Market Pull

The Power of Market Pull or the Knock on Effect

The power of binary options trading is that anyone can trade. That is, even if you have no experience of the markets or have never traded before, you too can trade and profit. The reality, however, is that the more you know about the markets and the factors that influence the price movement of assets, the more effectively and accurately you can trade. A trader should also have a clear understanding of market pull or the knock on effect as this will also enhance trading accuracy. In simple terms, this refers to the influence that a movement in one asset can have on other assets. Let us explore this further.

Market Pull – Fundamental and Technical Market Analysis

The fact is the financial markets globally are driven by several factors and if you want to be a successful trader, you should not rely on ‘guess work’ when predicting the direction that the price of an asset will move. Instead, you should make informed decisions which are based on your analysis of the markets. When you take the time to review the markets, you will notice that there are hundreds, if not thousands, of factors which impact the market. To top it off, many of these factors are also inter-related which means that a change in one factor can cause changes in other factors. It is also important to note that not all factors can be predicted. Some events occur such as natural disasters and wars or terrorist attacks, which have a big impact on the markets but which cannot necessarily be predicted. Based on this, it is vital to find a reliable way to analyze the markets and this where fundamental and technical market analysis comes in.

Fundamental market analysis involves the interpretation of the economic climate as well as market data. The core focus in this form of analysis is on the financial well-being of the asset that you are analyzing. For example, if we want to assess how the shares of Google are going to perform in the future, we will look at the performance reports of the company as well as any pending announcements. In this way, we are able to establish how this will impact the future price movement of Google shares and then obviously its respective index which is the Nasdaq.

Technical market analysis differs in that it focuses on asset prices. That is, it takes into account the historical performance of an asset price and it uses statistics and mathematics to analyze the future price movements of these assets. The basis of technical market analysis is that history repeats itself which means that an asset price has a trend or a pattern and it keeps returning to these patterns over time. Due to external factors, price trends in an asset will change which will impact the supply and demand of the asset and this can impact the direction that the price of an asset moves. The demand-supply equilibrium is also analyzed in technical market analysis.
In Market Pull, our focus is on fundamental market analysis so let’s see how to apply this to our binary options trading.

Market Pull – Binary Options Trading

We know that a variety of factors impact market movements and also asset prices. Market pull tells us that no asset exists in isolation which means a change in one asset can cause a change in other assets. This is also known as the knock-on effect. So let us look at an example. It is a known fact that gold and the U.S. dollar trade inversely. This means that if the price of gold increases, this causes a decrease in the value of the U.S. Dollar. If a trader reads that recent economic news has pushed the value of the U.S. Dollar (USD) up, they can then make a Put option trade on gold based on the understanding that when the USD value increases, the price of gold usually declines.

This knock-on effect or market pull can also impact assets within the same asset class. Let’s say for example that Panasonic manufactures all the batteries required for electric cars produced by CarWhizz, a leading electric car manufacturer. We read in the news that Panasonic has decided to stop manufacturing the required batteries and that CarWhizz has not yet found a replacement manufacturing company. Based on this information, it is likely that the share price of CarWhizz will decline and so we can make a Put option trade on the VXmarkets trading interface for this company.

Conclusion

The bottom line is when an asset price in the market changes, this could cause a change in other asset prices so having a broad understanding of the financial markets and how each asset can impact another, is vital in order to trade accurately. Once you have grasped the knock-on effect or market pull, you will also be able to more easily predict the future price movement of assets based on the movements of other asset prices. This is the basis of successful trading.

Hedging Strategy

Applying the Hedging Strategy to Binary Options Trading

Let’s face it. Anyone who trades online, wants to make money. While binary options trading provided traders with the opportunity to trade with high rewards and low risk, there are a wide range of trading strategies which help a trader to reduce the risk of trading while boosting the rewards. A very popular trading strategy is the hedging strategy and this strategy can easily be implemented by both novice and professional traders. The core purpose of hedging is to make an investment in order to reduce the risk of the fluctuations in the price of an asset. So let us look at how you can apply the hedging strategy to your trading.

What is the Hedging Strategy?

Initially, the hedging strategy was used by Forex traders and it allowed traders to sell or purchase currency pairs at a specified time in the future for a set or fixed price. The benefit was that traders were not committed to this fixed price yet it served as a predefined exit point. The hedging strategy was then applied to binary options trading and many traders use this strategy in their daily trading without even being aware of it. The benefit of the hedging strategy is that it is simple to execute and so anyone can use it in order to minimize the risk of trading. Many traders also apply this strategy when the market is very volatile and the added benefit is that it can be applied to any asset class such as indices, stocks, commodities and currency pairs.

In its basic form, the hedging strategy or hedging, requires a trader to place two opposite trades, Call and Put, so that if one trade ends unsuccessfully or ‘out of the money’, the other trade is likely to end successfully or ‘in the money’. By purchasing two opposite trades, the Put option will be hedged by the Call option while the Call option will be hedged by the Put option. Sounds simple enough, right?

