budgets by risking too much per
trade, are really demonstrating a lack of confidence in their trading strategies.
Instead, if they used the Fixed Risk Ratio money management strategy combined
with the principles of their strategies, then they would risk only small percentages
of their budgets per trade resulting in increased chances of profit compounding.
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Additionally, you should be aware that the gaps between the bands are
dependent upon both the degree of volatility and the standard deviation used to
create the middle band. You can fine-tune the default values of the two standard
deviations, if necessary. You can primarily utilize the Bollinger bands to appraise
the current volatility of price. Essentially, you can accomplish this goal because the
Bollinger Bands can inform you whether or not price is encountering low or high
volatility. For instance, you will observe in the chart above that the bands narrow
when price actions are restricted but increase in range when it is subjected to
increased levels of volatility.
For instance, you should be able to confirm that the bands reduce in size
towards the center of the diagram when price adopts a range trading mode.
However, both to the right and left of the chart, you will observe that the bands are
broader in size denoting that price is advancing in trends. If you concentrate on
these attributes, then you will improve your skills at utilizing the Bollinger Bands
effectively. You are not required to know how the Bollinger Bands are computed.
Nevertheless, you must appreciate that price has a powerful bent to constantly
oscillate about its center band.
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You should be able to observe this effect occurring several times in the above
chart. You also need to realize that the upper bands behave as resistance levels
while the lower ones act as supports. For that reason, you will discover that price
frequently bounces against these two bands, as you can again observe in the above
chart. You will accomplish superior results using the Bollinger Bands if you present
them on trading charts displaying the daily time-frame or higher, since their
associated
statistics
are
more
dependable
than
their
shorter
timeframe
counterparts. You can develop an excellent trading strategy utilizing these features
of the Bollinger Bands which numerous investors have already accomplished.
Nonetheless, if you do so, then you must realize that the Bollinger Bands perform
best when price is range trading and not trending.
6.6.2 Elliot Wave Oscillator (EWO)
This oscillator was created using the Elliot wave hypothesis which specifies
that a price trend is normally symbolized by a three or five wave series of advances
or declines. The waves are primarily produced by investor psychology and once
again you will attain best results if you install this oscillator on trading charts
featuring the daily time-frame or higher. If you plan to use this tool then you will
initially need to identify an asset that is progressing in a five wave structure. Once
achieved, you must then confirm that price has attained a high value towards the
peak of the third wave before it starts to retract. If this is so, then you should
deduce that this is a distinct indication that a reversal has been initiated and that it
will consist of an additional three waves.
If you also discover that a wave rebounds against a Fibonacci resistance or
support level, then you must appreciate that a price retraction could now be
forthcoming. You will find that Elliots wave theory has already been validated by a
comprehensive variety of trading strategies and tools. This Elliot Wave Oscillator
was primarily devised by using the critical discovery that assets have a tendency to
progress in 3 and 5 wave patterns and that important directional changes in price
often occur at Fibonacci resistance and support levels.
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You need also to realize that numerous trading strategies are already
currently available that incorporate the exciting features of both the Fibonacci
retracements and the Elliott Wave Theory. Professional traders will inform you that
the price behavior related to both these concepts is frequently reproduced on
trading charts. Nevertheless, you will need to obtain an excellent education in all
facets of binary options trading if you intend to exploit the valuable benefits of both
technical indicators.
You must also certify that your analysis is not just limited to technical
analysis but will also incorporate money management. You must learn how to
control your risks as a top priority if you decide to utilize the Elliot Wave Oscillator
or else you could endure significant monetary losses. You can deploy this tool to
help you to conduct technical analysis with the express intent of identifying key
price structures, such as double-tops, on trading charts of all assets of interest.
The primary assumption behind this oscillator is that investor emotions
oscillate between negativity and positivity in a natural wave series. The fluctuations
that create these patterns that are displayed on the next chart.
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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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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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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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If you detect that the MFI is starting to rebound from its oversold level at 20
by tracking price as it climbs higher, then this is an excellent indication that a new
bullish channel is being created. Likewise, you can identify high quality selling
prospects if the MFI falls beneath its overbought level at 80 by trailing declining
price values. For example, you will notice in the above diagram that the MFI (blue
line) displays an entry level for a CALL binary option.
You must understand that in order to operate the MFI well that it signifies
overbought conditions for assets when it generates readings of 80 plus, see chart
above. In the same manner, you should evaluate reading of 20 and lower as
oversold.
For instance, if you identify that the MFI has just climbed above its 20 level
after recording oversold values then you should assess such an event as a powerful
opportunity to execute a CALL binary option. However, under such instances, you
must still exert caution because price could still tumble by 100s of points. For that
reason, you are advised to always validate MFI readings by deploying a
supplementary technical indicator before activating any new trades.
You can accomplish this objective by utilizing the RSI as a verification
backup. In so doing, if you then identify any critical disparities between these two
indicators, then you should consider stalling any additional actions until you can
attain better clarification. For example, if you notice that the RSI is advising that
price is still climbing whereas the MFI values are falling, then you should only
contemplate implementing a new trade once you confirm that their values are
starting to align.
You must also understand that the MFI produces its readings by multiplying
the average price value by volume and then displaying the resultant figure on a
scale between 0 and 100. If you find that the MFI is beginning to display
plummeting readings but price is still ascending then you should anticipate that a
new market peak is forming.
You are encouraged to utilize the MFI as followings in order to recognize high
quality entry prospects. You can identify new SHORT possibilities after the MFI
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attains reading above 80 but then starts to retract beneath this level. You can
detect LONGS whenever you notice MFI readings rising back above its oversold
level at 20. Additionally, if you observe that MFI values and price are beginning to
diverge then you should anticipate that a change in the price direction of an asset
could occur soon.
6.7. 7 The On Balance Volume Indicator (OBV)
You can deply the On Balance Volume indicator to support you in evaluating
the comparatable volume and price flows of an asset over a designated time-frame.
