Binary options trading offers a straightforward approach to the financial market, appealing to many traders due to its simplicity and clear outcomes. This guide delves into the strategy of trading higher highs in binary options, a method that capitalizes on uptrend market conditions.
We’ll explore what constitutes a higher high, how to identify and trade these moments, and discuss the risks and additional strategies that can complement this approach.
Good to know:
- A higher high in binary options trading indicates that the price of an asset has surpassed its previous peak, signaling an uptrend and an opportunity to place a BUY trade.
- To trade higher highs, identify the new peak on the chart, use pullbacks to estimate the move’s duration, and choose the binary option’s expiry time based on the pullback’s length.
- The strategy is not foolproof and can fail if the market trend does not continue as expected or if the pullback is not significant enough to provide a reliable forecast.
- Additional binary options strategies include 1-minute and 5-minute trades, which rely on high volume trading and indicators like the Money Flow Index to gauge demand and supply.
What is the higher highs strategy?
The higher highs strategy in binary options trading refers to taking advantage of the ‘higher high pattern’, a continuous increase in the price of the asset. The price rises and surpasses the previous high to reach a new peak. In this bullish market condition, the price rises above the previous top.
This indicates a signal to go long on the binary option and make gains from the trade before the trend reverses.
Example of a higher high in the financial market
Higher high means the market is experiencing an uptrend. Prices are rising. Traders can speculate on binary options in this direction and make great gains once they identify this trend.
For example, let’s assume the Facebook stock is quoted at $198.2 at the start of the day. At noon, it may rise to $198.9.
If the market condition is in an uptrend, it could rise in the next hour to $199.2. It has then surpassed its previous point and reached a new high. We can call this a higher high.
Let’s say the binary option for this asset is trading at a $50 bid and $54 offer. If you place a BUY trade for the option right, you would pay the bid price, which is $50. If you decide to SELL or short trade the binary option, you receive the offer price of $54.
We assume you’re confident the price would exceed its current high of $198.9. You then decide to buy the binary option at $50. The trade expires at the end of the day. So at that time, if the price moves above $198.9 to a higher high of, let’s say $199, you make a fixed profit. This profit would be $100 minus the $50 you paid for the trade. Some fees would be deducted, and you would’ve earned at least $40 on this transaction.
How to trade higher highs with binary options
As we have mentioned, the key trading technique here is to buy when the price rises and sell when it drops.
- But trading higher highs, that is the new highs is a better strategy. We will explain how to do this briefly. It is a straightforward approach.
- But trading higher highs or lows is a better strategy. We will explain how to do this briefly. It is a straightforward approach.
To trade higher highs in an uptrend market, watch the chart for a new increase in the price of the asset. When the price moves higher than its previous high, it’s a signal to go long on the binary option.
- Identify the higher high: To find the higher high on your price chart, draw a horizontal line on the current highs. If the line crosses the current high, go long.
- Use pullback to determine how long the move would last: To determine how long the price move would last, measure the distance between the last pullback and the new high. Then add the result to the previous high. This should estimate how long the new move would last.
- Use the candle bars to determine when your binary option expires: Count the candle bars within the pullback period. The amount of bars within this period shows you the appropriate length of time for the binary options trade. For instance, if the pullback is 5 bars, this means you should choose 5-hour expiry for that trade.
Risks to traders
This trading technique is easy and effective for binary options. But traders should bear in mind that no strategy is 100% perfect.This technique is reliable and safer if there is considerable pullback before a new higher high.
If not, it indicates a strong trend, making the next pullback a little hard to forecast. The next pullback might last longer, and the trader could lose if they use this approach. As we have said, no technique is 100% perfect. The market is always changing, and this strategy fails to work when the market suddenly moves in a different unexpected direction.
The trader can consider other strategies for binary traders and stick with the one most favorable to their style.
Additional strategies
1. 1-minute options trading
This technique allows you to trade high volume as the binary option lasts only 60 seconds.
60 second trading involves identifying the support and resistance level. Once you find any of these points, set up your trade at the first touch of the support or resistance. Fibonacci retracements are also used to check the best point of entry when using this strategy to trade higher highs.
2. 5-minutes trading technique
This approach is similar to the one-minute approach except the binary option lasts 5 minutes here.
These shorter term trades are quite reliable for options as you only need to consider the demand and supply of that asset. Complex technical analyses are unnecessary here. Money Flow Index (MFI) is an ideal indicator that shows the state of demand and supply in the market.
If the MFI reads 100, it indicates that demand is high for the asset. So you place trades accordingly.
Unlike the trades that last hours, these give the opportunity to trade volumes, and make a lot of gains within the period. Once you understand the market conditions of the asset, you can place minute or minutes trades and make gains.
Conclusion: The Higher highs strategy involves risks
This article can be concluded by saying that trading the higher highs with binary options in an uptrending market is lesser complex as compared to other techniques. With knowledge about how to identify every new high as it arrives and the risks involved, profits can be gained using this approach.
But therein lies the risk factor with this trading strategy. Kindly take a look into our other strategies to get a better overview of the different available strategies so that you will better be able to assess your risk and trade accordingly.
Frequently Asked Questions:
What does a “higher high” mean in binary options trading?
A “higher high” means that the price of an asset goes up to a point which is even higher as compared to the previous high. It is considered more often as a bullish indication. It suggests the presence of a large number of buyers being willing to pay in higher and hence the stock is likely to continue the bull trend.
Does making higher highs suggest anything about the future moves?
Not as directly. This is because although higher highs may signify the strength of a trend, in no way are they ever some sorts of guarantee of future price movements. This is true of all the indicators; they give you a good starting point and an overview of what is going on but do not assure you any success. As a trader though, you can count working with other indicators that boost your possibilities of making accurate predictions.