What You Need to Know About Binaries By Abe Cofnas

Transcription

1 What You Need to Know About Binaries By Abe Cofnas One of the most exciting trading instruments in recent years is Binary Options.

2 W H AT A R E B I N A R Y O P T I O N S? Binary Options are simple, yes or no, up or down bets that traders make about the direction of an underlying market. They are called Binary Options because they involve a fixed payout. If a trade works, the payout is 100 units in your currency of choice. If it doesn t work, the payout is zero. Binary Options are also referred to as digital options because of the 0,1 result. Historically, Binary Options have been around a long time as an over-the-counter customized option approach used by insurance industry. These were referred to as rebate options that paid off when a catastrophic loss occurred. The appealing aspect of Binary Options is its limited risk features. Losses are only limited to the amount paid for the trade. There are no margin calls. Some people have characterized and criticized Binary Options as gambling. But it is important to know that this is totally false. In gambling the odds of winning are the same for all players. This is known as a fair game. In Binary Options trading, the odds of winning are a function of the knowledge and skills applied. In Binary Options trading, the odds of winning are a function of the knowledge and skills applied. They are exciting because they do not require complex analysis using the Greeks (theta, delta, gamma, rho, etc.). The simplicity is excellent because it provides ability for beginners, as well as more experienced traders, to focus on immediate direction and ignore the complexities that come along with plain vanilla options. Binary Options however, require a rethinking of how to apply fundamental and technical analysis to trading strategies and tactics. 2 B i n a r i e s

3 I M P O R TA N T T H I N G S TO K N O W R E L AT I N G TO B I N A R Y O P T I O N S Let s explore several important things to know relating to Binary Option trading. 1) BALANCE OF FEARS. The Random Walk theory of the markets assumes that prices are efficient reflection of present value. For traders of Binary Options it is not necessary to believe or dispute the Random Walk concept. Rather it is important to go beyond this assumption and realize that prices also reflect very effectively a balance of fears. With the internet, not only is information transmitted instantly around the world, so are rumors, chatter, and misperceptions. Binary Option trading and analysis requires good skills in detecting and riding the sentiment waves. The bid and ask prices of Binary Options effectively reflect expectations about price direction. Yet, those expectations are often wrong. 2) THE CHEMISTRY OF PRICE ACTION Market price action should not be thought of as linear. Prices form patterns and stay in those patterns until news move them out of the pattern. A news event such as a statement by a central banker (Bernanke, Stevens, etc.) punctuates the precarious balance between optimism and pessimism that every price reflects. The best model for understanding price action in the context of reacting to event-risks is the chemical process known as a reaction-diffusion process. Prices react and then diffuse and often retrace that initial reaction. This makes Fibonacci based analysis very relevant for Binary Option trading at all durations. 3) EXPECTED PROBABILITIES The right question to ask in shaping a trade is not what is the probable direction of the price. It s important to note that Binaries reveal expected probabilities. Rather, the right question to ask is what is the crowd-mind of traders, thinking. When everyone is bullish, or bearish, it is time to be a contrarian. It s important to note that Binaries reveal expected probabilities. 3 B i n a r i e s

