Binary Options Buying New Highs & Selling New Lows Strategy

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Buying on New Highs Strategy

Video Transcription:

Hey, traders. Welcome to video 15 of the Advanced Forex Strategies course. This is Cory Mitchell. In this video we are looking at the only time you should buy on new highs and new lows.We’re going to be using this on a one and five minute chart, brought to you by

So, trend trading is where the money is. Whether it’s short term or long term, we want to be trading in the direction of momentum. We don’t generally want to buy as the price makes a new high or sell as the price makes a new low. We’ve discussed this in prior videos. This gets us in too late into the move. There is one exception though that we’re going to cover in this video.

Prior videos we were looking at ways to enter more at the turning point, so this was well before we would have seen a new high or new low, and we’d actually be looking to get out as the price is making a new high or low. So all those things still apply here. This is just another tool you can use in your trading day. This is an active strategy. You must be there to trade. It is not set and forget. Therefore, you’re going to need to be sitting in front of your computer watching for this, manually entering and manually exiting.

Typically these moves happen so fast there is no time to set a stop or target. Therefore, only very disciplined traders should utilize this strategy. I can’t emphasize this enough. If you have a tendency or a problem with cutting your losses, do not trade this strategy. Only if the price is moving very strongly, that is, each price bar is covering large distances do former highs and lows become potential entry points. When the price is moving very strongly toward a former high, there is enough momentum to keep pushing that price. There is potential for a very quick profit there.

There should be no pause before the breakout. If the price is moving very slowly toward a high or low with lots of choppy bars, little momentum, you want to avoid trading those types of breakouts. We are looking for sharp, clean movement where the price is aggressively moving toward a former high with zero pauses, meaning there is tons of buyers in there and it is likely just going to continue to slingshot above that former high. The former high just gives you an entry point, and you are just looking to ride that momentum. Same with the low. If there’s heavy selling heading into a former low, these are subjective in the sense that you can pick any high or low that you want.

We’re going to cover a few examples, but it is somewhat subjective. You want heavy selling, so that it’s just relentless selling going into that, no real pauses, and the price breaks through that low and it just provides you an entry point. One or five minute charts work best for this strategy. Only take trades while the major markets are open. Otherwise, there’s a higher probability that that momentum will fail. So, for example if you’re trading the Euro/USD, you would want London or New York to be open. We have no time to enter a stop or target, nor is there a defined one. There is no precise exit or entry. We are adapting to the market in real- time, trading momentum, so we don’t know exactly when that momentum is going to end, if it’s going to continue.

So as we go through this strategy, I’ll show you its very adaptable, very subjective, where we’re just trying to capture that momentum and as soon as it dies out, we are out. So there’s no defined stop or target on this one. Basically we are expecting momentum to carry us on-side immediately after we enter the trade. If the price drops back below the former high if we’re trading momentum to a new high, or rallies back above a former low if we’re expecting the price to drop, we give it a couple pips breathing room but that is it. If it fails to go as anticipated, we exit immediately. So we are expecting this thing to like break that high or break that low and just keep running. If it doesn’t, get out immediately.

The premise for a trade is no longer there if that momentum dies. So get out immediately, manually exit market order. So we’re going to be using two market orders. We’re going to be using a market order to get in and a market order to get out.

A lot of traders are afraid of market orders and they think their broker’s going to screw them or something. If you think that, you should be trading with a different broker who you don’t think that. And two, I use market orders on most of my positions, and even a limit order is a market order in the Forex.

Typically, you can see slippage on that limit order as well, so using a market order is really no different. And if you want to get in, you want to get in. Use a market order. When you want to get out, you have to get out. Use a market order. So here’s the basic strategy. When the price moves about half a pip or one pip above a former high, we are going to buy. And if it drops one pip or half a pip below a former low, we’re going to sell, only when the price is moving very aggressively as we’ve covered.

You basically want to get swept up in the momentum of the trade. Your order is just kind of a blip right there on the former high, and you get carried away with the current momentum. If it’s questionable whether you think you’re going to be on-side right away, skip the trade. Assuming you are on-side, so the price does move in your favor and you’re making money on the trade, it shows a profit on your screen, stay in for at least one price bar. So that will be one minute or five minutes depending on the price bar you’re looking at. But do not give back profit. The only object is to catch momentum, so as soon as that momentum wanes, get out. So basically you’re looking for bars stacked on top of bars with no real pullback whatsoever. As soon as there’s a pullback, get out with a market order. There’s zero hesitation here. It’s in very quickly, out very quickly. These trades are going to last you probably, if you’re on a one minute chart they might last you one minute to three minutes. If you’re on a five minute chart it might last you five minutes to probably eight minutes, possibly ten minutes. These are going to be rare.

