How to Trade Binaries With Only 15 Minutes A Day (Series 3 of 4)
In part one of this four-part, "How to Trade Binaries With Only 15 Minutes A Day" series, you learned how to use diagnostic bars, with expected volume, and expected range channels to trade with only 15 minutes a day.
In part two you learned how to apply this system to make money on binaries, by making money on time with premium collection trades. Now, in part three, you will learn how to apply this system to make money on binaries with trend collection for lower risk and higher payout trades.
How To Make Money On Time With Binary Options With Trend Collection
Making money on a required directional move in the market is known as trend collection.
A binary option has a value of $0 to $100. Nadex binary options have strike prices. If you buy a binary, the price you buy at is the risk and $100 minus that price is the maximum profit potential. If you sell a binary option, the price you sell at is the profit potential and that price subtracted from $100 is the risk.
You can do one or hundreds of contracts at a time, depending on your account size and risk management method.
If you buy a binary option that has a strike price under the underlying market's price, then if the market stays flat, moves up, or moves down but still expires above the strike price as of expiration, you will be profitable on the trade. You can also do the inverse. If you sell a binary option that has a strike price above the underlying market's price, and then if the market stays flat, moves down, or moves up but does not stay above your binary strike price as of expiration, you will be profitable on the trade.
If Doing A Buy Side Trend Collection Nadex Binary Option Trade, Follow This Example
1) The market (i.e. ES S&P 500 Emini Futures) is at 1834 at 9:45 a.m. and the system gives you a buy signal. ((A) Actual volume exceeds expected volume in the last 15 minutes (B) with an up close bar, (C) and the subsequent bar breaks that bar's high).
2) At 9:45 a.m. you buy a Nadex binary US 500 > 1836 @ 10:00 a.m. -- meaning you are stating that The S&P 500 will be above 1836 as of expiration 15 minutes later.
You buy the binary for a cost of $30.00. Therefore, the risk is $30 and the profit potential is $70.
The risk reward is instantly alluring when doing a trend collection trade on a Nadex binary option. Remember that the price MUST move in your favor to be profitable. If the market stays flat, moves against you all the way until expiration, or moves up only a little but not up to or above your strike price, then you will not be profitable on the trade.
Since the market must move at least some in your favor in a short period of time, the probability is lower. But this lower probability is offset by a higher payout.
When buying a binary option, the price is reflective of the probability if held to expiration that the market will be above that strike price.
Remember, as well, that you do not have to hold the binary until expiration. This is a huge benefit of trading on Nadex. If the market moves up, you can exit when the binary hits the value of $90 for a $60 profit. Since you are doing a low risk binary, you could, but don't need to, exit the binary if it moves against you.
Your risk is capped and it could come back in your favor. If one out of three trades is profitable, you will break even. The risk to reward is definitely in your favor. You will most likely lose more, but you will make more when you win to help offset the lower win/loss ratio. Win/loss ratio is one of the most over-estimated parts of trading because risk/reward ratio can easily outweigh win/loss ratio.
3) So in this case it expired at 1836.75 above your 1836 strike. Therefore, you are profitable on the trade at either $70, or $60 if you took profit before expiration, which is always a wise plan.
You can see an example of this chart by clicking here, You will notice the three steps on the 10:00 a.m. expiration less than 15 minutes before expiration: the entry, the strike, and the expiration price.
Used with permission from Apex Investing Institute LLC ApexInvesting.com
Also, you can combine the premium collection and trend collection together for what is known as a double binary. We will discuss applying this additional binary strategy in the next, and final, article in this series.
© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.>