The Market Wants you to Lose Part 2

Let me elaborate further on what I discussed in my previous post. In the world of forex, every gain or loss you make is a result of someone else's loss or gain, making it a zero-sum game. This also means that to come out on top, you need to be better than some traders out there.

Generally, traders can be classified into three groups - large firms or wealthy individuals, small firms or rich individuals, and small-time traders (which may include you). The market movements are mostly influenced by employees trading on behalf of large firms, who possess a wealth of experience and knowledge. Small firms, on the other hand, may not have a significant impact on the market, but they are usually good traders. Both groups are confident in their ability to make consistent profits, and while there may be occasional losses, it is challenging to outperform them in the long run.

The last group consists of small-time traders, including many inexperienced traders who view trading as a form of gambling. They make trades based on gut feelings or poor analysis, which typically leads to losses. As savvy traders, we can trade better than this group, and it is how we can earn money through trading options. You don't have to be the best; you just need to be better than the average trader.

If you are interested in learning more about my strategies, check out the tabs at the top and sidebar or click on the links below. With the right approach and knowledge, you can become a successful trader in the forex market.

Price action

Momentum Indicator 

Fibonacci Retracements

Comments/questions?

The market Wants You to Lose

An essential lesson that traders must understand is that every market participant, including big market makers, wants to make money at your expense. While this may seem obvious, it has significant implications that traders must consider.

Consider this scenario: suppose you had nearly perfect control over the forex market. What would be the best way to move the market to make a profit? Would you create predictable patterns, be random, or something else entirely? The reality is that market participants create patterns that attract traders, only to reverse the trend, whether intentionally or not. This is precisely what happens in the market, and traders must be aware of this behavior to improve their trading results.

Take a look at the recent chart example above, where the NZD/USD looked like it would continue its downward trend. However, notice the huge pullback on one of the candles. If you entered a trade based on the confirmed downtrend and put a stop loss at either of the red lines, you would have been stopped out, missing a lot of potential profit. A similar thing happened with the first uptrend on the left.

To avoid falling into this trap, set limit orders higher or lower than the apparent price action trend. Some people call this "stop hunting," but it can be used to your advantage. Sometimes the pullback won't happen, but that's okay. You don't have to enter every change in trend; instead, make fewer, smarter trades. By waiting for a pullback to the last major resistance/support line, you can avoid getting stopped out and work with the market instead of against it.

This concept is essential for making money in both binary and standard options trading. In the next post, I'll dive into this idea more deeply. If you have any questions or comments, please share them below.

Part 2 is found here

The Fundamentals of Most Binary Option Trading Strategies

Trading strategies can basically be split up into to 2 categories. Indicator based and visual based. Indicator based is where you have certain indicators on your chart and when they move certain ways, you enter the trade the way the indicator "tells" you to enter. When I first started binary options, I searched and searched for the perfect indicator that would actually tell me when and how to take the trade, but I never found it. Some people trade this way but I find it less effective than visual trading because of one key point: all indicators lag. This is especially critical in binary options where a delay in a matter of minutes to enter a trade could be the difference between finishing in the money or out of the money. In a later post I might talk about which indicators are the best and how to use them but I fine they really aren't very effective.

The second type of trading is visual based trading. It's using a basic chart and in its simplest form, drawing lines to predict how price will move(very scientific). More specifically, using previous low as values of support and previous highs of values of resistance. These values are where you want to enter trades as price has a good chance of reversing. This is also called price action. This can be explained a lot better in a chart example. Here is the 5min EUR/USD earlier today(sept. 17) with candlestick chart from freestockcharts.com

As you can see, price will often bounce off the same value more than once. Then when the price does fall and break the support level, the roll of the value is reversed (in this case to resistance). Now, price will bounce off it and go back down when price hits that value again.

Of course price won't always follow the support/resistance levels. However, the higher the time frame, the more likely there is to be a reversal. Price hitting a all time high is much more likely to reverse than hitting a 1 hour high. More on price action and binary options to come.

Price Action Part 2 found here

Finding the Trend in Forex - Line method

One of the hardest yet seemingly easiest things to do is find the direction of the trend. If you correctly identify the trend, even if you have bad timing on a trade, you will likely still profit. Just like if you kick a ball up a hill, it will eventually roll back down the hill. So, how do you find the trend? There have many technical ways to find the trend in forex like is price making lower highs or high highs, or is price above or below the 200 moving average. But those methods sometimes give more confusion than actual answers. For example, sometimes 2 different time frames (like daily and weekly) can be moving in opposite directions and then it leaves you basically guessing which way the trends going. Luckily, there is a much simpler way. It's what I like to call it the "Line Method". All you do is draw a line where price action has been heading. Here's an example of the eur/usd (click to enlarge)

When traders try to find the trend in forex, they often fail to look at the big picture and where price is likely to head. 