Joseph E. Granville conceived the On-Balance Volume indicator in 1962 and
presented it to the markets along with his OBV theory within his book: How to
read the Stock Market. You will find that the OBV has gained an outstanding status
as one of the most renowned momentum technical indicators in the business that
can be implemented to asess the relationships between price, momentum and
volume of commodities, stocks, cuurencies and futures, etc.
Essentially, you must understand that the OBV clasifies its daily trading
volume as up-volume if the price value of an asset records a daily close above its
prior reading. Likewise, the OBV will catorize its daily trading volumes as downvolume if price registers a closing figure that is below its last value. For that
reason, you should deem that the OBV line signifies the accumulative sum of all
such positive and negative volume flows combined together.
You can identify these structures in the subsequent diagram. You must
realize that the OBV could be forecasting a pending price reversal whenever its
values start to alter direction. Granville initially discovered this crucial characteristic
of his tool after undertaking comprehensive analysis. You will notice this facet of
the OBV in the ensuing figure when the OBV begins to drop by identifying the final
stages of the current bullish channel.
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If you discover that the OBV readings are rising then you should also be able
to confirm that price has also started to ascend. Additionally, you can deploy the
OBV to help you reveal new trends. For example, if the OBV begins to generate a
series of higher troughs and peaks, then a new bullish trend could be forming.
However, if the OBV commences to issue a sequence of lower dips and tops, then
such a formation could be signaling the inception of a bearish trend.
You can also recognize new quality opening prospects whenever the OBV
begins to create values that diverge from price. This is because the construction of
the OBV concentrates on the trends of assets. You must also appreciate that
Granville advised that if volume begins to diminish during a bullish channel, then a
market top may be developing as purchasing pressure diminishes.
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If you notice such an instance then you should assume that price will not
proceed to ascend for much longer and that you should anticipate a reversal in the
imminent future. Granville also confirmed that a comparable action happens in
bearish trends whenever you observe volumes starting to increase. Additionally,
you should understand that he also encouraged using a 20 period moving average
in partnership with his OBV as a way to identify when trends are about to end. You
can then discover such occasions more readily by pinpointing the crossovers of the
OBV and the moving average.
A price reversal could also be due whenever you detect any price and OBV
divergences. If you also find that the OBV is changing direction after it has been
tracking price for an extended period, then you should consider such an occasion as
a new opening prospect. Finally, you should be aware that the OBV is considered by
investors to be one of the most straightforward and popular momentum indicators
on the marketplace these days.
6.7.8 Directional Movement Index (DMI)
You will discover that the Directional Movement Index can be an excellent
tool for evaluating price direction and strength. Welles Wilde, who also invented the
famous Relative Strength Index, designed and released the DMI in 1978.
Fundamentally, you should utilize the DMI to help you to decide whether you should
trade short or long.
You will find that the DMI is extremely effective at distinguishing between
weak and strong price trends. Consequently, you are recommended to integrate the
DMI into your trend trading strategies because it will help you to detect the
strongest trends. You should realize that the DMI has a very adaptable design that
enables it to function well with most time frames and can also be utilized to track
all types of investments, including commodities, futures, stocks, futures and
currencies, etc. The following chart illustrates some of the main attributes of the
DMI as well as demonstrating how you can use it to increase your profits.
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DMI is based on a moving average that is normally used with a default time
period of 14. A positive indicator (DI+) displays the power of price to climb upwards
(green line in above chart) while the negative indicator (DI+) represents the ability
of price to move downwards (red line on chart).
Your first task when you study the DMI is to determine which of the two DI
lines is above the other and in ascendency. The one that is at the top is termed the
dominant DI and will normally indicate the current direction of price. In addition,
you must realize that for sellers and buyers to switch dominance then those two
lines must execute a crossover.
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For example, you will observe that the DI+ climbs above the DI-, in the
above trading chart, heralding a new bullish trend. You can also confirm that price
follows as well by rising in unison. However, you must understand that although a
crossover is registered when the DI+ climbs above the DI-, you must still adopt
caution. This is because you must not consider that these crossovers are definite
buy or sell signals. As such, you are recommended to utilize a second trading
indicator to confirm any recommendations provided by the DMI.
You must realize that DMI crossovers can often be misleading because they
can frequently generate fake alerts whenever volatility levels are low as well as
producing delayed indications whenever volatility levels are high. You should
therefore regard DMI crossovers as a first sign that a change in the direction of
price could be imminent.
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.
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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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In addition, they generally wait for the closing of the time-period during
which the breakout happens before initiating a new position. This is because this
technique provides them with sufficient time to verify that the breakout is genuine
as well as supplying enhanced protection against fakeouts. The downside against
applying this approach is that that price could continue to advance significantly in
its favored direction and even hit your planned target value before the closure
occurs. Should this happen then do not trigger a new position. More often,
however, and if you do not exert sufficient patience and wait for the period close,
you could expose your new trade to enhanced risks of fakeouts.
When price does close substantially above the breakout level, a retraction
often occurs that drags price back to the breakout level before it continues in its
initial direction. There is much conjecture that such events are intentionally created
by large financial institutions to cause smaller retail investors to finish out-of-themoney. There is, however, no distinct evidence confirming this hypothesis or any
motive explaining why larger traders should adopt such actions.
If a price retraction does happen, profitable investors frequently instigate a
new binary option at the initial breakout point. Consequently, they often capture
more profitable positions exhibiting lower levels of risk exposure by doing so.
Always keep your win-to-loss and reward-to-risk ratios firmly in your mind by
constantly searching for superior trading positions, whenever any chances arise.
Investors have discovered from practical experience that their breakout
strategies are most effective when they include them together with technical
indicators, such as pivot points, supports and resistances. Improved results are also
attained by deploying procedures that are structured on technical patterns, such as
pennants, flags and head and shoulders, etc. For example, a bearish flag is
exhibited in the next diagram. If you discover such a trading formation, then you
can subsequently identify a new opening opportunity if price breaks out of this
structure. For instance, in the ensuing diagram, price surges beneath the support
line of the flag pattern indicating that a PUT binary option should be executed.