It sounds like, oh that happens all the time. I see that on my chart. As we go through, I’m going to try to explain. As I mentioned, it is a bit subjective so there is a bit of a feel involved here, but I’ll try to express that to you. These trades are going to be pretty rare, rarer yet if your spread is beyond one pip. That means you’ll need to have a pretty volatile day overall to make this strategy profitable. As we’ll look, a lot of times these little pops of momentum will be seven or eight pips for the most part.

The odd time you might get one that is really huge, maybe about 10 minutes after a news release or something you might get one that runs 20 pips or so, but it’s pretty rare. Most of these that we’re going to see on a normal day are going to be about seven to eight pips. So if you have a bigger spread, two or three pips, that basically eats up your profit, so they’re going to be even rarer yet then.

So how rare? Right now, as I’m making this video the Euro/USD is moving about 70 pips per day, even a little bit less. I think it’s fluctuated between 60 and 70 pips over the last few weeks, so not a lot of volatility. So we’re seeing maybe two of these trades a week. If we move back up to a little bit more of a historical average of 100 pips a day, 90 to 100, you may see a few more of these. So you might be able to get up to about one a day, or at least a few a week.

This strategy is highly subjective, requires quick reflexes, zero hesitation on the entry and exit, and you should practice it extensively in a demo account before using. So this is a day trading strategy. First lets go over you can just go to have like a one-click trading. So this you can just boom, boom, boom, boom. Makes it a little bit quicker. Once you’ve entered, let’s say… so let’s look at this one here. As we can see, we’re not really making a lot of movement. I should point out… so yellow is the London session.

This kind of beige is the London and New York overlap period. In the Euro-USD we’re looking at a one minute chart. So this is just an indicator I’ve added to help highlight when the sessions are and blue is after London’s closed and only New York is open. So that will help you make these trades during the right time. Remember we said you only want to trade these when a major market is open.

So in this case I just pulled up the Euro/USD, and we want to be trading either when London or New York is open. And preferably this is a good time to do it, when they are both open, because typically we’re going to see a lot of volatility then and the most volume. So using my little tool here, we can see even if we do make a new high or anything here there is not enough movement. That whole thing was only six pips, so even if we had a big breakout, if this whole thing was only six pips there’s just not enough momentum for us to even worry about trading new highs and new lows. Once this starts to begin, we have a new scenario. These types of trending moves we would simply be trying to use our other types of strategies. We have a beautiful move here. We could use a mini-channel breakout or just the trend following strategy. We have a little pause here at the bottom that we could have traded a breakout on. So no, we would not be looking to trade new highs anywhere in this area. We do not have enough momentum. Here we have a move down to a new low, but we have this pause right before it occurs. Even though it does continue to drop, it is not of interest to us. If we wanted to trade that, we would use the other strategies mentioned. We would not just use this new high or new low strategy. So let’s look at an example of what this actually would be, and as I said these are pretty rare, so we’re only going to see about one, maybe one a day. And in this case, May 30th, this is the one that would’ve at least triggered my interest for sure, and that is the move to this new high here. So why does this interest me? We can see we’ve moved down.

The trend, while questionable at this point, once we start to move back up makes us think, all right, we still have overall upward momentum today. We’re up on the day, at least through the London/New York session, and we can see it starts to really escalate here. We have these price bars which, and if we’re looking at the very right side of the chart, are starting to go I guess what we call parabolic almost, where we’re escalating toward that high, and when we get to it we’re really moving through it. Is there a slight question? Could it stop here?

There’s always that risk, but if you look at these bars we’re starting to really see some strong buying coming in, so there’s a good chance that as soon as we enter about half a pip or so above this former high, which would have been right about here, we’re getting swept up in all that buying which is what we want. So we want to enter, and as soon as that happens we want to be pushed on-side, which we would have been. So we had bought here and we’re instantly showing a profit. Now, I said as soon as that momentum starts to give way we get out. So we would have market bought right in here. Ways to get in. We could use a tool like this. You can also download plug-ins, which are like a level two. If you’re unfamiliar with a level two, it basically shows you liquidity at each level but it also gives you some functionality for opening positions, closing positions, stuff like that.