The Hedging Strategy in Action

Let us look at an example to show how to use the hedging strategy. For the purpose of this example, let us use Facebook shares. These shares are trading at $51 and the VXmarkets platform is offering a trade in Facebook shares with an expiry time of 30 minutes. You decide to do a little market research and can see that the market is quite bullish and that Facebook is launching a new feature. Based on this and other analytical charts, you predict that the price of Facebook shares will rise in the short term and so you will make a Call option trade with a 30 minute expiry time. After a few minutes, you notice the price of Facebook shares is rising and so your trade is currently ‘in the money’ but you also notice that the asset price is very volatile and fluctuating. You are afraid that the Facebook share price will decline and your Call option trade will end ‘out of the money’ and so you decide to open a Put option trade with the same expiry time in order to protect your loss. You now have two opposite trades for the same asset, Facebook shares, with the same expiry time.

There are a few possible outcomes based on purchasing both trade options. The one scenario is that the Facebook shares rise to $55 and your Call option trade will end ‘in the money’ while your Put option trade will end ‘out of the money’. Or, the Facebook share price rises to $55 at the expiry of the 30 minute Call option trade which will then end ‘in the money’ and the share price then drops to $49 and so the Put option trade will also end ‘in the money’. The third scenario is that the share price of Facebook drops to $48 and your Call option trade will expire ‘out of the money’ while the Put option trade will end ‘in the money’. The final scenario is that the price of Facebook shares remains at $51 and both the Call and Put option trades will end ‘at the money’ and the trader will get back their original investment amounts.

Benefits of the Hedging Strategy

You might be wondering how the hedging strategy reduces the risk of trading so let us view this strategy in numbers. If a trader purchases a Call option trade for $100 and the trade ends ‘out of the money’, the trader will lose $100. If the trader, however, purchases a Call and a Put option trade for $100 each, the total investment amount is $200. If the one trade ends ‘in the money’, the trader will be paid out 80% so the total profit on the one trade will be $180 and the loss on the other is $100. This means that the total loss will be $20 as opposed to the $100 loss if the trader only purchased one trade option. In this way, the hedging strategy reduces the risk of trading.

Conclusion

The hedging strategy is an effective and simple way to reduce the risks involved in trading binary options. Since this strategy is so easy to implement, even a novice trader can use it and it is also very simple to execute the hedging strategy on the trading platform. The added benefit is that with the hedging strategy, a trader can also take advantage of volatile fluctuations in asset prices while minimizing their risks.

60 Seconds Trend Trading Strategy

Make Profits with the 60 Seconds Trend Trading Strategy

A core advantage of binary options trading is that is allows traders to make both short term as well as long term trades. In fact, the shortest expiry time available on the VXmarkets trading platform is only 30 seconds. A very popular trade option is the 60 Seconds trade option which allows one to trade with an expiry time of only one minute or sixty seconds. In order to boost profits, the 60 Seconds trend trading strategy is often used by both novice and professional traders and it is an excellent opportunity to take advantage of price trends of assets. So let us explore how this is done.

What is the 60 Seconds Trend Trading Strategy?

The power of the 60 Seconds trade option is that it enables traders to take advantage of short term price fluctuations which occur in asset prices. There are many factors which impact these price movements and many can be quantified. For example, if Apple announces that they are planning to release a new product, share prices will usually go up, even if only for the short term. Since these movements might only last for a short period of time, traders should use candlestick charts in order to analyze the markets. If you do not have any experience using this technical analysis tool, you can either contact VXmarkets to get more information on their personal broker service or take the time to learn a little about the market daily so that you can familiarize yourself with the different analysis tools. Based on this, the 60 Seconds trend trading strategy requires a trader to make 60 Seconds trades based on the trend of an asset, usually up or down.

How to Trade Using the 60 Seconds Trend Trading Strategy?

The basis of this strategy requires a trader to look at the trend of an asset. That is, is the price of the asset moving up over an extended period of time, or down? There are two main ways of establishing the trend of an asset. The first is to look at the market sentiment. That is, how are other traders trading the particular asset? You can look at the visual indicator on the VXmarkets trading platform, or the Trader Choice, to get an indication. That is, if more traders are trading Call option trades, they are predicting that the price of the asset will move up in the near future. If more traders are trading Put option trades, they are predicting that the price of the asset will move down in the near future.

Trader Choice - 60 Second Trend Trading

Using a price chart is more effective and you can find the trend of an asset by using the historical price chart of an asset. When a trader enters the market, the price of an asset can either be trending downwards, upwards or it is ranging, or moving horizontally. In order to establish this trend, a trader can draw a horizontal line joining all the lowest price points on the price chart. This represents the support level of the asset price. The trader will then join all the price peaks with another horizontal line and this will reflect the resistance level of the asset price. At any point where the price breaks out of these two horizontal lines, either above or below, this is known as the price breakout.

The trader will now need to observe if the asset price is bouncing off the support and resistance points or not. If they are, the moment they bounce off, wait for a couple of seconds and see in which direction the price is heading. For example, if the price is bouncing off the resistance level, it should start moving downwards towards the support level. In this case, you will know that the price will fall for some time and you can rapidly open multiple 60 Seconds Put option trades and stop when the price reaches the support level. A few trades may be lost because prices are always fluctuating but by the time the price reaches the support level, you should have more winning trades than losses, resulting in overall profits.

If on the other hand, you see a breakout and the price breaks through the support or resistance levels, wait for a few seconds to establish if the breakout is sustaining or if it is only a temporary breakout where the prices will move back towards the support or resistance levels. If a breakout, for example, from a resistance level turns out to be sustaining, you can make multiple 60 Second Call option trades and stop when the price reaches the next resistance level where it may start rebounding back. As before, you might lose some trades but you should have more overall wins based on the trend of the asset price, resulting in a profit.