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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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The most powerful breakout events occur when price emerges from technical
patterns such as flags or pennants. See above diagrams for examples. This concept
is very important to realize no matter what type of trader you are i.e. intraday,
daily or weekly, etc. The best breakout candidates can usually be identified by
detecting the following conditions.
Has price bounced off its support or resistance a number of times? Is the
trading pattern forming a flag or pennant formation? If so, price will need to
develop such large amounts of momentum to force a breakout that it will then be
capable of generating further extensive movements in the direction of the breakout.
Entry points for breakout trading are very easy to determine. Wait for the close of
the time period containing the breakout and then set an entry just above the
original resistance for a bull position or below the original support for a bear
position.
You must take care to distinguish a true breakout from a fakeout. A fakeout
occurs when price breaks out of its consolation box only to finish trading back
within the original tight trading range. This is why it is so important to confirm a
positive close at the end of the trading period, in which the breakout occurred,
before taking action. If you act too quickly, there is no guarantee that price
momentum will be sustained.
This is why many traders also look for other signs, such as an increase in
volatility, to confirm real breakouts. In addition, you should devise a good exit plan
before embarking on a new breakout trade. One technique traders often use is to
consult recent trading patterns of the asset in question. You can then determine a
realistic target by calculating the average of recent price movements. Equally, if not
more important, is to plan an exit should your trade fail. To aid you to do this, the
following concept is very important to grasp. After a breakout occurs, the old
resistance becomes the new support in a bullish breakout while the old support
becomes the new resistance in a bearish one.
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Should the trade settle back within its old trading range, then effectively your
breakout has failed and you should immediate consider an exit route. A suitable
expiry time will allow you to do this which you need to select at trade entry. Very
importantly, you need to accept your loss as quickly as possible and not allow it to
grow into a monster. You can achieve this objective by studying past trading
records of the associated asset in order to identify the optimum expiry time So in
summary, your breakout strategy must allow you to perform the following steps
with confidence.
First, you need to detect suitable assets that are prime breakout candidates.
Search for pairs that have been trading in a tight range for some time. Preferably,
locate those that have formed distinctive trading patterns, such as flags or
pennants. Look for either a strong resistance or support level that price has
bounced against a number of times. This implies that the asset possesses large
amount of pent-up energy waiting for release which can be considered as volcanoes
on the verge of erupting.
Your next step is to simply wait for the breakout to occur. Once this event
happens, confirm the breakouts intentions by waiting for the close of the time
period within which it occurred. This will help protect you from fakeouts. Before
entering the trade, you must select an achievable expiry time from studying
historical data records of the relevant asset.
You need also to realize that many times price will retest its old resistance or
support levels before proceeding further. So you need to be prepared for this
mentally. If the level holds then a new price channel could well be formed. If not, a
fakeout could occur and you need to exit using your predetermined expiry time. If
after a period of time e.g. one day, no clear confirmation of the breakout has
materialized, then you should consider closing your position, preferably without
loss, and moving onto your next opportunity.
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Breakout trading requires patience and a good strategy that ideally should
remove all emotions out of the equation. This is because the market needs to
generate considerable amounts of volatility to force a breakout. Afterwards, price
can move rapidly resulting in many traders becoming over-excited and, as a
consequence, suffer impaired judgments. Your plan needs to ensure that you
remain emotionally detached during these events and trade professionally with
achievable targets at minimum risk.
Finally, you are well advised to test your new breakout strategy thoroughly
before using it in full force. You can do this by calculating your strategys
expectancy value and win-to-loss ratio and then subsequently consider this task to
be a central part of your plan. Once you have determined these parameters for
your initial configuration, you can then compare them to the values generated by
all your future modifications and updates.
You can calculate the expectancy value and win-to-loss ratio of your trading
strategy by using the following formulae:
Expectancy = (%Win X Avg_Win) - (%Loss X Avg_Loss)
% Win = % of positions that are winners
% Loss = % of positions that are losers
Avg_Win = average winning amount
Avg_Loss = average losing amount
Win-to-Loss Ratio = (no. of wins)/ (no. of losses)
This should be done first by using historical data for your chosen asset before
advancing onto demo trading. Designing a profitable breakout strategy takes time
but as many successful binary options traders will tell you, the effort is well worth
it.
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2.
3.
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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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.
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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.
2.
3.
4.
5.
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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.
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4. The
EMA20,
exponential
moving
average,
will
be
utilized
as
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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.
concepts to determine your position size so that you do not risk more than 2% of
your entire equity per position.
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Is scalping still a worthwhile strategy if it can only offerr such dismal rewardto-risk ratios? Yes is the answer as will now be demonstrated. Envisage that you
are scalping using an average return ratio of 75% and a refund of 0% for each
trade. These facts imply that your Reward-to-Risk ratio is 0.75. However, imagine
that your scalping strategy produces a win-to-loss ratio of 60% and you risked
$100 per position and activated 10 trades. As such, you would have captured a
return equating to ($75*6)-($100*4) generating a $50 profit.
Nevertheless, you must exert caution because just one extra loss could
entirely erase your total profit and even produce a loss. Many scalpers construct
their strategies on price breakouts which are created when it surges out of a
restricted or consolidation range. This is because the design of such strategies is
relatively straightforward and can also produce outstanding results. In particular,
breakout scalping is best performed during the first hour of the new trading
sessions. This means that you should aim to scalp the Asian opening at 7.00pm
EST, the European opening at 2.00am EST, the London opening at 3.00am EST and
the USA opening at 9.30am EST.
Research shows that when these sessions commence, new trading often
generates enough momentum to force price to breakout of its previous tight trading
range. Such circumstances present the ideal conditions to scalp. If you study a
number of trading charts at the above advised times, then you can confirm this
recommendation by identifying numerous breakouts. You next need techniques that
you can deploy to confirm breakouts. One such method is to identify the resistances
and supports of tight trading ranges just before the opening times of major
international stock exchanges.