So this is the most simple one built into Metatrader. It’ll work fine for the most part, but if you are interested in actively day trading you may want to look at upgrading to a plug-in for Metatrader which gives you a bit more functionality. So here you could just hit market buy, right at this point here, as soon as it’s about a pip and a half above. You need to be thinking ahead, so as this is rising, your finger’s on that trigger. You’re also going to have to figure out in real time, basically split seconds how much your position size is going to be. So on this, if I’m expecting to be on-side right away, I probably don’t want to give back more than a couple pips. So let’s say I decide, all right. If it falls back, it’s broken out, if it comes back three pips against me, I am out. So you’ve got to be able to decide can I take one lot. At one lot, that’s ten bucks per pip. So you’re looking at about 30 pips of risk for that position. Then think about your account size.

Can you withstand a $30 loss? Is it 1% of your account or less? And then you’ll have to do that math. The more you do this it’ll become very quick, and since you know your account often you can figure some of these things in advance. So we have a short move, and we basically wait for any sort of pullback. We do not have to wait for bars to complete. We will wait for the first one to compete since we’re on-side, and then the next one shoots in our favor. As soon as it starts to pull back, we get out. So basically you can even think of it this way. We’re giving it about a three pip stop down here, so giving back three pips profit is the absolute maximum we would be looking for, but I will usually get out as soon as I start to see any sort of movement against the trend.

So that would have been a four pip move against the trend, which was up, so I would have been looking to probably get out between about, once it had pulled back two or three pips, likely more I’d be looking to get out in the two pip area, meaning once it pulled back two pips I’d be looking to get out three pips at the absolute maximum.

So conservatively we’d be getting out about here at 13644.5 or at about 13643.5 is kind of where I’d be looking to pull the trigger on these. Yes, it did go higher. That does matter. All we’re doing is trading this momentum. All these other moves, we can trade just using our trend trading methods as usual. This is just something else to add. So don’t think of it as a way to, I’m going to clean up with this strategy. We just tack it on. It’s a way to add a few extra pips to the bottom line when these opportunities occur, but it’s not going to be a staple trading method.

On this pullback we can just trade a normal trend trading type strategy like we’ve covered in other videos. So the breakout is simply to capture a few pips which in this case would have been about five if we got out around that 144.5 I think we said. So that yeah, you would have got about five pips. So as soon as that started to turn, we’d be out. Let’s look at a few other examples which wouldn’t have worked out, and we’re going to explain why. So here, a little pullback, we have a move to a new high but we can see.

You can see a big difference between these bars here and these bars which are just kind of chopping along. Each bar retraces the former bar, whereas here, these bars do not retrace each other. So that is one of the tell tale signs. Even here we’re starting to slow down as London closes. We have a couple nice red bars here. This one retraces the last, so as we get toward this point, just not enough momentum to really concern ourselves with whereas this, quite a bit different. Here we would have just generally used another trend trading strategy.

Here we wouldn’t have traded this breakout simply because we had this pause right before the breakout which shows some hesitancy on the part of the buyers. Yes, did this end up going higher, but can we say are we going to get swept up in a buying frenzy here? No, that’s questionable because there was a pause there that shows that we’re not exactly sure if these buyers are totally committed. Here, they seem a lot more committed. It’s all green bars.

As I said, these are going to be pretty rare. I looked through the rest of the week and I didn’t really see a whole lot that would’ve interested me. So this is a somewhat subjective strategy. Go through your charts, see if you can find… let’s see if we see one here. Yeah, even all these, not talking about five pip movements here, so just not enough for us to get involved. So go through your charts, see how with your spread, with your broker, using your market orders how this could work for you. It’s probably going to take quite a bit of experimenting in your demo account. Don’t just jump in and use this with real money. So go in there, practice it, see what sort of moves, what sort of extent the price needs to be moving in order to make this profitable for you with your spread and the pairs you trade, because it can be a very good strategy but it is somewhat subjective and there’s not a whole lot of hard and fast rules you can apply to it simply because we’re basing it on current movement which will change every single day. So this one only went five pips.