Benefit of the 60 Seconds Trend Trading Strategy

The benefit of using the 60 Second trend trading strategy is that it is very simple to do. A trader is only required to find the trend of an asset price and can then take advantage of this trend by making multiple 60 Second trade options until the trend reverses or stops. Despite the short trading time of only 60 seconds, it is important to remember that the asset price may undergo many fluctuations during this short period of time.

Conclusion

The 60 Second trend trading strategy is an effective trading strategy which can be used by both novice and professional traders. Using the price trend of an asset to your advantage, you can make multiple 60 Second trades to increase your profits and trading success.

End of Day Trading Strategy

How to Master the End Of Day Trading Strategy

Binary options trading provides traders with the opportunity to trade both long term and short term trade options. In fact, a trader can trade with an expiry time of only 30 seconds right up to one year. While many traders worldwide are taking advantage of the many benefits of trading options, there is an effective trading strategy which requires a trader to use the historical price chart of an asset over the long term in order to more accurately predict the future price movement of an asset in the near future. While this is really the basis of binary options trading, the end of day trading strategy enables a trader to pinpoint trading signals more accurately and in this way, potentially profitable trading opportunities can be found. Let us review how this is done.

What Is the End of Day Trading Strategy?

The end of day trading strategy, or end of day-daily trading, requires a trader to review and analyze the historical price movement of an asset over the last 24 hours at a minimum, up to over the last 48 to 72 hours. Based on the information obtained from these charts, the trader will then make their trade. Now while this trading strategy is referred to as the end of day, many traders will look at the historical price chart of an asset at the ‘end of the day’ and will then make their trade on the following day, hence the name ‘end of day trading strategy’. The fact is though, that you do not need to enter into a trade only the following day so if you enter the market at 11:00am, you simply need to look at the long-term historical price chart of an asset, and then make your trade.

So you might be wondering how this differs from standard binary options trading where a trader reviews the historical price chart of an asset on the trading platform and then makes their trade based on this information. The biggest difference when using the end of day trading strategy is that instead of only reviewing a historical price chart of a few hours, you need to be looking at a long-term historical price chart of at least 24 hours. The main reason for this is that these long term price charts will provide you with a much cleaner and clearer overview of the asset price as well as much clearer trading signals.

Let’s clarify this further. If you log into the VXmarkets trading platform, take a look at a 2 hour historical price chart of an asset. Here you will notice that the price of the asset, in this case the AUD/JPY currency pair, fluctuates all the time and within the two hours, you can see that there are a lot of up and down movements. In order to establish the future price movement of the asset, this might be quite difficult. When you view a 24 hour chart or longer, all the small price fluctuations of the short-term price movements have been ‘smoothed out’ making it a lot easier to spot the trend of the asset price as well as the momentum. Once you have this information, you can then make your trade accordingly.

End of Day Strategy - Trading Platform

There are a variety of ways that one can use the long-term historical price chart of an asset in order to execute the end of day trading strategy so let’s view how this is done.

The Gap – End of Day Trading Strategy

Markets fluctuate all the time and in some cases, there are events or factors which can cause the price of an asset to surge either up or down. When this happens, a gap is created in the price chart of an asset. For example, at the close of trading, Apple shares are at $60 and overnight, news is released that Apple is releasing a new product. When the market opens the following day, the price of Apple shares opens at $70 and this increase will cause a gap in the trading chart. It is at this point that it is effective to implement the end of day trading strategy. Often, when an asset price opens higher than its previous day’s high, or lower than its previous day’s low, the asset price will perform a corrective action and will start to revert back to its original pre-gap value.

Using a candlestick chart for the last 24 hours, as soon as you see the price of the asset starting to move back in the direction of the gap, it is time to trade. So in the case of an asset price that opened higher than its previous day’s high, as soon as the price reverses and starts to move down, you can make a short term Put option trade on the VXmarkets trading platform. Once the price of the asset reaches or gets closer to its pre-gap value, wait to see where the price will move to next and then trade accordingly.

Inside Days – End of Day Trading Strategy

In many cases, the current price of an asset is contained within the prior day’s range. This is referred to as Inside Days. For example, if Facebook shares traded from a low of $50 to a high of $70 on the day, in order to qualify as an inside day, the prior day’s range must be from a low of at least $48 to a high of $72 or greater. In order to profit from an inside day, you need to wait until the price of the asset breaks out from this price channel, either up or down, and you can then trade accordingly. So in this example, if the price of Facebook shares suddenly rises up to $78, you can make a short-term Call option trade as the price of the asset moves up away from the range.

Conclusion

While anyone can trade binary options, without any prior experience or knowledge of the markets, in order to trade effectively, having an understanding of the historical price chart of an asset is vital. When you take the time to look at the long term historical price chart of an asset, you have the added benefit of clearly pinpointing the trend of the asset as well as its short term price movement. It is with this information that you can implement the end of day trading strategy effectively.