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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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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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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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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.
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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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You also know that price frequently breakouts only to reverse soon
afterwards. This spike movement often causes new binary options to expiry out-ofthe-money. You can benefit from such situations by executing new binary options
in the opposing direction to most investors. This concept is effective irrespective if
price advancing within bearish or bullish trends.
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You must initially identify the support and resistance levels of a consolidation
region and then track it by utilizing either hourly chart. For instance, in order to
detect a fake out during a bullish breakout, monitor price closely to verify that it
initially breaks above resistance before reversing back beneath it. Activate a CALL
binary option at that location. However, if price plummets very rapidly then wait for
it to bounce decisively against support before implementing a PUT binary option.
The next figure presents an example of such events.
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undesirable
conditions
by
instigating
well-proven
risk
and
money
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You will notice that price breakouts of the bullish channel in the middle of the
above chart when it pierces beneath the lower trend line. However, you must not
enter a short trade at this point because you will then be trading against the trend.
Instead, you should wait to see if the breakout transforms into a fake out by
observing price closing back inside the bull channel, which it does in this case.
You should then open a long trade as shown in the above diagram. The
major point to notice is that your new long position will be trading in the same
direction as the trend. Trading fake outs successfully requires good timing which is
not always easy to achieve. This is normally because emotions such as anxiety and
nervousness can impair trading judgment. You can use these following ideas to
minimize these influences:
1. Using the hourly trading charts, wait for the current candlestick to fully
complete during which the breakout occurred. Only then consider whether
to open a new binary option or not.
2. Also use technical indicators, such as Fibonacci retracement, to determine
entry points. Section 7.2 presents several examples.
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The following daily chart displays a binary options strategy that deploys the
EMA9 and EMA50, exponential moving averages, as its primary technical indicators.
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Next locate and click on the EMA technical indicator as shown in the above
diagram. Another pop-up box will appear similar to the next diagram.
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For EMA9, enter 9 for the Number of periods and choose a suitable color.
Now press OK and your EMA9 will appear on the chart. Repeat this entire process
for EMA50 but by entering 50 for the Number of periods and selecting a different
color.
8.3 Which Assets to Trade?
You will discover that each underlying asset offers its own distinctive trading
characteristics. Additionally, your broker will impose a fee each time you execute a
new binary options. The charge equates to the difference between the payout and
return ratios of all assets on offer. Consequently, you are recommended to identify
a broker who persistently offers the most competitive return-to-risk ratios (Payout
to Refund Ratio) as possible because their accumulative costs will definitely impact
the size of your future profits.
Furthermore, you should choose those supporting assets boasting the best
reward-to-risk (R/R) ratio. You will discover that the EUR/USD is usually an
outstanding selection because it presents one of the most competitive R/R ratios
available. You must understand that if you attempt to trade binary options
supporting much larger R/R ratios, then attaining reliable profits will be a more
challenging undertaking.
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For instance, if the existing R/R ratio of a specific asset is 0.75, then you
have to acquire a win-to-loss ratio of almost 60% just to break breakeven. Under
such circumstances, your brokers fee will be the difference between the return and
the rebate ratios, i.e. 0.25. This is probably the major reasons why you are advised
to trade the EUR/USD because its R/R ratio generally much closer to unity, i.e. 1.0.
In comparison, other more unusual assets have R/R ratios as low as 0.50 requiring
win-to-loss ratios exceeding 70% to just breakeven.
Also search for assets exhibiting high liquidity. This is a vital facet because it
will enable you to execute binary options at any time because other investors will
invariably be present to back your orders. Consequently, professionals advocate,
especially if you are a newcomer, that you should attain or devise trading strategies
that will assist you to utilize assets possessing both high liquidity and low spreads.
If you are a new to binary options, then you are well advised to start trading
the financial markets by concentrating on an asset, such as the EUR/USD currency
pair, for the reasons defined above.
8.4 Designing a Confirmation Strategy
After you have successfully completed the first three actions, you will then
possess a rudimentary trading strategy structured on your choice of underlying
asset, technical indicator and expiry times. Consequently, you will be able to
identify high quality entry opportunities for new binary options displaying minimal
risk exposure but optimum profit prospective. Nevertheless, you now must defend
your equity balance even more by utilizing enhanced protection against phony
events, e.g. fakeouts. You can accomplish this goal by creating a validation process
that you can easily integrate into your binary options strategies.
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Experts recommend that you can adhere to this stipulation by trying out
other technical indicators that are capable of providing enhanced protection. You
must not disregard this task because it can substantially help you to maximize the
protection of your trading funds. You are advised to choose a technical indicator
that fulfills the primary objectives of your binary options strategies. You may need
to embark on a comprehensive investigation in order to discover the perfect choice.
Many professionals use candlestick technology to assist them in validating the
trading recommendations generated by their main technical indicators.
For example, a strategy could be constructed utilizing resistance and support
levels to act as its confirmation tool. As these levels will be produced on trading
charts using the daily time-frame, you can be assured that they will provide very
strong indications that price has the potential to proceed further in its current
direction whenever they are decisively broken. The ensuing figure illustrates this
method in process by distinctly presenting the key support and resistance levels.
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However, you must always adopt caution in order to protect your trading
capital from fakeouts and price retracements. You should not ignore this vital
process because it will provide you with enhanced confidence from knowing that
your new binary options will exhibit the optimum potential to record in-the-money
results.
8.4.1 Installing Resistance and Support Levels
Once again, this is a relatively easy process to learn. Detect and then hit the
same Technical Indicators button precisely as you previously did, see next
diagram.
However, on this occasion you must now strike the Pivot (Pivot Lines)
button and the ensuing pop-up box will be displayed.
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Now you just need to click the OK button and your Resistance and Support
levels will materialize on your chart.