It's also important to look at fundamental factors affecting the long term outlook. For example, right now it appears the eur has been performing poorly and the fundamental outlook (news) hasn't led me to believe that this will change at least in the near term. 

Now, probably more important is monitoring the trend. Set physical lines on your chats that would be points that make you reevaluate the direction of the trend. In the example above, you might choose 1.155, the nearest major resistance, or maybe a Fibonacci retracement from the previous major high. 

Trading with the trend in forex will greatly increase your profits -- just don't overthink which way the trend is.

See Fibonacci retracement strategy 

Trading Options Using Fibonacci Retracements

Trading using Fibonacci retracements is one of the most simple yet very effective tools you can add on top of almost any binary and standard options strategy. Without going into the math details behind why it works, Fibonacci lines are support and resistance values where price is likely to reverse. The most common retracement values are 23.6%, 38.2%, 50%, and 61.8% towards the previous minimum or maximum. Most charting platforms will draw the retracement lines once you label the the local minimum and maximum. Let me show you some examples from the AUD/USD

Daily price chart for AUD/USD from September to December. Click to enlarge.

Notice how price starts to go back up but then reverses when it hits the 61.8% retracement line and resumes the previous downtrend. Here's another example.

Monthly candlestick chart for AUD/USD. Click to enlarge.

This time price is in an uptrend and starts to go down and then reverses when it hits the 38.2% retracement and then continues the uptrend.

A few important notes when using Fibonacci lines to make money at binary and standard options.

1) Only use Fib. lines when the market is trending. They won't work when the market is ranging as the market would likely retrace all the way back to where price originally was.

2) Fib. lines work better on higher time frames. Price has a much higher change of reversing when it hits a Fig. line based off a 4 hour, daily, weekly, or monthly chart than a 5 min. chart.

3) The Fig. lines should be treated the same as support/resistance lines in terms of when to enter a trade. In other words, wait for conformation in candlestick patterns/price action before entering a trade. Fibonacci lines are another tool that can tell you that price might be reversing. As you can see above, Fig. lines by themselves are by no means a guarantee of reversal. More about candlestick patterns  Here.

A Hour Trading Binary Options

I didn't have too much time to trade today but did manage to find one good one on the Nzd/Usd. Saw a nice engulfing candle and decided to take the trade. Picked up some solid pips! Ignore all the lines, that's for a different strategy that I'll be discussing later.

Arrow is where I entered, the check mark is where I took profit

My New Binary Options Strategy

As of about 6 months ago, I started trading real options instead of binary options. I do use a very similar price action strategy with a few minor differences. For starters I make trades from higher time frame charts, 15min to daily charts, and hold on to the trades for a longer time. There is much less 'background noise' and it is easier to have more confidence in your trade this way. I also do more trading based on price breaking out of it's range instead of staying in its range. Let me show you an example below.

Arrow is where I placed a put, top red line is stop loss, green line is take profit, and moving red line is 150 moving average. Make money at binary options

 For this trade on the 4 hour chart, I noticed the 150 moving average was very negative sloped dispite price making higher highs from October 3rd to October 15. Since long term the Eur/Usd was still in a down trend, I was waiting for a point to enter short. From the 15th to 20th, price was in a tight range, not moving one direction clearly. So I waited until price made a move and broke the support line. On the 21st, that happened so I entered short, with a take profit at the previous support line. It ended up hitting my take profit within the next couple of days for a solid victory!

Almost forgot to add, using high time frame move averages can give you a quick glance at were price has been heading. More info to come.

Make money at binary options!

Momentum Indicator and Binary Options

The strategies I have showed so far have revolved around price action and using visual skills to make successful trades. In this post I'll go over a indicator I sometimes use, the momentum indicator. Momentum is  the derivative(velocity) of price over a given period. The formula for momentum can be written as

M = PC - PL

 Where "M" is momentum, "PC" is current price, and "PL" is the first price in a given time period. Momentum is usually charted around a zero line. When momentum is above the zero line, then the asset's overall trend is upward and when momentum is below the zero line then the assets overall trend is downward. Take a look at the example below. Note FreestockCharts.com uses '100' as the zero line.

