The Binary Difference System

Hello,

The purpose of this thread is to explore techniques that we can use to trade Binary options along with our regular spot trades to maximize our profits in slow markets.

While some have said that Binary is to risky I believe that when trading them on a regulated exchange they can be less risky then the bucket shops offering lower payouts thus increasing our returns. Lets face it if we believe that EUR/JPY is going to fall we take a short position (which is the same as an option but without the time limit). Why not also take an option in the same direction.

Choosing a Broker

For this thread I will suggest using a regulated exchange like Nadex or IG for the following reasons:

You have to be careful when choosing a broker and read all the fine print. Many have a clause that if you are "to profitable and cause them to lose money" they will shut you down and can seize your money. I use Nadex. While I cant trade anything less then a 2 hour time frame I can scalp with them. They are also regulated by the CFTC (same as a Forex broker) and they are a subsidiary of the largest derivatives broker in the world which is IG .

I would look at IG as they accept clients from all over the world.

When trading binary you may want to stay away from bucket shops with payouts that are not 100%. If you are getting 70-85% payouts you need to win over 60% of your trades to make any money and at that rate its hard. This is why I would suggest a regulated broker.

Example;
10 trades of $38.50 pay out 75% = $28.87 per win. 6 winning trades (60%) = $173.22 profit. The loss on the four trades = $154.00 so a profit of $19.22!!!
Hardly worth it when you consider that on $1000.00 regular FX account you can risk at least $1.00 per pip and make that a day in one trade.

With Nadex or IG each contract is paid out at $100.00 and risks vary depending on where price is etc. Sometimes strikes are only a few pips away. I have attached a screen shot as an example of a contract.

In this trade I would risk $38.50 and my profit would be $61.50 minus $1.80 cents for a round turn contract. In addition I have the opportunity to cut that maximum loss down by exiting before expiry or take my profit early, but for this argument lets say all 10 trades are taken with this entry and held till expiry. As you can see in the attachment I have profits on 3 trades that have not reached expiry yet.

For this example lets assume all contracts are same price and held to expire
The results are.

10 trades 6 winners with a $61.50 profit per trade =369.00. 4 losers =$154.00 loss. Total profit on 10 trades $215.00 minus $18.00 in exchange fees.

I think this makes trading binary less risky I don't have to win as often. even if I only am right 40% of the time with the contract prices I only loss $3.00 on
10 trades.
4 wins @61.50 =$246.00
Exchange fees $18.00
6 losses@$38.50=$231.00
Total gain -$3.00

50% win rate
5 wins @ $61.50= $307.00
5 lose @ $38.50= $192.50
Total gain= $115.00 -18.00 ( exchange fees ) $97.00 profit

The systems I will be using:

These systems are not mine originally but ones I have started to look at:

The Scalp day trade.

NOTE I WILL BE POSTING TRADE RESULTS IN THE SAME POST AS THE SET UP

This system is pretty simple.

Expiry is at the longest time possible preferably end of day.

Option is taken with the trend to expire at end of day with strike price below (for put) above (for call) from current or open price but no more then half the days expected range in pips Trend is determined by relation to the pivot open below = trend is down. Open above= trend is up. Trade can be left to expire (ITM) or profit may be taken at any point.

Example of trade set up


Option is ITM before expire profit can be taken or left to expire. Total risk on the trade was $17.00 plus $1.80 for round turn contract. =$60.20 profit if taken now


Attached is a pivots indicator.

This is an example of the second trade taken with my entry candle marked by blue arrow (start of US session). An entry at the start of the day with an expire of 3PM the next day also would be in the money at this point.


In this trade the daily trend was expected to be down so a put was taken with a strike price lower then 138.00 and expire at EOD (3 pm) The total risk on the trade was $43.00 as I took it at start of US session) Currently profit is $52.00 with 36 minutes to expire which will yield $100.00 if left to run. I have moved the trade to break even so as to risk nothing and look for a $57.00 profit

Total profits on 2 EOD PUT yen trades was

$57.00 for EUR/JPY risk $43.00



$83.00 for USD/JPY risk $17.00


I will now wait till 7:00 eastern to look for trades

To note with BOJ meeting some thought was given that traders may take off short yen positions off heading into the news.

