Ultimate Center for Binary Alerts
Binary Option trading is one of the fastest growing trading sectors in the world. It's a very new tool that offers great and quick returns.
Abe Cofnas is the undisputed world leader in binary trading, alerts and analysis.
His book Binary Options Strategies and Tactics (Wiley) is recognised as the leading guide in trading NADEX and IG Markets.
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What are Binary Options?
Binary options are simple, yes or no, up or down bets that traders make about 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.
They are exciting because they do not require complex analysis using "the Greeks". As a result , they provide an ability for beginners as well as more experienced traders ,to use them as part of their trading strategy. Binary Options however, require a rethinking of how to apply fundamental and technical analysis to trading strategies and tactics.
What are Binary Option Fundamentals?
- Fundamental analysis relating to Binary Options is very important to learn. Unlike traditional fundamental analysis, which concentrates on economic forces, fundamental analysis for binary options focuses on market sentiment and emotions.
- The financial collapse of 2008 in particular accentuated the impact of global uncertainty on price action. I call it the market's "balance of fears".
- At the beginning of each week, the global markets assess a wide variety of economic data and expectations. One week , it could be fear of a China slowdown, and the ext week it could be the Sovereign debt problems of Europe.
The Balance of Fears
- The Random Walk theory of the markets assumes that prices are efficient reflection of present value. 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 Options provides an important and necessary method for detecting and riding the sentiment waves. The bid and ask prices of binary options effectively reflect expectations about price direction.
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.) punctuate the precarious balance between optimism and pessimism that every price reflects.
- The best model for understanding price action in the context of event-risks, is the chemical process known as a reaction-diffusion process.
- Binary options provide a method for expecting a reaction and then diffusion of prices.Trading event-risks using Binaries are more effective than any other instrument!
- The right question to ask in shaping a trade is not what is the probable direction of the price. Rather, the right question to ask is what is the trader crowd thinking.
- When everyone is bullish, or bearish, its time to be a contrarian. It's important to note that Binaries reveal expected probabilities.
- Binary options that have weekly ladders provide insight into where expected support and expected resistance really is.
Technical Analysis for Binary Options - Back to Basics
- Commonly used technical indicators are of limited value for Binary Options. Bollinger Bands, RSI, and related indicators, provide little information about the immediate conditions of the market. This is because they are lagging indicators.
- In particular, binary options that expire within short intervals such as 1 /2 hour, require a different set of technical tools.
- 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, can be powerful tooks. And basic resistance, support, trend lines should be used to identify when a trade signal occurs.