8.5 Rules for Opening and Closing Positions
Your next task will be to define a set of rules which you can easily use to
identify the entry and exit points of new trading opportunities. For instance,
imagine a strategy structured on the next simple-to-implement set of opening and
closing rules identifying the entry and exits of new quality positions:
1. Open a CALL binary Option only when an asset is advancing in a
BULLISH trend. You can detect such circumstances whenever EMA9 has
climbed above EMA50, as displayed by the subsequent chart.
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2. You should then implement a CALL option after price has initially jumped
decisively above Resistance 1.
3. Your position will close at your chosen expiry time which should be long
enough to allow price to strike Resistance level 2.
The following chart shows point 2 and 3 in action.
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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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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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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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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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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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Let us know consider some potential problems that you should attempt to
avoid whenever you are designing a binary options strategy.
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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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Test Chart 4
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Efforts were also made that would allow this design to continuously capture
small profits by utilizing a very short expiry time, as displayed on the following
diagram. However, a price reversal will always happen at some time which can
harshly affect the returns because of the very weak 1:4 reward-to- risk ratio.
Test Chart 5
For instance, the figure above shows the optimum circumstances for this
strategy to trade because it record nine consecutive wins recently. However, as
such an impressive result does not occur frequently, it can readily countered by a
string of losses. In this case, the nine wins were followed by a series of 3 losses and
2 wins.
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As such, 11 wins were recorded registering a profit of about $500 each while
the 3 losses were generated $2,000 each. Consequently, a total loss of $500 was
achieved despite attaining 11 wins.
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Chapter 9
Trading More
Effectively Using
Binary Options
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If you trade binary options, then you can gain from a number of impressive
benefits that they exhibit. For that reason alone, you will then learn exactly why
this trading mechanism has grown to become the fastest expanding and most wellliked sector within the investment market nowadays.
Risk control
Binary
Options
offer
pre-defined
payment
and
loss
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Higher potential profits - Binary options offer you the opportunity to activate
very large trading positions by investing only minimal cash
deposits.
Additionally,
you
only
need
to
concentrate
on
forecasting just the direction in which price will advance and not
the size of its movements. For that reason, you will discover
that trading binary options is much easier than other forms of
investment choices, such as trading the currency markets
directly.
For instance, consider that you suspect that the price of the
EURUSD is about to climb after obtaining a tip from your signal
service provider. As such, you choose to buy the EURUSD at
1.3500 by investing $1,000. You subsequently purchase thirtyfive micro lots at $3.5 per pip in accordance with your money
management method.
If you were now to conduct this EUR/USD directly on the
currency markets then envisage that you secure a profit of 25
pips after 60 minutes. As such, you would have recorded a
return of $3.5 * 25 = $87.50.
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global
economic,
financial
and
political
catalyst
by
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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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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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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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Chapter 10
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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.
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Consequently, they are very assured that the sophisticated and state-of-theart facilities and tools offered by their platforms will assist you in commencing a
profitable and successful career in trading binary options. You will also discover that
as your experience improves, then you will have access to more specialized
facilities that will aid you in elevating your game even higher.
When creating their trading platforms, the main stipulations of most brokers
were to guarantee their ease-of-use as well as presenting a robust trading
environment. As a result, their registered customers can utilize some of the most
powerful tools available on the financial markets these days.
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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If you had attempted to activate this position directly on forex then you
would have had to conduct numerous involved trading actions. For instance, you
would have had to precisely locate profit-targets and stop-losses. You may also
have had to endure sizeable stress waiting for price to hit your target. In addition,
you would have had to calculate the ideal amount to wager in compliance with your
money management policy.
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In contrast, if you then used binary options instead then you would have
found this process much simpler. For instance, your trading strategy would notify
you, as soon as price had fallen 20 pips below S1 that you should open a new PUT
binary option, based on the AUD/USD. As you would also know that your maximum
potential loss would be about 85% of your investment, you could determine easily
the size of your deposit in order that it complied with your 2% maximum risk per
trade money management strategy.
Let us assume that this figure is $1,000. In addition, as the recommendation
produced by your strategy was based on observations made using the daily timeframe, you could safely select an expiry time of 1 hour. So you would simply need
to implement a PUT binary option, based on the AUD/USD, supported by an expiry
time of 60 minutes. As the chart above demonstrates, the opening price of your
position was 1.3281.
After the expiry time of one hour elapsed, if the value of the AUDUSD had
been just one pip below its opening price at 1.3280 (which it was), then you would
be in-the-money and would receive a payout of $800. Not bad for one hour work. If
you had directly traded the currency markets, then you would have needed to
secure almost 330 pips in order to produce a similar payout by utilizing a $1,000
bet.
A very important feature that you need to grasp is that everytime you initiate
a binary option you will activate a contract which identifies predefined refunds and
profits. For instance, you will collect a rebate of about 15% of your bet in the case
of an out-of-the-money outcome. As such, if you want to risk just two percent of
your equity per trade, then your deposit will equal your total current account
balance times 2.35% (including the 15% refund).
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You will notice that this calculation is all you have to perform in order to
provide full protection for your equity in accordance with your money management
plan. In addition, as you are only interested in the direction in which price will
move, you just need it to finish one pip above its opening price for a CALL binary
option and one pip below for a PUT option. As you do not have to undertake
complex tasks such as determining the positions of stop-losses and profit targets,
the entire trading process is dramatically simplified by exploiting the benefits of
trading binary options.
The next example displayed in the above chart shows a Sell position traded
using the NZD/USD currency pair. Again, a significant number of complex decisionmaking would have been involved if you activated this trade directly on Forex. In
comparison, imagine that your strategy had notified you that the price of the
NZD/USD currency pair has just breached S1 by an addition 20 pips. You were
subsequently advised to activate a PUT binary option, structured on the NZD/USD
currency pair.
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Envisage that you did, indeed, activate such a trade supported by an expiry
time of 1 hour and a deposit of again $1,000. As the price at the expiry time was
lower than the opening one by at least one pip (much lower in reality) then you
again could have received about $800 as a pay-out. Again notice that when you
select the size of your deposit, you can use the simple formula displayed above.