 

Capital Drawdown

Understanding the Capital Drawdown Trading Strategy

If you are new to the world of binary options trading, then the first and most important lesson you will need to learn is that you cannot trade successfully all of the time. The fact is that even the best of the best traders lose sometimes. The part that separates the pros from the amateur traders is knowing how to emotionally deal with these losses and how to adjust your trading accordingly. Once you have grasped the fact that markets fluctuate all the time and that you cannot control, or always know what movements will occur, the more effectively you will trade. Based on this, a powerful trading strategy that many traders use is the Capital Drawdown trading strategy and this is often implemented once a trader has had a few unsuccessful trades. So let us explore this further.

What is the Capital Drawdown Strategy?

Risk management is a vital element of trading binary options but traders should also know how to maximize their investment capital in order to make profits while trading. The Capital Drawdown strategy is viewed as a strategy which enables traders to maximize their returns and reduce their losses. So let’s see how this strategy works. If a trader invests in a few trades and loses each one of them, we can say that their investment capital has become ‘drawn down’. In order to calculate how much the capital has been drawn down, you need to calculate the difference between the peak of the investment capital, which is also referred to as the equity capital, to the base or balance of the investment capital. For example, if the trader started with $10,000 as their total investment capital and they made a few unsuccessful trades and after the drawdown, they were only left with $5,000, this means that the trader has lost 50% of their total investment capital. Based on this, the $5,000 is considered to be the amount of the trader’s drawdown.

Now you might be wondering why all of this is valid. The reason it is important for a trader to be aware of their drawdown capital is that it is very easy to quickly lose all your money when trading. If a trader is constantly aware of exactly how much their capital is drawn down, then they are able to maintain full control of their finances but more importantly, a trader needs to know how much they need to make up in order to recoup the shortfall. In this case, you are probably thinking that the trader simply needs to make back $5,000 in order to make up for their shortfall since in the example above, the trader’s capital was drawn down by 50% after they lost $5,000.

The fact is, however, that the trader will need to make more than 50% or $5,000 in order to cover their capital draw down amount. The reason for this is that their starting capital is no longer $10,000. It is now $5,000. Based on this, in order for the trader to recoup their original investment amount of $10,000, they will need to make a 100% profit instead of 50%. Let’s look at this in numbers for more clarity. If a trader starts with $10,000 and they lose $5,000, they will be left with only $5,000. When they start to trade again, in order to recoup their losses, their starting capital is now only $5,000 which means that if they make a 50% profit on this, they will only make $2,500. Add this to the $5,000 the trader has and this gives you only $7,500 which is $2,500 less than the original starting investment capital of $10,000. It is for this reason that a trader will need to make a 100% profit or $5,000 in order to get back to the original $10,000 investment amount.

Once a trader has grasped this concept, they are able to control their capital more effectively and this is a vital part of trading successfully. If you are not able to manage your money, you will not be able to be in control of your drawdowns as well as your risk-reward ratio and if this is in the case, you are likely to lose your money. The power of the capital drawdown strategy is learning how to get back the capital that has been drawdown so let us look at how this is done.

How to Use the Capital Drawdown Strategy

One of the biggest reasons that capital drawdowns occur is because of the fluctuations in the market. Often a trader will be trading using the trend trading strategy which says that a trader should continue trading until the trend of an asset price breaks. In many cases, a trader invests heavily based on an asset’s trend and when the trend suddenly breaks, the trader loses. At this point, the trader will suffer a major loss. It is at this time that it is recommended to implement the capital drawdown strategy. This is done by stopping to trade immediately. Now the trader needs to calculate how much their capital has drawn down. The trader will then need to reduce the size of their investments and this strategy recommends to only invest 2% of the total account balance in a single trade. So in this case, we have $5,000 in our account so for each trade we make, we can only invest $100.

Also, if the asset you are trading in is volatile, rather trade in another asset. Take the time also to do fundamental analysis of the markets. That is, do some research and monitor the markets. Make sure you can pinpoint information which tells you in which direction the price of an asset will move in the near future. While you might build your profits very slowly following this method, the goal of the capital drawdown strategy is to recoup your losses, one step at a time.

Conclusion

While it is evident that binary options trading does involve risk, if you constantly monitor your investment capital and you implement the necessary steps to build your losses using the capital drawdown strategy, you are more likely to trade successfully and profitably.

Iron Condor Strategy

The Iron Condor Strategy – Trade Like A Pro

One of the advantages of binary options trading is that it offers traders the opportunity to trade with low risk and high rewards. Traders can also take advantage of the markets when they are rising and also declining. In order to increase trading effectiveness, one can use a trading strategy and a powerful strategy to use when the markets are not volatile is the Iron Condor strategy. This strategy is known to reduce the risk of trading while securing the rewards but before you get excited, the fact is that it takes time to master the Iron Condor trading strategy and its success relies on careful analysis of the market as well as entering and exiting this position at the optimal time. Let us review how this is done.

What is the Iron Condor Strategy?

The Iron Condor strategy is known as a neutral strategy as well as a non-directional trading strategy. A trader needs to combine a bear Call spread and a bull Put spread in order to create a neutral position. The reason for this is when an asset is ranging or trading horizontally, there is very little price movement. So in the case that the asset price does not move by the expiry of the trade, the result is a profitable neutral position. Also, by positioning oneself on both sides, Call and Put, a trader can profit even if the market moves up or down. It is for this reason that the Iron Condor strategy is called a non-directional strategy.

