Make Money With Binary Bets - A Good Trading Strategy
Binary Betting was invested by the spread betting firms. Basically it’s fixed odds betting (limited risk - limited reward) but the prices are quoted between 0-100 instead of fractions such as 2-1 which is how the High Street bookie quote their odds.
This Trading Strategy Looks For Sharp Moves
The trading strategy is simple in its application. It looks for sudden sharp moves (high/lower) on the back of a news event and then bets that the initial move will reverse.
For example, some economic news is announced which bids the FTSE 100 index sharply higher, but the high prices don’t hold and the market moves back down. For this strategy stock indexes such as the FTSE 100 or the American Nasdaq are perfect markets to target because they have a habit of making quick, sharp moves.
How a Trade Set Up Might Occur
- After the London stockmarket closes IBM announces a surprise profits warning sending Wall St down over 200 points
- The FTSE will therefore open down the following day perhaps between 50-100 lower
- Stage 1 of the trade setup is now complete, a sudden and quick move in the FTSE 100 the next morning
- FTSE opens 65 points lower
- Look to buy the Binary Up bet for the day - this will settle at 100 should the stockmarket close in the green or settle at 0 if the FTSE 100 closes in the red
- The likelihood of the FTSE actually closing higher may seem remote with all the bearish news around but in situations similar to this the market does have a habit of reversing
- The binary bet may have been bought at only 12 points meaning a potential payout of 88 (x stake) but more importantly a potential loss of only 12 (x stake)
- If you work out the standard fixed odds on this bet they’re 15-2 or risk £1 to make £7.50
- There is no stop loss with this trade because Binary Bets are limited risk
- But if the market does not reverse within an hour dumping the trade for a loss is highly recommended
The Binary Markets Will Always Be Quoted
This trade is not black and white. The FTSE 100 doesn’t have to close positive on the day in order to make money. This is what you might happen -
- By mid-morning the market has rallied off its lows to stand only 30 point lower
- And because the market makers will always be quoting the Binary Up Bet market you can take some or all of your profit at anytime
- Of course the profit will be smaller than if you’d held the bet throughout the day and the FTSE 100 closed positive but still the flexibility is there
And flexibility is what makes binary betting so good. If the market did indeed rally off the lows then it wouldn’t be a bad strategy to cover half the bet for cost and let the balance run.
Use The Strategy On Smaller Timeframes
Binary bets are also quoted on hourly markets so this kind of strategy can be used to play in the short term as well. You’ve got to be quick and nimble though.
However you utilise trading strategies such as these please always start trading with very small position size because binary bets can and do move very fast. Experience with Binary Bets is therefore more important than many people first realise (even if they’re already comfortable operating in the markets).
Summary
The strategy is basically a reversal trade. Look for a sharp move one way and then immediately initiate a counter trend trade.
Be patient with this trading strategy like this because trade setups don’t happen that often. If you’re looking to trade on the daily timeframe there will likely be only one or two potential setups per month. And whatever you do never force a trade - always wait for it to present itself to you.
See Also
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