60 Second Strategies & Ultra Short-Term Trading
Binary options 60 second strategies have become very popular since their introduction a few years ago. Many of you may be aware that a certain Gordon Pape who has written an article on Forbes entitled ‘Don’t Gamble on Binary Options‘ suggests that the shorter the term of a financial instrument the more of a gamble it becomes: “……..no one, no matter how knowledgeable, can consistently predict what a stock or commodity will do within a short time frame.” How ignorant! I have stood in futures pits and watched ‘scalpers’, with in-out time frames of less than a few seconds, consistently outperform hedge funds, investment trusts, pension funds…..you name it. They were capable of an almost subliminal sense of determining which way the market was going in an extremely short time frame; in effect these guys were trading ‘noise’. I would have loved to have seen Mr Pape trying it…………..he would have failed. The advent of electronic trading has now brought in a new animal that trades ultra short-term and these new market entrants are known as High Frequency Traders (HFT) and are currently contributing to the greatest proportion of volume in the more liquid markets. They would not be achieving these levels of volumes if they were not consistently profitable and this is in spite of the increased costs of trading that they incur.
In a word Mr Pape, wrong! Just because you cannot successfully trade with an ultra short time horizon does not mean that others can’t.
The following provides a few pointers as to how short-term binary options trading can be developed. Just remember, the scalpers did not obtain their nose for sniffing out ultra short-term movements overnight.
Here are a few strategies you can use to trade it.
1. Support and Resistance Strategy
We surmise that the price of assets possess a tendency to advance in a sequence of waves with each wave possessing a top and a bottom. These constraints are assessed to be major reversal levels which can be readily identified by key support and resistance levels. A favorite 60 seconds strategy is to identify those times when an asset price clearly rebounds from these resistance and support levels. New binary options could then be opened in the opposite direction to that in which price was progressing before the rebound.
For instance, the next GBP/USD 60 seconds trading chart presents good examples about when to execute both CALL and PUT binary options. Essentially, whenever price rebounds against resistance, you should activate a PUT option. Similarly, if price bounces higher after striking support, then you should open a CALL binary option.
The first step in instigating such a strategy would be to detect a currency pair that has been range-trading for some time and then identify the resistance and support levels by either using a broker’s information or simply connecting the highest points for resistances and the lowest values for supports, as shown on the chart below.
Execute some price testing of these levels then wait until the present candlestick confirms a true bounce by cleanly closing below resistance or above support. This action will provide you with some protection against false signals. For example, if a successful confirmation is attained, then open a new PUT binary option using the GBP/USD as its underlying asset with the 1 minute expiry time if price bounds against resistance, as displayed on the chart above.
By wagering $100 with a payout of 75%, you would have collected $75 for both the PUT options shown above. In fact, your initial wager of $100 would have exponentially increased to $937 for the four trades displayed above within 5 hours if you had reinvested your returns in each case.
2. Follow Trend Strategy
Another of the 60 second strategies that has gained in popularity recently is based on tracking trends. This is because such strategies allows the binary options trader to exploit the advantage of trading with the trend and, as such, comply with the well-known maxim which states that the ‘trend is your friend’. The basic idea is to trail a trend and execute a ‘CALL’ binary option if price ricochets higher from the lower trendline when the underlying security is climbing within a well-established bullish passage. In contrast, you should activate PUT binary options whenever price rebounds downwards after hitting the upper trendline in a well-defined bearish channel.
For example, the above 1 minute trading chart for the USD/CHF currency pair clearly displays a strong bearish trend. As you can confirm from studying this diagram, four opportunities for opening PUT options arose after price rebounded lower against the upper trendline.
To instigate a trending strategy, you must first locate an asset that has been trading either a bullish or bearish trend for some time. You then need to draw the trendlines by connecting the series of lower highs for the upper trendline and the lower lows for the lower trendline in the case of a bearish channel, as illustrated on the above chart.
Once you observe price testing the upper trendline, then you should pause until the current candlestick completely forms so that you can verify that it closes beneath this level. If it does, then initiate a new PUT option using the USD/CHF as its underlying asset with the 1 minute expiry time. Envisage that your wager is $5,000 and the payout ratio is 75%. The four successful trades identified on the above chart would have netted you a staggering $46,890 in just over 2 hours if you reinvested your profits each time. Now, you can begin to understand why so many traders are raving about 60 second binary options.
3. Breakout Strategy
Another favorite of the 60 second strategies is trading breakouts since they are easy to detect and can generate impressive returns. The key idea of this method is that, if the price of an asset has been oscillating for some extensive time within a restricted range, then when it does attain enough momentum to breakout it frequently travels in its chosen direction for some considerable time.
Your initial step in implementing this technique is to identify an asset pair that has been fluctuating within a confined range for an extensive time period. As such, you are searching for a side-way trading pattern that is clearly delineated by a bottom and top, as demonstrated on the above AUD/USD 60 seconds charting diagram. Very often, price will bounce against its floor and ceiling numerous times before finally breaking free, as illustrated again on the above figure. A sustained breakout should subsequently be assessed as a strong recommendation to initiate a new trade.
As the diagram above shows, the asset price does attain a clear breakout beneath its support or floor. You are now recommended to wait until the current 60 seconds candlestick is fully formed so that you can confirm that its closing value is undeniably below the bottom level of the previous trading range. This verification will provide you with some protection against a false signal.
After accomplishing this objective, you should now open a new ‘PUT’ binary option based on the AUD/USD with a 60 seconds expiry period. As this form of trading is definitely dynamic, do not risk in excess of 2% of your equity per position. If your equity is $10,000, then your bet should be just $200. Your opening price is 1.0385; your payout ratio is 80% and refund is 5%. After the one minute expiry time elapses, the AUDUSD stands at 1.0375; you are ‘in-the-money’ and collect $160.
As with all forms of trading, traders develop their own style which leads to some traders excelling at directional futures trading while others find FX or, say, gold trading more lucrative. Horse for courses! Within the option trading fraternity some traders will prefer a particular instrument while others will adopt a more broader range of instruments. The same applies to the term of the trade; some traders will wish to take a more conservative, longer term view while others will adopt a more ‘seat-of-ones-pants’ attitude with the ultra short-term options. Personally, I was the latter………an adrenalin junkie? Probably………..