In order for a trader to construct an iron condor, they will need to make four trade movements as follows, the trader will purchase a lower strike Put option that is ‘out of the money’ and will also then purchase an ‘out of the money’ Put option at an even lower strike price. The trader will then sell a higher strike Call option that is ‘out of the money’ and will then buy an ‘out of the money’ Call option at an even higher strike price. All these trades will need to have the same expiry month. By doing this, that is buying and selling Call and Put option trades, the end result is a net credit which can then be put on the trade.

In order to understand how one can apply the iron condor strategy to their trading let us look at an example. Here we will assume that Facebook shares are trading at $75 in June. The trader will need to purchase a JUL 85 Call option for $100 and will also purchase a JUL 80 Call option for $50. They will then purchase a JUL 65 Put option for $50 as well as a JUL 70 Put option for $100. By purchasing these four trade options, the net credit received when the trader enters the trades, is $200. The two hundred dollars also marks the total profit that the trader can make. At the end of July, when the trades expire, the Facebook stocks are still trading at $75. This means that all four trades are worthless and the trader will keep the $200 invested in the trades.

So you might be wondering how you can use the Iron Condor strategy in order to make a profit. In order to benefit from this strategy, the price of the asset you are trading in will need to move between the strike prices of the sold Call and Put options at the expiry of the trades. If the asset price falls at or below the lower strike price of the Put option that was purchased or it increases above or is equal to the higher strike price of the bought Call option, a loss will occur. This loss, however, is limited and it will equal the differences between the strike prices of the Put option trades or the strike prices of the Call option trades. The success of the Iron Condor trading strategy rests on knowing exactly when to enter the trades so that the price movement of the asset will be at the required rate by the expiry of the trades. This takes time and experience.

The Iron Condor Strategy and Binary Options Trading

At this moment, you might be wondering how one can apply the iron condor strategy to binary options trading so let us explore this. Traders make money using the iron condor strategy with credit spreads and in this case, when we talk of a Put credit spread this is below the market while a Call credit spread is above the market. To clarify, when we talk about a credit spread, we are talking about a strategy of selling options. For example, a trader will purchase a Call option trade which is ‘out of the money’ for $50 and will then also purchase another ‘out of the money’ Call option trade for $100. The trader will then sell the more expensive Call option trade and get back a portion of their original investment. If the second call option trade ends ‘at the money’, the trader will get to keep their original investment amount of $50. In this way, the loss is minimized. If, however, the second Call option ends ‘in the money’, the trader will make a profit. This strategy is most effective when used while trading indices since there is often limited volatility in index prices.

Conclusion

It is evident that the Iron Condor strategy can be quite complicated and for this reason, you need to ensure that you practice this strategy and familiarize yourself with market movements. Remember also to ensure that the asset you are trading in has limited price movements. This is vital to the success of the strategy. Learning when to enter and exit an Iron Condor also takes experience and if you require any assistance, please feel free to contact VXmarkets and ask about their Personal Broker service.

Trend Line Trading Strategy

Trend Line Trading Strategy – The Ups and Downs

It is often said that anyone can trade binary options, even if you have no prior experience or understanding of the markets. While this is true, the fact is, the more you understand about the markets and what factors influence price movements, the more effective your trading will be since your predictions will be more accurate. An effective trading strategy to use when trading binary options is the Trend Line trading strategy. This strategy is also often referred to as the price channel trading strategy and it relies on understanding the trend of the price movement of an asset. Let us explore how this is done.

What is The Trend Line Trading Strategy?

The market consists of a wide range of assets such as stocks, commodities, indices and currency pairs and each asset’s price will move up, down and/ or horizontally over time. These price movements are influenced by a wide variety of factors, many of which can be predicted, while others are unpredictable such as a natural disaster or war. When we take the price movement of an asset and we chart it on a graph, you will notice that the graph will have a series of troughs and crests reflecting where the price of the asset moves up and down.

If you join all the crests or the highest points of the graph with a straight line and you also join together all the troughs or the lowest points of the graph with a straight line, you will notice that it will reflect two lines running parallel to each other. This is referred to as the price channel and it can either be horizontal or diagonal. In order to implement the trend line trading strategy or the price channel strategy effectively, you need to identify the price channel of the asset you are trading in. In this way, you are able to analyze in which direction the price of an asset is trending. That is, if the two parallel lines are moving from a lower position to a higher position, it is evident that the price of the asset is trending or moving upwards. Similarly, if the two parallel lines of the price channel are moving from a higher position to a lower one, this tells us that the price of the asset is trending downwards. In some cases, the price channel will be moving horizontally and this is referred to as ranging. In this case, there is very little movement in the price of the asset.

So what does all this mean?

How Can You Use the Trend Line Trading Strategy?

Understanding the trend of an asset price and determining the price channel, are a powerful source of information and it can boost your trading effectiveness. To start, the price channel can help you to detect when the price floor of an asset price is as well as the peak of the price. That is, what is the highest and lowest price that an asset has reached over a specified amount of time. In the case of a horizontal price channel, this often reflects that the price of the asset is likely to stay within the price channel in the near future. In this case, there is very little movement or fluctuations in the price of the asset. In this case, it is best to trade the One Touch trade option which can be found on the VXmarkets trading platform. The reason for this is that if the target price or the goal rate offered by the broker on the trading platform of the asset you are interested in trading in falls within the price channel, there is a good chance that it will touch this goal rate during the life of the trade. Traders can also use the Ladder trade option and take advantage of the Touch and No Touch trading. That is, if the goal rate is set above the higher trend line or in the region below the lower trend line, it is likely that the asset price will not touch these goal rates during the life of the trade due to the minimal price movements in the asset price.