Bought call on EUR/USD EXP 3:00pm 6/13
Strike 1.3620
Risk $16.00
Profit $84.00

1) Trend is up
2) Strike determined by open plus average daily range which is also Resistance 2

Bought 2 contracts Short term Call EUR/USD
Expire 10pm EST 6/12

This is a test of my short term expire system

Rules
1) trade with trend
2) Use average pips per hour movement to calculate if there is room

Reason for trade average per hour is 6.2 Strike is 10 away.

Looking to take profit as price increase

Risk $6.25
Profit $194.00



( note I could only get screen shot of the one contract)

Trade result loss -$6.25.

WEEKLY REVIEW AND WRAP UP 6/12/2014

Ok for some reason I cant edit the posts with the actual trades from yesterday 6/12.

The results for those trades were 3 losses for a total of $22.00 On the daily expire I had a small profit just before the start of US session but it quickly ran the other way and never looked back.

WEEKS RESULTS:
4 trades total Risking $72.00 on 5 contracts
2 Winners =$126.00
2 losers = $22.00

Weekly Net Gain : $95.00

WEEKLY RECAP:

Over all hitting 50% of my trades and profiting $95.00 makes it a positive week. I need to refine the way I choose and Expiry time. Today may have been that Fridays of late have lower volatility and Asia session has lower pip movement.

I am open to any suggestions for picking an expire time. I found this indicator online it doesn't repaint and I was trying it on the 15 minute time frame for entry and exit set at 10 shows some promise just need to work with settings. If you find a good one please share the specs here.



Does anyone know if there is a indicator that could tell me the daily average of pips per session just like the daily average indicators out there or can it be programmed. Also would like to look at daily average number of pips moved from pivot each way with an open below and open above. If any coders are reading this please contact me about if this is possible
Thanks to all see you Monday

Thanks for starting thread for Binary Options trading.

Good stuff mate and good luck for next week best John

OK so a little research over the weekend.

ALL options will be out of the money trades.

My system for the EOD will remain the same.

Recap EOD Strategy: Trade trend with EOD expire 3:00 pm EST Trend determined by relation to the pivot. Profit can be taken prior to expire.

Short term expire system modifications

I will be trading short term expire using pivots but also trading off of standard deviation price points which are based off implied volatility.
I will be looking for reversal points around these levels. As price approaches a level I will look for a bounce or rejection if that happens I will then check the average daily range to see if price is reaching its range top/bottom Finally I will be looking at the average pip movement per hour with a 2-3 hour window in relation to the target. If the average per hour is less then the strike then I will pass on the trade if it is a counter trend trade.

Rules for short term expire
1) Price bounces or is rejected at a standard deviation point
2) Check average daily range. If range has expired trade is ok. Trades may not be taken if movement is less then 40% of a days average movement.
3) Check average pip movement for current and expire hour if strike price exceeds average movement pass on trade.

I have attached the standard deviation levels for Monday they are good till 3pm EST June 16th. The Bold is the settlement price, Blue is support, RED resistance

STE (short term expire) call purchased 2 contracts

AUD/JPY expires 3am risk $21.25 payout $154.00

1)Price reached 1st pivot support and started to bounce of 3rd deviation.

2) Average Daily range is 47 price has moved which is 68% of average price seems to be basing.

3) Average pip movement is 10.2 over the next 3 hours. Strike is 7 pips away

EOD Call purchased GBP/JPY expire 3pmEST

4 contracts total risk $24.75
Payout if ITM ( in the money ) $360.00

Strike 173.60 or higher
Reason
1) Trend is up

2) Average Daily Range 99 pips current price 173.04 Strike is just over half days range away

I calculated the expire by using the daily range maxing out for a test of 174.00 price failing there and retracing to the 23.2 fib of that move and holding.

So I will do a complete recap tonight just took what's called a At the money PUT (ATM) on EUR/USD
Trade expire 45minutes
System Deviation level

EUR/USD hit the second deviation level and had exceeded projected daily range. Short term put placed





On this trade the risk is more then I really like but ATM trades are said to be ATM's lets see

Also I should have mentioned this earlier and as thread goes I may need to organize it along the way. So for that I apologize.

First if your downloading an indicator can you share what you are doing with it with the others on this thread just don't down load and then take off. The purpose of sharing them is to learn form them and another set of eyes helps.

Next Demo accounts are available thru Nadex and IG without deposit for those that want to test strategies or help me test them. They are only 2 week demos but you can always use a different email to keep it going.

