Is it important to have an edge when trading? What is the meaning of “edge”? Some say that if you were born into a rich family, you have an edge. If you have an edge over someone else applying for a job because of your experience, you will probably be the one that secures the position. You might convince yourself that the new car you have your eye on, might have an edge over the one you are currently driving. So how can you have an edge when trading?
If you think about it, having an edge is having an advantage. For each trader, that advantage can be defined in different ways. It may be the steps you take to enter the trade, take profit or cut losses. It may be an obscure mathematical formula that you believe is the secret to success. The advantage to give you the edge has to be something that will give you a higher probability of your trade working than not working. The following are some different ideas that might help give you an edge.
Whenever you enter a binary trade, you have a 50/50 chance or probability of winning. Since binary options settle at 0 or 100 at expiration, having an edge can help you achieve the full payout. When you are trading binary options, you can have an edge by using indicators. Having the right indicator can increase your probability from only a small amount such as 51/49 to 70/30 or more.
Traders use a variety of indicators and facts when trading binary options. The fact that you know that a binary will be worth $50 when the underlying market is trading at the same price as your strike gives you knowledgeable edge. This means that there is a 50/50 chance that the underlying will be trading at that price in one minute, one hour or one day.
When trading spreads, you have built in floor and ceiling levels. These levels define the lowest and highest points where your trade can settle. An edge in trading spreads is knowing upfront the maximum potential loss and profit. Trading spreads gives you the opportunity to trade with limited risk. As a trader, you have many daily opportunities to place trades with high leverage positions and low collateral requirements. All of these can give you a trading edge.
Using charts also gives you an edge when trading. Make sure that you are looking at the underlying market chart before trading the binary option or the spread. You can add many indicators to your charts that may increase your probabilities of winning a trade.
Liquidity is another helpful element of trading. By knowing how many contracts are available at the price you want at that moment, you will know if your order can or cannot be filled. If there is not enough liquidity shown, there is a good chance that it will either be on a secondary level or the market has been bought out and will be refilled shortly. You don’t know if the other orders are winning or losing, you just know that there are orders there.
Deviation Levels give you a trading edge as they show when the market is moving and where the market is expected to move. Knowing these levels can help you ascertain which strike is the best for the trade you are considering.
Make sure as you trade you are aware of implied volatility, contract rollovers and other popular indicators such as Bollinger bands, MACD and moving averages, to name a few.
Remember when trading Nadex spreads and binary options, there is no margin call and you can enter and exit the trade any time prior to expiration. Your risk is capped and known before you ever hit the button to place a trade. Nadex is a US based exchange and regulated by the CFTC as well.
Use as many available indicators depending on your trading style to give you an edge when trading binary options and spreads. This will help you as you execute your trades.
To further your trading education, go to www.apexinvesting.com, a service of Darrell Martin.
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