The 60 Seconds trade option is an excellent choice to use when an asset price is trending either upwards or downwards since the time of the trade only lasts for 60 seconds or one minute. For example, if you can see that an asset price is trending to the upside, it is likely that this upward trend will continue and this is a good time to execute some 60 Second Call trade options which are also available on the VXmarkets trading platform.

Trend Line Trading Strategy – Channel Breakouts

It is clear that using the Trend Line trading strategy is very simple and it relies on the trend of the asset price in order to make your predictions when trading binary options. It is vital though to watch out for channel breakouts. That is, markets fluctuate all the time and there are many factors that cause the price of an asset to fluctuate suddenly and to break out of price channel.In these cases, you need to watch to see in which direction the price of the asset will continue to move before making a trade

Conclusion

It is clearly evident that using the trend line trading strategy or price channels in order to trade is quite simple to do. If you take the time to monitor the markets daily and to understand what causes the prices of assets to move, this will help to help you to predict the future price movements of asset prices a lot easier. Once you have perfected your understanding, you will start to see trading success and of course, profits.

 

Strangle Options Strategy

Strangle Options Strategy – How to Use It Effectively

It might be hard to imagine that there is a strategy called the Strangle Options strategy which traders use when trading options. This strategy is very effective though in securing the rewards while reducing the risks involved in any form of trading. The most important point to note when applying any strategy to your trading is learning when to apply it. That is, the market conditions have to be optimal in relation to the requirements of a strategy. Also, using a strategy takes time and experience to perfect so let us look at the Strangle options strategy and review how to apply it to your trading effectively.

What is the Strangle Options Strategy?

To start, it is vital to note that the Strangle strategy is most effective when applied in volatile market conditions. This means that we can expect large and inconsistent movements in the price of an underlying asset. In some cases, we might be aware that we can expect to see extreme price movements in an asset price in the near future but we are not sure in which direction this movement will occur. That is, either up or down. In these conditions, the Strangle options strategy will be most effective.

So let us now look at understanding what the Strangle strategy is. Basically, to execute this strategy effectively, a trader will need to hold both Put and Call trade options. These trades, however, will need to be on the same asset such as, gold or Google shares, and have the same expiry times. The difference in both trade options, however, will be in the strike prices of the asset. But there is more. A trader will also need to ensure that the strike price of the Call option trade is higher than the current price of the asset but in the case of the Put option trade, the strike price of the asset will need to be lower than the current strike price of the asset. So for example, if the current price of oil is $100, the trader will purchase a Call option trade that has a strike price of $102 (higher than the current trading price of oil) and also a Put option trade at $98 (lower than the current trading price of oil). By doing this, a trader is in fact purchasing an ‘out of the money’ Put option trade as well as an ‘out of the money’ Call option trade. In options trading, when you purchase ‘out of the money’ trade options, they are generally less expensive.

An Example of the Strangle Options Strategy

Now that we have reviewed the requirements of the Strangle strategy, let us look at this strategy in action and how it can actually reduce the risk of trading. Let us assume that the price of Apple shares is $100 per share. As we explained earlier, in order to execute the Strangle strategy effectively, we will need to purchase an ‘out of the money’ Call option trade. Based on this, we can purchase a Call option trade when the strike price of Apple shares is $120 with an expiry time of 30 minutes. Remember that these trade options can easily be purchased on the VXmarkets trading platform. When the price of the Apple shares falls and reaches $85, you can then purchase an ‘out of the money’ Put option trade also with an expiry time of 30 minutes. We are now set up for the Strangle strategy.

Once the price of the Apple shares moves out of the range of $85, the strike price of our Put option trade, and $120, the strike price of our Call option trade, the Strangle options strategy will come into play. Based on our example if the price of the Apple shares reaches $60 by the expiry of the trade, after 30 minutes, the Call option trade will obviously end ‘out of the money’ and we will lose our investment. The Put option, however, will end ‘in the money’ and we will be paid out up to 89% return on this investment.

To add to the effectiveness of the Strangle strategy, you also have the option to sell a trade option before the expiry if you can see that it is likely to end ‘out of the money’. On the VXmarkets trading platform, you can select the Sell option and you will be paid out a portion of your original investment and in this way, you can reduce your loss even further.

Types of Strangle Strategy

The Strangle strategy has two main types which include the Short Strangle strategy as well as the Long Strangle strategy. Let us review the differences between the two types.

Short and Long Strangle Options Strategies

The Short Strangle strategy involves the selling of the trade options whereas the Long Strangle strategy involves the purchasing of the trade options. The short strangle options strategy is often referred to as the Sell Strangle and it requires a trader to sell both the ‘out of the money’ Call and Put option trades, which are based on the same asset and expiry time, simultaneously. The Short Strangle options strategy is most effective when the markets are not volatile. Based on this, a trader can take advantage of the minimal movement in the asset price since the asset price is most likely to remain within the boundaries of the strike prices of the Call and Put option trades. This strategy will be effective when the both the Call and Put option trades will expire ‘at the money’ and in this way, a trader will get back the initial investments which were made to purchase the Call and Put option trades.

