When you trade binary options, having good trend-following strategies is critical to achieving consistency. Finding trends to follow can sometimes be hard to do, but there is a pattern that happens quite often, and it is based on the open of the London Exchange at 3am EDT.
If you area really early riser, this can be a great time to capitalize on volatility.
In “The Ultimate Guide to Trading and Investment”, Josh Martinez wrote about the London Breakout strategy discussing two key observations:
- The Low or High of the daily session often reveals itself between 2am-5am EDT, after the opening of the European Exchange and the London Exchange.
- The opposite High or Low tends to reveal itself between 8am-2pm after the opening of the New York Exchange.
Think of it like a see-saw, with the hours of 5-8 being the fulcrum.
This observation is about as binary as it gets. If you can identify a Daily Low that occurred between 2-5am, then the probabilities are in your favor that the Daily High will occur later in that trading day.
Let’s take a look at the week of May 8-12 2017
ThinkorSwim workspace prepared by Sean Jantz, BinaryTradeGroup.com
On this hourly chart, you can see 5 consecutive days where this pattern was obvious.
What can you do with that information?
- Nadex Spreads – If you get up early enough, there is an opportunity to pick up a nice chunk of the early morning move, where the GBP/USD can easily move 50 pips or more.
- In-The-Money (ITM) Binary Options – If you’ve identified an uptrend or downtrend you can BUY or SELL from a strike price close to where the trend started. Your risk premium is higher, but so is your probability of success.
- At-The-Money (ATM) Binary Options – If you can lock in at ATM trade early in the trend, then your risk capital is less and your reward potential is higher
- Out-Of-The-Money (OTM) Binary Options – These trades have a lower probability of success, but also a lower risk premium. If you can catch a trend early, there is an opportunity to capture profit.
Let’s take a closer look at Wednesday, May10:
As it’s pretty clear to see, the morning high at 4:30am was never threatened for the rest of the day. If you were awake that early in the morning, you had the opportunity to capture a large chunk of a 50 pip move to the downside with Nadex spreads.
You could have placed a daily (3pm) binary options SELL order from the strike price nearest the daily high. Although your risk premium would likely be higher, the “see-saw” effect keeps the probabilities on your side.
A Word of Caution
- If you don’t see a trend, or if the market is chopping sideways, then you may want to sit this trade out.
- UK Economic news is usually released at 4:30. Always check the economic calendar. If there is a high impact news report, it’s best to let the markets digest the news before you trade.
- Finally, the “see-saw” pattern doesn’t happen all of the time, but it happens quite frequently. Some times the Daily Low and High occur after 8am.
Nadex Risk Disclaimer
· Trading on Nadex involves financial risk and may not be appropriate for all investors. The information presented here is for information and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Any trading decisions that you make are solely your responsibility. Past performance is not indicative of future results. Nadex instruments include forex, stock indexes, commodity futures, and economic events.
· Nadex binary options and spreads can be volatile and investors risk losing their investment on any given transaction. However, the limited-risk nature of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.