The most important part of the momentum chart is where it crosses the 100 line. If momentum crosses up over the 100 line, then that's a good indication that price is on the rise and the opposite if price moves below the 100 line. Momentum works well with any time chart; just remember that the signal is usually only good for the next couple of candles so for example when using it with the 1 min chart, make a trade that's 5 mins or less (the best is generally 2 mins). The best time to enter a trade is when momentum crosses the 100 line on the close of the previous candlestick.

 There are a few things to keep in mind when using momentum as a indicator in binary options.

1. Don't forget price action. If looking are the chart it seems like a bad time to enter the trade, then DON'T enter. It will give false signals.

2. Watch out for relatively large candlesticks/relatively calm periods. During times with very little movement, the momentum indicator is basically useless for when to enter a trade in binary options as the momentum indicator will be constantly be moving above and below the zero line. Also if there's a candle that's much larger than the ones before it then the indicator is more likely to be off.

3. It will at times lag behind price. While it is a useful leading indicator, curtain setups will cause the momentum indicator to lag behind price. If it seems off, try it on a different asset. 

Momentum is one one of the most useful indicators when trading binary options when used correctly.

Questions?  

Hedging Money in Binary Options

One thing I want to talk about a bit is hedging in binary options. Even really good traders will only average a winning percentage of 70-80% in binary options, so betting to much of your money on one trade could bankrupt your account even if your winning the majority of your trades. Let me show you an example:

Say your starting out and your real winning percentage over your first week of trading is 60%. Lets also say your starting amount is $500. A good general rule is betting anywhere from 1-5% and when first trading, betting the lowest amount possible. Lets say you go with 2% of the initial $500 per bet ($10). Your odds of losing all of your money with a 60% winning percentage is very low. If you bet 20% of your money, however, your odds are much higher of loosing all the money in your account even if you are good at trading binary options.

High risk doesn't always equal high reward. If you stick to betting a percent of your account each trade, your amount you trade will change but your risk won't change. If your account grows from $500 to $1000 and your betting 2% each time, the amount you will trade will change from $10 to $20 but the risk you are taking each trade is the same. Some traders also choose to lower there percent they bet each trade as their amount of money in their account goes up so to avoid losing too much money in a bad loosing streak.

In summary, hedge anywhere from 1-5% of your account on each trade so even a unlucky loosing streak won't bankrupt your account.

Random Fluctuation Strategy for Binary Options

The random fluctuation strategy is the main strategy I'm currently using when trading binary options. The best times to use it are when the asset is in a range and not extremely active. The strategy is simple yet effective. you wait for price to spike toward a support/resistance line and you enter the trade toward where price was originally. It works best on the 1min chart but use the higher time frame charts to make sure the asset is in a range and not trending. Your winning % will probably be slightly lower, but the number of trades you can take is much higher that I have found it to be more effective than traditional price action. Here's a chart example of the strategy.

EUR/GBP 11-1pm est Fri 10/25/13 1min price chart, from freestockcharts.com

As you can see, over only 2 hours, there was 16 possible trades that could be taken and would have won at least 11 (2 you would lose and 3 could go either way). The trades you enter should have short expiry times. No more than 5mins and should be 2-5mins depending on the setup. Risk low amounts of money on these trades, since you have the opportunity to take a larger number. Set up lines of support and resistance on the previous spikes in price and trade in the opposite direction when price reaches that value again. Make sure the market is in a range and isn't trending. Trade when prices touches a point of support/resistance. Questions?

Using Candlesticks Charts with Binary Options

When trading Binary Options, I always use a candlestick chart when plotting price. A simple line or bar graph won't provide enough data to know when to enter a trade. Candlesticks show the movement of price over a given period of time. The color of the candlestick tells you whether price went up or down during that time period. Green and clear means price went up. Red and filled in means price went down over that time interval. Example below.

Now for how to use them. There's certain candlesticks you want to be on the look out for when trading binary options.. Candlesticks should help guide you and NOT be used as the only signal to trade. Alone, the reversal signs from candlesticks aren't very accurate. If used with Price action (as discussed in other posts) there effectiveness is much higher. Take a look at the image below.

At the start, price is moving up (indicated by the green candle). The second candle is what people call a pin-bar. It signaled that price moved up, then moved back down to where it started at that candle. If the 'wick' of the candle is on top, it's a possible sign that price will start moving downward. The 5th candle is the same thing except it signals price might start moving upward. The 8th and 12th candle are called doji's. A doji also indicates a possible reversal and is characterized by a wick on the top and bottom with little net movement in price from the beginning to the end on the candlestick. Use candlesticks as guidelines for when price might reverse in binary options. They are by no means guarantees that price will change direction.

