BinaryBets Strategies


Betting Against a Sharp Move In The Market Using BinaryBets

First, find a market that's volatile and has the potential to move and reverse, stock indexes fit the bill perfectly. Wait for the market to make a significant move either up or down and then trade the binarybet for a reversal. In this case the risk on the binarybet might be no more than 10-15 points with the potential gain being 85-90 points, which equates to around a 6:1 payoff. You can therefore afford to be wrong 80% of the time and still break even.

This is how a trade might set up

  • The London stockmarket closes up or down at the end of the day, it really doesn't matter
  • Between London closing (4.30pm) and Wall St closing at 9pm some news is announced which spins the US indexes into a selling frenzy causing the Dow Jones to close down by over 200 points
  • It's now obvious that the FTSE 100 will open significantly lower the following morning perhaps down 50-125 points.
  • The first stage of the setup is now complete - a significant gap open in the index, in this case the FTSE 100
  • Assume that the index opens 60 points lower, you now spring into action and buy the BinaryBet for the FTSE closing UP at the end of the day
  • And while the price reversing may seem strange and unlikely the markets over the years have reversed so many times from just these types of situations

More positive news with this BinaryBet trading strategy is that the stockmarket doesn't have to close up for you to make a tidy profit, it just has to show some sort of intra-day strength. The index opens down 60 but recovers slightly to be only lower by 40 points mid-morning.

There's a very strong chance that this type of scenario happening (market recovers slightly) and if so the BinaryBet would most probably have doubled in price. A prudent policy in this kind of situation would be to take profits on at least half the trade so you're left with a free bet with no chance of losing. Decisions such as this though are personal and vary from trader to trader.

Using The Strategy on Hourly BinaryBets

Another way of utilising this strategy would be to use the hourly BinaryBet on the FTSE or an American index like the S&P 500 or NASDAQ 100.

But this time do the reversal trade on a smaller timeframe such as one-hour Binarybet on the basis of a very bullish or bearish US economic figure like the Non-Farm Payrolls (jobs report) which is released on the first Friday of the month. The stockmarket often has a knee jerk reaction to these figures and can move and reverse very sharply, and quickly.

This is how a successful binarybet trade might be set up

  • The S&P 500 index is trading at 1105
  • A very bearish economic figure is released and the index immediately slumps by 15-20 points
  • You swing into action and buy the hourly Binary Up bet
  • Within 15 minutes of the announcement the market has fully digested the report which now seems less negative than first thought
  • Couple this with some of the shorts taking profits so causing buying pressure which then feeds off itself for the next 20 minutes so creating more momentum on the upside
  • At this point you'd be looking to take a quick profit on the trade
  • Always remember with these trades that the risk factor is very small because you're buying the Binary market when it is trading at an extreme, ie under 15 points and maybe nearer 5 points.

To sum up, you're looking for a knee-jerk reaction either up or down due to some sort of news announcement. BinaryBets are used to speculate that the market will recover or at least part-recover over a set time-period. We've heard of some good profits being generated using reversal strategies such as this but the secret is you must be patient as trade setups are few and infrequent.

Note: Saddam Hussein's capture was a great time for trading this strategy, obviously though with hindsight. If Osama Bin Laden is announced captured or killed, will this be another excellent opportunity to put this trading strategy into action?

Brought to you in association with Alex from www.learnmoney.co.uk

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