Finally. Does anyone know if it would be possible to code an indicator that tracked the average amount of pips moved from the pivot point on a daily basis. I think it would help with the EOD trades as right now it appears my projected movements are off. More on this at the weekly recap.

update 6-16 EUR/USD PUT....... WIN $56.00

Also took GBPUSD CALL with 8 minute expire

Result WIN $36.00

This trade was taken with trend after a bounce off the FIB. This trade had a higher Risk then reward and not sure how I feel about these types of trades.

Hey Man,

I'm like you trying to figure out a system for Nadex. I have a system that uses support / resist barriers for hourly trading. The system works but the risk / reward was awful. Risking $75 to make $10 and yes I won 12 out of 15 trades with the system, those 3 losses though wipe all your gains. The 1 loss wasn't my fault due to my internet provider decided to do a monthly check up >< sigh .... So I realize I needed a system with a clear entry and set & go mentality with less risk and more reward. I'm looking at your forum and Im just lost. I see you use Fib levels , like I use with my Barrier System so Im trying figure out your entry for the trade. Do you wait for the contact to end to collect your profits or make a Take Profit ? ( Ex: Make $10 and get out of the trade ) I will love to help and I think together we can make something happen. Plus have you tried Nadex's Spreads ? Looks promising but on Demo I have not won a trade yet .


Thanks,
Rob

Right now I am looking at a way to take profits early off longer term out of the money options. So the plan has been to take an option out with a longer expire. I look at price in relation to the pivot point to determine trend. If it is above I take a call below I sell a put. My main problem right now is that I am expiring just outside the money and since the expire is so far out not really having much of a chance to take the profit early which was the goal of the trade. Sort of like a set and forget but take some of the profit off.

If you look at a chart with just pivot points shot times when price opens above it continues for the day or if it breaks thru it signals a new move in the direction of the break. What I wanted to do was capitalize on the trends. So far not so good.........

Last night I took out an option on each pair Nadex offers. I did just before the start of the European session with 11:00 am expires. All but one was a loser most were a few pips away at expire.

I am also reading a book by Abe Cofnas that talks about ITM, DITMN, OTM, DOOM, and ATM Binary option's. Like you said when you take those ones that are almost guaranteed to pay off one loss wipes your wins. I took a couple yesterday and wasn't thrilled with them. I am risking more then I can make and generally that's a rule for wipe out.

So what are your thoughts lets put something together.

Thanks
Bill

Ok so a little more research and reading. According to the "experts" the farther out the option the more that can cause it to go bad. So I am going to look at Short term expires.

I will still be using the pivots and will be adding the TMA slope indicator. this shows ranging markets. I know it repaints but I am testing live so I don't care about that I have had success with it in the past when trading spot. For my final indicator I will be using the Dinapolli targets indicator ( or trying to). This has a stop line and a entry line as well as targets. Since I will be looking for close strikes I will use the yellow target line as a gauge for if the option will finish in the money.

A note:

I have no idea how this Dinapolli works or calculates the setting. I have watched the vids but they explain nothing. Can someone shed some light on what the settings mean and how they work. Thanks

I will post my charts and resoning for each trade as we go along.

Thanks

I am no options expert, but I dont think adding these indicators will help much.

One thing which is good about options is that you have predefined risk, so you are not open to huge spikes.

One disadvantage I notice in binary options is that the odds are very much in favour of the broker, this is why I don't trade them. It feels like trading with 30 pips spread.... but maybe there are better ways to do it....

Finally, my understanding about the "normal" way to win in the options game (just my opinion...) is to estimate volatility better than the broker. The reason is that options are priced based on the expected volatility. So when the brokers price them, they are doing so because they forecast X amount of volatility. If, for example, you believe the market will be less (or more) volatile, you could use your own vol estimate and get a more accurate value for the option. This would then allow you to find the options that are cheap (to buy them) or expensive (to sell them). Asssuming you got your vol estimate right (better than the brokers), you would be making money...

In other words, you change the game, from trying to predict which direction the market will go, to trying to predict how much or little volatility we will be observing...

I think you are already trying to do this in a way, because you are interested to know the average range of price per session, and you are trying to take this into account before entering a position. This is the volatility. However, you are not actually pricing the options, so it is not exactly the same.

I hope this helps a little...