In the case of the Long Strangle option, the trader will purchase both Call and Put trade options for the same underlying asset and with the same expiry time. The strike prices of the asset in both the Call and Put option trades will differ. In order for this strategy to be effective, it needs to executed when the market is volatile and a trader does not know the direction that the price of the asset will move. The goal is to capture this big price movement during the life of the trade and this takes a lot of practice and experience. If you manage to master the Long Strangle options strategy, you will be able to make a profit if the price of the asset at the expiry of the trade has moved far away from the strike price, either above or below. In this case, the only risk the trader faces is losing the cost of both the Put and Call options if the price of the asset does not move beyond the price range, either up or down. If the price of the asset does move beyond this range, the trader will profit from one of the trade options.

Conclusion

The Strangle Options strategy is an effective strategy to reduce the risk of trading but the reality is that this strategy takes careful planning and a lot of skill. A clear understanding of the markets and what will impact the movement of asset prices is vital. If you require assistance or more information, feel free to speak to your broker.

Martingale Trading Strategy

Martingale Trading Strategy

Let’s face it; every trader would love to find a trading strategy that guarantees profits but every trader knows that trading involves risk and you need to be realistic regarding the fact that you can lose your investment capital. A well-known trading strategy though that some traders regard as a ‘100% profitable’ is the Martingale trading strategy. Before you get all excited, while this strategy can definitely make you some big profits, it can also bring some big loss. So let us explore this strategy further.

What is the Martingale Trading Strategy?

The Martingale strategy was developed in the 18th Century by Paul Pierre Levy who was a French mathematician and at the time, it was based on gambling or on the probability theory. With this in mind, the probability theory translates eventually into a 100% success rate since the probability, for example, of hitting red on a roulette table is 50-50 which means you should eventually hit red when playing. Based on this, casinos in Las Vegas have implemented maximum and minimum betting limits to protect themselves also. The downside to the Martingale strategy is that you have to have an infinite supply of cash in order to eventually hit the red and not many traders are in this position.

Okay, so let’s go back to the 18th Century. Players would play a coin tossing game. That is, a player would bet and a coin would be tossed. If the wrong side of the coin came up in the coin toss, either heads or tails, the player would lose their bet but would then double their bet and the coin would be tossed again. If the player lost again, the player would then double their bet again and the coin would be tossed again. This would continue until the player eventually guessed the right side of the coin and would win.

Immediately alarm bells should be going off and you should realize that you can lose a lot of money by trading in this way. Also, it is clear that the risk of using this strategy is very high but on the other side, the profits can be extensive if you do eventually hit that winning trade. The good news is that there are ways to reduce the risk of the Martingale strategy and we will explore this further.

Disproving the Martingale Strategy

While the basis of the Martingale strategy is about doubling your bet size when you lose, Joseph Leo Doob, who was an American mathematician, worked hard to prove that the possibility of a 100% profitable betting strategy did not exist. The fact is, for example, if you are playing Roulette, there is always a 50-50 chance of hitting either red or black or odds or evens. For this reason, you might have noticed that many casinos have added 0 and 00 to a roulette wheel so as to break this probability. That is, there are no longer only two possibilities such as red and black or odds and evens and based on this, this reduces the success rate of the Martingale strategy when it comes to gambling. Many traders, however, still use this strategy when trading binary options. Let’s see how this is done.

Applying the Martingale Strategy

In binary options trading, a trader decides to invest $10 on a Call option trade based on the prediction that the price of oil will increase by the 10 minute expiry time. The trade is opened and at the close of the trade, the price of oil decreases and the $10 investment is lost. The trader will then invest $20 on the same Call option trade based on oil for a 10 minute expiry time. If this trade is unsuccessful, the trader will lose their $20 investment and will then open another trade with a $40 investment amount. At this point, the trader has invested a total of $70 and has already lost $30 from the two previous trades.

In this last Call option trade of $40, the trade ends ‘in the money’ and the trader is paid out 80% return or $32, giving the trader a profit of $72 ($40 investment amount plus $32 profit). By using the Martingale strategy, the trader has therefore made a total profit of $2. As you can see from this strategy, it only takes that one win or that one successful trade in order to recoup your losses. The problem, however, is that not all traders have an unlimited investment capital to keep doubling their investment amount and also, there is a chance that all the trades will end ‘out of the money’, causing extensive loss to the trader.

Forex Trading and the Martingale Strategy

Many traders find the Martingale Strategy most effective when used in Forex trading. The reason for this is that often currency prices trend and they never collapse to a zero value as in the case of company stocks. So for example, if a currency pair is trending downwards such as the EUR/USD, a trader can access the VXmarkets trading platform and enter a Put option trade with an expiry time of 15 minutes and invest $25. Since the currency pair is trending downwards, the Put option trade is likely to end ‘in the money’ but in the case of this example, let’s assume, the currency pair increased and so the Put option trade will end ‘out of the money’.

The trader can now enter another Put option trade but with an investment amount of $50 (double the original investment amount). If the currency pair does decrease, the trader will make about 80% returns on this winning trade. The bottom line is the Martingale strategy is a risky binary options trading strategy and you can land up losing all of your investment capital. Some pro traders use this strategy after every 50 trades for example and they budget the amount they will use when implementing this strategy. That is, they will allocate $500 when implementing the strategy and if they do not win a trade after using the full $500, they stop using this strategy immediately.

