Random Trading Brings Random Results

Trading just to be trading does not result in profits and can be detrimental to your account. A few traders were finding this out the other day as they debated whether money could be made by trading In The Money (ITM) binary Options.

Trader A started out the debate by taking the position that he had randomly tried trading binary EUR/USD strikes for the last five days selling for $10 at 8 am with a 3 pm expiration. His theory was that he was risking $90 to make $10, giving the market basically all day to make a small downward move and that it was a 90% chance that he would be correct. After five days, only three days were profitable. According to Trader A, his deduction was that it would have been better for him, in order not to have to deal with the pressure and stress levels of trading, to have taken advantage of trading Out of The Money (OTM) Contracts.

Trader B did not agree with Trader A. In fact, he told him that his theory was flawed and that he should not be trading by randomly selling strikes. There needs to be a reason anytime you enter the market.

Trader C also did not agree with the way Trader A had tested his theory. He told him that buying or selling random contracts does not prove anything. He reminded him that ITM binary contracts are good because of the time decay factor and that you can still be profitable if the market moves against you. He suggested that Trader A try trading the contracts during the last 15 minutes before expiration for some Expiration Premium Collection trades.

A trader with more experience, Trader D, had some good advice for all traders. He said “Buying/selling ITM binaries randomly will absolutely be a losing proposition. But buying/selling an ITM binary with a reasoned purpose backed up by provable stats, will be profitable.
Remember that the price of a binary, and hence it's moneyness, (In The Money, At The Money or Out of The Money) is correct only for that specific time. If/when the underlying market moves, then the price of the binary reflects that move. Then, factoring in the time element, over seven hours in your example, compounds the problem. With that amount of time and the little amount of premium ($10) it is almost a sure winner that you will lose.

The point is that there is a reason for each type of contract. You are right to say that you have to match your personality with your trading style. It makes trading much more enjoyable when you aren't fighting your personality. As long as you match the type of binary with the market personality, then you are fine.”

A few other points of trading were made by trading expert, Trader E. He said that when trading on Nadex, it is important to understand that Nadex is not putting any odds anywhere. Nadex is an exchange that is there to fill the transactions of buyers and sellers. They are not trading against you. This would be like saying that the CBOE (Chicago Board Options Exchange) was pricing options against you or the CME (Chicago Mercantile Exchange) was pricing futures against you. Exchanges don’t set prices. They simply fill orders. Market makers and other traders place the orders and make the market bids and offers.

Trader F shared his results of trading ITM binary options over the course of one week. Using Expected Ranges, when the market exceeds 75% of the range, he simply buys or sells an ITM as deep as he can get it for $10-25 profit potential. Overall, he had 34 trades, some with multiple contracts, and only one loss.

See the following chart to better understand Expected Ranges. Click HERE to view a larger image.

All traders must realize the importance of following a system when placing their trades. Trader G, another expert trader, clarified a few more things for all traders by advising them that without a defined system for trading, one loss can easily wipe out 10 wins and nobody wants to do that type of trading! As far as staying in the trade until expiration, that is not advised at Apex Investing, except for some news trading strategies.

Following the rules and being disciplined will help you reap the biggest rewards in trading. Using stop losses to protect your profits helps to maintain a 1:1 risk/reward ratio. Be disciplined enough to exit the trade if it hits your strike price. All of this can lead to a higher win rate making trading ITM binary options profitable.

To increase your trading education, visit www.apexinvesting.com, a service of Darrell Martin.