Binary options allow traders to build trades using higher time-frames by simply selecting multiple expirations (all with limited risk). In this example, the higher time-frames were indicating a strong upward movement on the EUR/USD higher time-frame charts.
Building Trades Using Higher Time-frames
On the charts below (720 and 180 minute EUR/USD), the white lines show divergence on both the Stochastics and Directional Volume indicator. In other words, the charts were indicating that as price is making new lows, both sellers and trend strength are weakening. Since both the Stochastics and Directional Volume are directional indicators, as new lows were formed, both indicators should form new lows with price but they did not.
The cyan arrow also indicates that a pivot low has formed. A pivot low indicates that price will move upwards off the low. Then a magenta dot is plotted on the ADX indicator (magenta arrow). This indicates that price will move up to the red plus sign on the chart.
Then a magenta dot is plotted on the ADX indicator (magenta arrow). This indicates that price will move up to the red plus sign on the chart.
With multiple indications that the market would be going up, the following Out of the Money trades were placed:
Based on trading just one contract, the results on each trade are:
The EUR/USD > 9/pm expired in the money, resulting in a gain of $69.75 (excluding exchange fees).
The EUR/USD > 1.0440 by 11/pm expired in the money, resulting in a gain of $77 (excluding exchange fees).
The EUR/USD > 1.0420 by 11/am had a limit order that was filled at $90, resulting in a gain of $58.75 (excluding exchange fees).
The EUR/USD > 1.0420 by 7/pm had a limit order that was filled at $90, resulting in a gain of $54.75 (excluding exchange fees).
The EUR/USD > 1.0425 by 3/pm on Friday has a limit order that is still pending and even if price expires at 1.0425 or less, the maximum loss would only be $44.25 (excluding exchange fees).
By utilizing the Out of the Money binary options, the trader limited their risk while increasing their potential gain if the higher time-frames were correct.
Nadex Risk Disclaimer
Trading on Nadex involves risk, which may result in financial loss, and may not be appropriate for everyone. Any trading decisions that you may make are solely your responsibility. The information presented in this webinar is for informational and educational purposes only. The contents of this webinar are not an offer, or a solicitation of an offer, to buy or sell any particular financial instrument offered on Nadex. Past performance is not indicative of future results.