4 I M P O R TA N T T H I N G S TO K N O W R E L AT I N G TO B I N A R Y O P T I O N S 4) CONTRARIAN MONDAYS What you need to know about Monday for trading markets is that Monday provides the greatest amount of mispricing and opportunity for profits. On Monday mornings, the markets have great uncertainty about the direction of the week. The internet chatter of the weekend has accumulated and provides the initial, but highly unreliable source for assessing market direction. As a result, By Friday, the assumptions that were prevalent on Monday mornings, are often inverted and opposite. Friday becomes the inversion of Mondays, providing very good intra day trading success as the events of the week have been priced into the market and technical trading becomes the dominant factor for winning. A great example of this contrarian Monday phenomenon occurred on Sept 29th, when the Economist Magazine cover over the weekend featured a black vortex with the title: Be Afraid. But, the Dax Index, didn t collapse and actually started rising. 5) TECHNICAL ANALYSIS FOR BINARY OPTIONS Commonly used Technical indicators are of limited value for Binary Options. Bollinger Bands, RSI, and related oscillators provide little information about the immediate conditions of the market. In particular, Binary Options that expire within short intervals such as 1 /2 hour, require a different set of technical tools. Binaries that have short duration expirations such as ½ hour are really At-the-Money options. Success in these short term durations requires sharp analysis of momentum and micro-trends. The most important way to trade short term duration Binary Options is to detect changes in the persistence of sentiment and changes in momentum. Patterns reflecting micro-detection of trend changes, using price break, and renko charting, are of great help. But, above all, basic resistance, support, trend lines should be used to identify when a trade signal occurs. These classical tools map the boundaries ofmarket sentiment with great effectiveness, evan at micro time durations. Also, patterns such as parabolic paths, channels and triangles are reliable tools for alerting Binary Option traders to emerging high probable trading opportunities. 4 B i n a r i e s

5 G E T T I N G S TA R T E D GETTING STARTED IN BINARY OPTIONS TRADING The best approach to getting started in Binary Options is to trade underlying markets that have the attention of the world. This means one should select underlying markets to trade that have key economic data releases. Trading when there is no news is much more difficult. Another important aspect for Binary Option trading success is developing a trader scorecard that measure trading performance metrics. Progressing as a Binary Option trader requires acquiring skills such as having repeatable sequences of consecutive wins. Losses will occur, but many can be avoided such as going against the trend. Evolving into an effective Binary Option trader will require skills in legging in and legging out of a trade. Risk control is also improved when diversifying the trading among different instruments. GETTING STARTED IN A RISK-FREE ENVIRONMENT Whether you re new to Binary Options trading, or an experienced trader, the Vantage FX free 30-day demo account is an ideal way to discover the exciting world of Binary Options trading. Learn Binary Options at your own pace with $20,000 of virtual funds in an exact mirror of the live trading environment. >> FREE $20,000 DEMO ACCOUNT FOR MORE INFORMATION ON BINARY OPTIONS VISIT WINNING ARE A FUNCTION OF THE KNOWLEDGE AND SKILLS APPLIED. 5 B i n a r i e s

6 W H O I S A B E C O F N A S? Abe Cofnas is a recognized world leader in Binary Option analysis and trading. He offers coaching at www. worldbinarytraining.com, as well as newsletter on Binary Option trading at The first Forex trader columnist for Futures magazine, Abe Cofnas has written a monthly column for the highly acclaimed magazine for the past seven years. Abe s technique integrates fundamental and technical analysis with state-of-the art instructional tools to enable self-paced learning. Using the best methodologies from several fields, Cofnas has provided a worldwide audience with analysis and insight on what moves the Forex market. Mr. Cofnas is author of 4 books on trading: The Forex Trading Course (Wiley); The Forex Option Trading Course (Wiley); Sentiment Indicators (Bloomberg); and Trading Binary Options: Strategies and Tactics (Wiley and BLoomberg). Mr. Cofnas is the editor and analyst for BinaryDimensions.com - a weekly newsletter on Binary Option trading. ABE COFNAS CAN BE REACHED ON: SKYPE: BINARYTRADER1 OR SKYPE: LEARN4X [email protected] OR [email protected] 6 B i n a r i e s

7 W H O I S VA N TAG E F X? Vantage FX is an award winning Australian financial services firm providing online Forex trading capabilities to retail, high-net worth and institutional clients in Australia and the rest of the world. Vantage FX Pty Ltd ACN is an Authorised Representative [no: ] of MXT Global Pty Ltd ACN AFSL As a financial services provider, we are regulated by Australian Securities and Investments Commission (ASIC) under Australian law. Vantage FX is continually striving to provide a client-friendly, totally interactive Forex experience. As a team we always look to innovate and take advantage of the latest technology, the benefits of which we pass on to our clients. What set us apart from o ur competitors are our wide range of services and a superior level of customer support VISIT OUR WEBSITE AT 7 B i n a r i e s