Conclusion

We all want to make money when trading binary options and there are many strategies which can be applied to your trading to boost these rewards. While the Martingale strategy gives you the opportunity to increase your profits, it also has a big risk factor. If you are the kind of trader who enjoys risky trading, then give this strategy a try. Who knows, you just might hit that one ‘in the money’ trade which brings you some big profits.

Risk Reversal Strategy - Binary Options

Risk Reversal Strategy – Understanding How It Works

There is no doubt that binary options trading offers traders the opportunity to trade online in the financial markets with low risk and high rewards. The goal of trading effectively though is based on learning how to reduce the risk of trading while securing or increasing the rewards. This is done by using trading strategies and an effective strategy in binary options trading is the Risk Reversal strategy. As the name sounds, the idea is to ‘reverse’ the risk of trading but the challenge is learning when to apply this strategy in order for it to work effectively. So let us take the time now to understand the Risk Reversal strategy and when to apply it correctly to your trading so that you can trade successfully and make profits.

What is the Risk Reversal Strategy?

Many traders view this strategy as a hedging strategy or as arbitrage since is requires the purchase of both Put and Call trade options simultaneously. If executed correctly, you can reach a situation where there is no risk or no loss of investment and profits can be generated. Many also regard this strategy as only suitable for experienced traders since it takes time, experience and knowledge but even if you are new to the online trading world, you too can master this strategy and learn how to implement it correctly. So let’s see how the Risk Reversal strategy works.

How Does the Risk Reversal Strategy Work?

As we have said, the Risk Reversal strategy involves purchasing both Call and Put trade options simultaneously. So let us first look at standard binary options trading without using this strategy. A trader will purchase a Call option trade on an underlying asset that they have predicted is bullish in nature. That is, they predict that the price of the asset will move up in the future. In this example, let’s say the trader invests $100 and an expiry time of 15 minutes. After the 15 minutes, the price of the asset moves down and the $100 investment is lost.

Alternatively, if a trader implements the Risk Reversal strategy in this scenario, it will allow them to open the same trade option but without incurring hardly any cost at all. Before we explain how this is done, it is vital to understand that the Risk Reversal strategy is not effective on short term trade options such as 60 Seconds but works better on long term trading periods such as one hour or longer. The benefit is that VXmarkets offers Long Term trade options on their trading platform providing you with the perfect platform to execute this strategy effectively.

So let’s get started. If you enter the trading platform, click on the Long Term trade tab. Now we need to establish which asset is bullish in nature. That is, which asset is reflecting an upward trend? Remember that this strategy can also be applied to the reverse with an asset that is bearish in nature or reflecting a downward trend. Once we have done the necessary fundamental and technical analysis regarding the future price movement of the assets and we have pinpointed a bullish asset, we will now need to sell an ‘out of the money’ Put option trade to the broker and at the same time, we need to buy a Call option trade.

In order to do this properly and to execute the Risk Reversal strategy effectively, we need to ensure that the Call and Put options are for the same asset. That is, if you are selling an ‘out of the money’ Put option for oil, you will need to also purchase a Call option trade for oil. Also, the investment amounts for both the Put option trade you are selling and the Call option trade you are purchasing must be identical. That is, if you invested $50 in your Put option trade, you will need to make a $50 investment on your Call option trade. Finally, the Put and Call option trades will need to have the same expiry time set for the long term such as a few hours.

An Example of the Risk Reversal Strategy

In this example, a trader analyzes the markets and establishes that Google shares are trending upwards. A trader purchases an ‘out of the money’ Put option trade for $100 for an expiry time of five hours on the VXmarkets trading platform. The trader will then sell this trade option to the broker using the Sell feature on the trading platform and for exiting the trade option early, VXmarkets will give the trader a percentage of their original investment back. For the purpose of this example, let us assume the trader gets back 80% or $80 for the Put option trade.
The trader will now purchase a Call option trade for the same asset, Google shares, for the same investment amount, $100, and the same expiry time of five hours. At the end of the trade expiry time, the Google share price has increased and the trade will end ‘in the money’. In this example, VXmarkets pays out 80% return on this winning trade or $80. As you can see, by selling and purchasing trade options simultaneously, the trader has removed the risk of trading and has not lost any of their investment money. That is, the trader purchased a Put option trade for $100 and then sold it and received $80. Until now, the trader’s investment capital is only down $20. The trader now purchases a Call option trade for $100 using $80 from selling the Put option trade. Once the Call option trade ends ‘in the money’, the trader will earn an extra $80 on the payout plus the $100 original investment amount will be returned, thereby reversing or reducing the risk of trading. In numbers, this looks as follows:

-$100 + $80 – $100 + $180 = $60. A cool profit of $60!

Instead of losing any money, by using the Risk Reversal strategy, the trader has managed to make a profit. While this strategy sounds simple to implement, the biggest challenge comes in analyzing the market accurately. That is, if you have predicted that the price of Google shares will increase and you sell your Put option trade and then purchase a Call option trade on this asset and then the Google share price declines, you will lose your investment on the Call option trade as well as on the sold Put option trade.

Conclusion

As we have said, the Risk Reversal strategy is often considered a strategy for experienced traders. You need to have a clear understanding of how markets work and the factors that influence these movements and only in this way can you accurately predict the future price movements of assets. Take the time to learn the markets and once you have mastered this, you can then implement the Risk Reversal strategy accurately and in this way, your trading profits will grow.