There’s no way to say, all right, I want a ten pip target and that’s it. It doesn’t really work that way for this sort of strategy, so we really need to be able to adapt in real time. I think this will make you better as a trader overall if you can find a way to make this profitable for yourself. So for this one, a little bit more advanced, definitely a totally different take on some of the strategies that we’ve been using. The other strategies are your staples. This one is just something you can add on top. You must manually enter and exit, whether it’s a prof or a loss. This is tough for many traders. You can have zero hesitation, especially if it’s a loss. If that thing doesn’t go in your favor right away, get out. Risk 1% or less of your account on one pair, that way even a string of losses won’t significantly draw down your account. You will need to ballpark your position size based on how much you expect to risk. I typically keep risk to about three pips on these things. If that thing doesn’t go right away, I’m out. So three pips, absolute max. That way I can calculate my stop. All right, three pips, I know what that is. What position size can I take based on my account size to keep my risk under 1%? Momentum has to be there. You’re expected to get carried on-side immediately after entry. If that is questionable, use a different strategy or wait for a different entry point. Trading loss [inaudible 00:21:56]. Only trade with capital you can afford to use.

And with this strategy especially, since it is subjective you’re going to have to come up with a few little guidelines for yourself to really make this your own, plus every trader uses a different broker. You have slightly different spreads, different commissions, that sort of thing. Those types of thing will affect this strategy. So test it out extensively in a demo account until you’re profitable with it before using it with real capital. Until next time, have a trade.

More About Adam

Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

A Guide to Trading Binary Options in the U.S.

Binary options are financial options that come with one of two payoff options: a fixed amount or nothing at all. That’s why they’re called binary options—because there is no other settlement possible. The premise behind a binary option is a simple yes or no proposition: Will an underlying asset be above a certain price at a certain time?

Traders place trades based on whether they believe the answer is yes or no, making it one of the simplest financial assets to trade. This simplicity has resulted in broad appeal among traders and newcomers to the financial markets. As simple as it may seem, traders should fully understand how binary options work, what markets and time frames they can trade with binary options, advantages, and disadvantages of these products, and which companies are legally authorized to provide binary options to U.S. residents.

Binary options traded outside the U.S. are typically structured differently than binaries available on U.S. exchanges. When considering speculating or hedging, binary options are an alternative—but only if the trader fully understands the two potential outcomes of these exotic options.

Now that you know some of the basics, read on to find out more about binary options, how they operate, and how you can trade them in the United States.

U.S. Binary Options Explained

Binary options provide a way to trade markets with capped risk and capped profit potential, based on a yes or no proposition.

Let’s take the following question as an example: Will the price of gold be above $1,250 at 1:30 p.m. today?

If you believe it will be, you buy the binary option. If you think gold will be below $1,250 at 1:30 p.m., then you sell this binary option. The price of a binary option is always between $0 and $100, and just like other financial markets, there is a bid and ask price.

The above binary may be trading at $42.50 (bid) and $44.50 (offer) at 1 p.m. If you buy the binary option right then, you will pay $44.50. If you decide to sell right then, you’ll sell at $42.50.

Let’s assume you decide to buy at $44.50. If at 1:30 p.m. the price of gold is above $1,250, your option expires and it becomes worth $100. You make a profit of $100—$44.50 = $55.50 (minus fees). This is called being in the money. But if the price of gold is below $1,250 at 1:30 p.m., the option expires at $0. Therefore you lose the $44.50 invested. This called out of the money.

The bid and offer fluctuate until the option expires. You can close your position at any time before expiry to lock in a profit or a reduce a loss, compared to letting it expire out of the money.

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A Zero-Sum Game

Eventually, every option settles at $100 or $0—$100 if the binary option proposition is true and $0 if it turns out to be false. Thus, each binary option has a total value potential of $100, and it is a zero-sum game—what you make, someone else loses, and what you lose, someone else makes.

Each trader must put up the capital for their side of the trade. In the examples above, you purchased an option at $44.50, and someone sold you that option. Your maximum risk is $44.50 if the option settles at $0, and so the trade costs you $44.50. The person who sold to you has a maximum risk of $55.50 if the option settles at $100—$100 – $44.50 = $55.50.

A trader may purchase multiple contracts if desired. Here’s another example:

  • NASDAQ US Tech 100 index > $3,784 (11 a.m.).

The current bid and offer are $74.00 and $80.00, respectively. If you think the index will be above $3,784 at 11 a.m., you buy the binary option at $80, or place a bid at a lower price and hope someone sells to you at that price. If you think the index will be below $3,784 at that time, you sell at $74.00, or place an offer above that price and hope someone buys it from you.

You decide to sell at $74.00, believing the index is going to fall below $3,784 (called the strike price) by 11 a.m. And if you really like the trade, you can sell (or buy) multiple contracts.

Figure 1 shows a trade to sell five contracts (size) at $74.00. The Nadex platform automatically calculates your maximum loss and gain when you create an order, called a ticket.

Nadex Trade Ticket with Max Profit and Max Loss (Figure 1)

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