When to enter trades in Binary Options

When I first started trading binary options, one of the hardest things for me was figuring out when to enter a trade.The two most common methods people use are entering on a touch of a support/resistance line or entering after conformation.

As talked about in the last two post, price action can help you set up those support and resistance lines of what values you should be entering trades at. A touch trader would enter the trade right when price touches one of those lines. A conformation trader would wait until the candle stick closes and ente if the next candlestick is moving away from the support/resistance line. An example is below.

EUR/CAD 5min candlestick chart, freestockcharts.com

Lets go through the possible trades on the chart above.

Lets start off with #0 on the chart. At this point you don't know the EUR/CAD is going to start ranging so you might enter the trade off the resistance line 40mins earlier. Touch traders would enter the trade and lose but conformation traders would stay out of the trade as the next candle is green( indicating a increase in price).

#1: This trade is off the trend line of the previous two highs. Touch traders would win and conformation traders depending on where they enter might or might not finish in the money.

#2,3,4: These are trades off the trend line, touch and conformation traders would finish in the money on all three.

#5: Touch traders would enter on the support line and would lose, conformation traders wouldn't enter the trade since the next candle is red.

#6,7,8: These are more trades off the trend line and both types of trading would finish in the money on those trades.

I personally trade when price touches the support/resistance lines. While touch trading is more risky, I find overall it bring in more profit.

Binary Options With More Price Action

Something I didn't talk about in my last post was the type of market the asset is in. The asset will either be ranging or trending. In a ranging market, price stays within certain bounds. Take a look at the example below.

1min EUR/GBP from 10am-1:35pmest, from freestockcharts.com

For the whole three hours, price doesn't really move all that much. Lows are close to the previous lows and highs are close to the previous highs. If you were trading this period, you would trade puts at the top of the range and calls at the bottom of the range. A good general rule is to only trade the top 5-10% and bottom 5-10% of the range. As you can tell, there's ranges within the ranges. Generally only trade the bigger range unless the range has permanently shifted up or down. Remember that the asset won't range forever. The hardest part about trading a range is trying to figure out when the asset will break the range. There is no simple answer, but things like relatively large candles very close toward support/resistance lines, a general movement toward the higher or lower part of the range, and the amount of time the asset has been ranging can be signs that a range is breaking down. Assets usually don't range for more than 2-3hours.

The second type of market is a trending market. A trending market is where the highs and lows get higher or lower(depending on if it's a uptrend or a downtrend). For binary options, trending markets are better to trade than ranging markets. You use the same method of connecting previous lows and highs but instead of horizontal lines, the lines are at a angle. Also similar to ranging markets, there are wider channels of support and resistance and narrower channels of support and resistance. The only major difference in trading binary options is don't trade against the trend on most uptrend. If it's a very weak uptrend, then you can probably get away with trading against the trend but it's a lower probably of winning trade. Take a look at the example below.

1min GBP/JPY candlestick chart, freestockcharts.com

The 5-10% rule can apply to trending markets as well, meaning you would only trade in the 5-10% of the top or the bottom of the trend. That's the basic of trading binary options using price action. Next post on when to enter trades.

First Post and a Overview of Binary Options

Hey Everyone!

When I first got into binary options, there was a lot of miss information. Lots of "instant rich" systems, become a millionaire in a month, get $100 every 5 minutes, etc., and of course this information is false. However, binary options are NOT a scam and with discipline, hard work, and lots of studying, you can make profits. I'm not gonna lie to you and say I'm a millionaire, though with low risk amount trades I have made a lot of money for a college student so far trading. This blog will be dedicated to winning strategies and tools I use to be successful at trading binary options.

You might be asking what binary options are and the simple answer is a option where the payout is a set all or nothing amount if you either rightly or wrongly guessed the direction of the asset. You're trying to guess the direction a asset is moving. Binary options are generally for the short term with most options expiring 30 mins. or less of the time it's bought, but there are some brokers where you can get longer expires. Lets take a look at a short example.

Say you think a asset is going to continue its downtrend. So you place a put option(For reference, "put" means you think the asset will go down and "call" means you think the asset will go up) of $50 at the current price of 1000. The broker will display the payout you will get for being right or being wrong. The payout can vary from about 70% of your bet to up to 90% of your bet. Lets say you're correct and the asset does drop below 1000 at its expiry time. You would then get $50 multiplied by what ever the payout % is. If you were wrong and the asset expired above 1000 at the expiry time, you would get nothing. Pic below.

Next post I'll jump into the basics of trading