That is your deposit will equal your total current account balance times 2.35%
(including the 15% refund). As such, you will have no need to determine complex
positioning for stop-losses and profit targets.
The above examples should clearly indicate to you just how much easier it is
to trade Forex by utilizing binary options with a well-tested strategy. In addition,
the rewards are much higher while your risk exposure per trade is greatly reduced.
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CHAPTER 11
Increase Profits by
Exploiting Volatility
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One trading skill distinguishing Forex experts from novices is that the former
group has developed an excellent understanding of the concepts of risk and money
management. Obtaining proficiency in this subject is essential in order to safeguard
your account balance form heavy losses.
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This is especially so when you are trading gold using the XAU/USD currency
pair. This is because in any set period of time, Gold trades through a significantly
larger number of pips that other currency pairs, such as the EUR/USD. This effect is
explicitly demonstrated in the following charts which display a Gold candlestick
which is 531 pips in length and a EUR/USD one equally 52 pips over similar timeframes.
Risk and money management are complex issues. This chapter is meant to
help you understand their main ideas so that you can readily integrate them into
your own gold trading strategies. The recommended approach to achieve this
objective is that you should apply your new skills in order to control the profit
potential and risk exposure of every new position that you will activate. By learning
to implement this process well, you will be able to attain optimized account
protection by minimizing your risk exposure.
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So, what is the beat technique that you can adopt when applying risk and
money management concepts? Professional traders endorse the following process.
Determine the maximum level of risk exposure that your account balance may have
to endure resulting from the excessive volatility generated by gold trading. Gold
has the capability to create price surges of thousands of pips on a daily basis
generating structures that are complex to analyze. The subsequent diagram
illustrates that gold can readily travel in excess of two thousand pips during a single
trading day.
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Imagine that you possess an account balance of $10,000 and you open a
new gold position using the XAU/USD currency pair risking $5 per pip with no stop
loss protection. Assume price advances 500 pips against your position before you
exit. If you were unfortunate enough to endure such an outcome then you would
have just lost $2,500 or 25% of your entire equity. Consequently, you must
calculate your risk exposure more accurately as this strategy is clearly flawed
especially when you are trading the XAU/USD currency pair.
Your prime objective when your start trading gold is to defend yourself from
financial losses. There are a number of techniques that you can use to achieve this
objective. For instance, one approach is to consider the difference between the
mindset of beginners and that of experienced traders. An essential discrepancy is
that the latter concentrates on how much money they can potentially lose per gold
trade while the former dream about how much money they can make.
Let us analyze the following trading situation in order to obtain a deeper
understanding of this concept. Envisage that on the daily XAU/USD chart that the
Relative Strength Index (RSI) has just plunged beneath below 30 and is now
starting to rise back above this level, as depicted on the following diagram.
After analyzing this chart, you could easily conclude that as the RSI bounces
back above 30 a strong buy signal is created. However, you still cannot afford to
merely implement a quick decision and open a position without properly consulting
your money management policy. This is because you need to protect your equity
against false signals or fakeouts by the accurate positioning of both a stop-loss and
profit target. In addition, you must always remember that as gold trading generates
excessively more volatility than other assets, then you must adopt an even more
cautious attitude.
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However, many beginners would jump straightaway into a new trade, at this
point, without proper consultation with any well-tested trading strategies of any
type. Consider that price first moves against their trade by 100 pips before the
trade eventually realizes a profit of 50 pips. Assume that four wins are obtained in a
row with exactly the same profit before a fifth trade produces a loss of 300 pips.
Now, although the novice could have achieved an 80% win rate by trading the
XAU/USD gold currency pair, a loss of 100 pips would have been produced by this
sequence of results. Sadly, many beginners win more trades than they lose only to
still squander money in the process.
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In contrast, experts would study the same position by consulting their gold
trading strategies that possess both positive win-to-loss ratios and expectancy
values. They would also assess acceptable losses and realistic profits by applying
sound money management strategies. They would then use their findings to select
optimum entry points and well-position stop-losses.
They will next calculate their position-size that will ensure that their total risk
for this new trade is kept within the 2% risk recommendation of their money
management strategy. Experienced traders also know that, in order to achieve
long-term profits that the total value of all their wins must exceed that of their
losses by at least by two to one.
As they have designed and geared their management strategies to achieve
these goals, in our example, they could register two losses totaling 500 pips
compared to two wins equating to 1,000 pips. Consequently, their money
management policies would have successfully provided them with a 2:1 reward-torisk ratio.
Although every type of investment involves a degree of risk, you should
always consider gold trading as especially risky because it can generate levels of
volatility and liquidity that are much greater than those of other currency pairs. For
instance, once you have signed up and joined a broker, you could have access to
leverage that can be as high as 100:1. Such a facility will allow you to control
positions of substantial size by supporting them with just a minimum deposit.
However, unless you instigate well-proven money management policies you
could suffer serious losses that could even erase your trading capital. Gold trading
can generate such excessive volatility that it can create fast moving and erratic
price formations, as demonstrated on the ensuing chart.
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The above chart vividly demonstrates why you must exert so much caution
when trading gold using the XAU/USD currency pair. Specifically, you should
carefully note the sheer size of the fluctuating trends. A bullish channel is initially
produced, comprising over seven thousand pips, which is subsequently followed by
a bearish trend consisting of nearly four thousand pips. Another bullish channel is
finally created consisting of almost 5,300 pips. Such large swings of thousands of
pips do produce significant profit potential but only if you can control the
substantially large risk exposures.
Consequently, as you will find that the task of forecasting the future
movements of gold accurately all the time is practically zero, you must always trade
in such a way as to provide your account with maximum protection. Here are some
risks that you need to consider and always be on your guard against:
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1. As your broker determines execution prices, you are very much dependent
on their honesty for fair values. Forex differs from other markets in that it
has no central marketplace with visible and definitive regulatory controls.
