Using probability theory in binary options. Trade “Middle Waves” For a High Probability of Success
With earnings season still in full swing there are many news events moving the markets every trading day. Along with earnings, we also have the usual economic announcements like the non-farm payroll Friday morning at am ET. The street is expecting K jobs will be added. There are many ways to trade news announcements, one of which is the binary option market.
Learning Options Trading. What Are Binary Options
When trading binary options you have the benefit of defined risk with the ability to diversify your trading portfolio. The risk vs.
When trading binary options your risk is always defined, and so is your maximum profit. Along the right axis are some of the weekly binary options available that expire on Friday at pm ET, with about 24 hours and 15 minutes remaining. One trade possibility if you had a flat to bullish market bias would be to buy an in-the-money binary option, which would be a higher probability trade as the underlying market is above the strike.
You should always be calculating the probabilities of differing scenarios playing out, especially when you have money at risk.
If you felt the opposite on this trade and thought the market would be negative to flat tomorrow then you could also sell a binary option above the current market for a similar inverse strategy. When trading anything with a defined risk vs.
Figure 1. The Set-Up To find the middle of an uptrend, you need a higher high and a higher low. To find the middle of a downtrend, you need a lower low and a lower high. Figure 2 shows the start of an uptrend.
Understanding the math and probability of your possibly investment will help you become a more profitable trader. Note: Exchange fees excluded for calculations.
Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results.
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