2. You must always be aware about the problems that could occur should
your trading platform fail. For instance, if your system crashes then you
may not be able to execute new orders or cancel active ones at vital
times. As a consequence, you could experience significant financial losses
or even fraud.
4. There is also a risk associated with sudden shifts in the interest rates of
the two countries comprising a currency pair. In addition, should a bank
or financial institution go bankrupt then a credit risk could occur. Country
risks can also happen should governments decide to limit their currency
flow.
You must provide yourself with as much protection as you can in order to
defend your account balance against such risks. As even experienced traders
cannot foresee, with any degree of certainty, future changes in gold, you should
always employ tools that can restrict and limit your losses for all your gold
transactions. Many experts even produce their own business plans in order to focus
on their gold trading objectives especially controlling their risk exposure.
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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,
superior statistics attributed to the longer time frames from the daily upwards. As
such, they are prone to open fewer positions but of higher quality. For example,
over the same time period they may activate just 10 trades producing 8 wins with
an average profit of $100 while their two losses produced an average loss of $50.
As such, the expectancy value of their trading strategy would be equal to $70.
After many novices have traded gold for any length of time, one point that
they come to realize is that regardless of whether they are trading a strategy or an
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automated robot, they will always have to assert some form of judgment
themselves. For instance, if they were using a trading strategy that is based on a
technical indicator then they would need to interpret its readings in order to decide
whether they should have open and close trading positions. In short, they make the
ultimate choice.
Similarly, if you are trading a robot then you will also have to make
important decisions despite the substantial reduction in the levels of trading
judgment required. For example, you will need to determine which combination of
the products key settings will provide the optimum trading results and whether you
will obtain improved profits using a virtual server or your own computer.
A level of trader judgment will be required no matter which method is used
to trade gold. Consequently, traders must always remain focused in order to
achieve consistent success. One of the main reasons why so many traders struggle
to create successful trading plans or execute trades profitably is their lack of
concentration. You simply cannot allow yourself to procrastinate or to become
easily distracted by the next best indicator, program or enticing email that comes
your way. To overcome these types of problems, you need to attain an easy-tounderstand methodology that will start you on the track to successful trading.
Such a tool will inspire you to become the best trader that you possibly can.
If you learn the concepts and techniques comprising such a methodology, then gold
trading could well provide you with an unlimited and exciting future! Always
remember that no matter which gold strategy or method that you decide to use,
you will always remain a central component. In other words, getting to know your
own objectives, strengths and weaknesses as a gold trader is one of the first steps
to success.
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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.
4.
Opening value
5.
Expiry time
6.
Amount wagered
7.
Price at expiration
8.
9.
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As the above diagram illustrates the Swiss Franc has a strong tendency to
track the price movements of gold relatively closely. As gold appreciates in value,
the USDCHF drops and vice versa.
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Consequently, you will need to adapt your strategy so that it will notify you
of long trades in gold as follows:
By studying the above chart, you can confirm that you will receive an alert
notifying you about a new long USD/CHF trading opportunity after price breaks
higher than 20 pips above R1. Similarly, you will need to adapt your strategy so
that it will notify you of short trades in gold as follows:
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By studying the above chart, you can confirm that you will receive an alert
notifying you about a new short USD/CHF trading opportunity after price breaks
below S1 by 20 pips. If you are able to trade the XAU/USD gold currency pair then
this would be ideal. Otherwise, you just need to adapt your strategy in a similar
way to the USD/CHF as shown above.
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Imagine that you have received a notification to open a long (Buy) USD/CHF
position after price breaks above R1 by a further 20 pips as displayed above. At
that point, you should open a call binary option using the USD/CHF as the
underlying asset and select an expiry time of one hour.
You can calculate your deposit size by using the formula:
Deposit = Account balance * 2.35%
Consequently, if your balance is $42,500 then your deposit will be $1000.
Note again, that there is no necessity to calculate stop-losses and profit-targets for
your binary option as your potential profits and losses are predetermined and
agreed even before your binary option is executed.
As the first daily USDCHF chart shows, price surged and closed much higher
than the required 1 pip above the opening price after the 1 hour expiry time had
elapsed. There is a much greater chance that this result will be achieved if you
trade gold because of the higher levels of volatility associated with it.
You will now be in-the-money and will receive as high as 80% of your initial
deposit as a pay-out. In other words, you would have gained a profit of $800 within
1 hour. Using binary options to trade Forex also had the advantage that your risk
exposure
would
have
been
greatly
reduced.
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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.
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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.
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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.
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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.
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.
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A major task that they are constantly confronted with is that they must
constantly determine both the direction and size of price movements. This can be a
serious stumbling block especially for beginners. Alternatively, many investors have
commenced using binary options to speculate on Forex because of the many
simplifying advantages that they present.
For instance, executing binary options, structured on currency pairs, requires
that you only need to concentrate on predicting prices preferred direction since you
do not need to assess that size of the movements. This vital feature implies that, in
the case of a PUT binary option, price just needs to finish only one pip lower than
its opening value at expiration for your trade to expiry in-the-money. Equally, you
require price to close just 1 pip higher than its opening value for your CALL binary
options to register an in-the-money status.
Another critical assignment that you must perform proficiently when trading
Forex directly is to develop a well-proven money management policy so that you
can handle your risk levels per position professionally. In contrast, if you trade the
currency markets utilizing binary options then you are not require to undertake this
daunting task since you will always understand precisely the size of your predefined returns and rebates even prior to your trades being initiated.
Let us now consider a specific binary option trade in order to show you
exactly what you need to do in order to action such an investment. Imagine that
your broker has just notified you that you should open a new long (buy) position
using the EUR/USD currency pair. Consider that the price of the EUR/USD is
currently 1.2750 and that you conclude that it will continue to rise during the next
hour. Consequently, you open a CALL binary option using the EUR/USD as its
underlying asset with an expiry time of 1 hour. The opening price is 1.2750 and
your deposit is $1,000. The payout ratio is 80% and the refund is 10%.
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Whenever you trade binary options, there can be only two distinct outcomes.
Either you will win a predefined profit or lose a sizeable portion of your deposit.
After one hour has elapses, the EURUSD stands at 1.2760 which is higher than the
opening price and you are in-the-money. Your broker pays you $800. However, if
the EUR/USD had finished below 1.2750, then you would have been out-of-themoney and lost your deposit but would have received a refund of $100.
12.4.1 Forex Direct vs Binary Options
With a huge daily throughput of about $3 trillion, Forex has caught the
attention of a swelling band of new investors in recent years. Aggressive and
intensive advertising and marketing campaigns have attracted most of them with
dreams of instant riches. Regrettably, reality paints a vastly different picture since
almost all these beginners lost their preliminary deposits rapidly. In truth, just a
few evolve into expert traders. The key reason behind this dismal result is that
currency pairs are powered and influenced by numerous complicated variables
which can generate very intricate price waveforms that are challenging to forecast
with regular accuracy.
As opposed to offering a simple path to wealth, perfecting Forex trading
effectively entails a substantial amount of dedication, energy, money and time. For
instance, investors must evaluate both the direction that price will advance as well
as the magnitude of its movements. In addition, they have to devise techniques to
restrict their risk levels in order to supply maximum protection for their trading
capital. This procedure usually involves creating or obtaining a money management
program that delivers rules about how to precisely locate stop-losses and profitstargets.
As mastering such knowledge defined above requires time to grasp, many
new investors have a tendency to quit eventually. Is there an easier alternative?
Yes, there is! Binary options were specifically designed so that they can simplify this
trading operation. For example, you now only have to forecast the direction of price
movements and not their size.
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Binary options 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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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
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Consequently,
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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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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.
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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.
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However, if you are prepared to make the necessary commitments then the
rewards are well worth the effort because you can attain a good lifestyle from daytrading. If that is so, then what is the best route forward you may well ask? You are
well-advised to develop your day trading skills by using the following steps:
-
You must first learn how to analyze the financial markets competently by
gaining a good understanding of fundamental and technical analysis. You
are also recommended to design your own trading strategy as opposed to
trying to purchase one. This is because you will develop a better feel as
well as superior skills in doing so. In addition, you need to select a good
binary options broker supporting a top class trading platform.
Next, you are recommended to write a business plan that precisely details
your trading strategy. You should also state the prime objectives that you
would like to achieve from day-trading. In addition, you should include
your risk analysis. Once you start to trade, you must then record all your
trading activities, such as your entry and exit values of your trades as
well as your profits and losses.
You must next use a demo account to fully test your trading strategy. You
should attempt to simulate live conditions but without risking your own
equity. You will discover that your many binary options broker will be very
willing to provide you with such a facility. If not, then locate one that will.
Once you have gained confidence using your demo account, you should
then progress onto live trading by exposing your equity to small
incremental steps of increasing risk. You can achieve this by first using a
micro live account then a mini and finally a standard one.
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Your
trading
strategy
must
incorporate
good
risk
and
money
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.
-
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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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.
However, you will discover that this objective is harder to achieve than at
first glance. Your main problem is that price does not generate movements that
adhere to any type of predictable formula but seem to advance in a form of ordered
chaos. If you perform a lengthy analysis of trading charts, then you can certainly
verify that assets do definitely produce price trends that do exist for some
extensive amount of time. Consequently, you are recommended to try to trade
trends instead of attempting to predict their precise point of birth.
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If you do undertake such a task then you must not make the beginners
mistake of concentrating your analysis on trading charts displaying the very short
time-frames. In contrast, you will fare much better if you study trading charting
using the daily time-frame or higher. This is because you will discover that the
statistics associated with the larger times frames are superior to those of their
shorter time-frame counter-parts.
In addition, you will obtain a better and clearer picture of price movements
and formations because the longer time frames filter out more of the random noise
generate by the financial markets. If you use shorter time frames then you will find
that this noise problem will become increasingly amplified. Many experts even
advise that you should not consider using time frames of less than one hour if you
are a novice. This is because the better quality information displayed by trading
charts using longer time-frames will allow you to identify price formations much
better.
You need to understand that although price may have been advancing in a
trend for some time that it could still generate rapid oscillations and retractions
very quickly. After some analysis, you could deduce that a trend comprises many
smaller price fluctuations within its boundaries. Consequently, the main enemy that
you will need to counter if you consistently utilize shorter time frames is noise
which will constantly obstruct your trading analysis. However, if you choose more
wisely and use longer time-frames, then this problem will be minimized providing
you with better quality trading opportunities.
You also must understand that many beginners opt for the shorter time
frames because they think that the associated increased action produced by the
random noise will present more opportunities for faster success. However, this is a
serious misconception and will only generate major losses over the long haul.
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Consequently, you are advised to base your trading strategies on the daily timeframe or higher. Some traders do utilize the shorter time-frames of 10 minutes and
under for specific types of trading strategies although they realize that very short
time frames are not recommended for statistical analysis.
For instance, scalping is constructed on the premise of very short time
frames has been incorporated into the design of many automated robots. You will
find that you can develop a trading strategy by selecting from a large number of
times frames. If you have constructed or bought a successful trading strategy
exhibiting a positive expectancy value then you are advised to stay with it and
optimize its performance. If not, then the following information may be of use.
You will discover that volatility can produce abnormal price formations. In
addition, the larger price movements and spikes that are associated with these
violent trading periods dramatically hinder the effectiveness of statistical analysis.
You must also realize that even the longer time frames can expose trading positions
to sudden sharp price retractions.
Unfortunately, many novices view the market conditions produced by
increased volatility as just increased opportunities for large profits. However, you
must understand that the resultant large price swings generate substantial
opportunities for sizeable losses if you do not take the necessary precautions.
Consequently, you must alter your trading strategy in order to be able to cope
better with these erratic conditions. You can achieve this objective by considering
the following types of action:
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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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