Considerations for the High/Low Trade
The High/Low trade contract in binary options is the classical binary options contract which is based on direction. The contract is known by various names, depending on which platform the trader is using. It could therefore be known as the Above/Below, Call/Put, Rise/Fall or Up/Down binary option.
In this trade, the trader aims to profit from the trade by correctly predicting whether the price of the asset on expiry (i.e. the expiry value) is higher or lower than the market price (price on trade entry).
This trade is not as easy as it looks. This is because several factors come into play in deciding a profitable trade outcome. If the trade was only based on direction, then it would be easy for any average Joe to make money from a calculated guess. Apart from direction, the trader has to be conscious of one important factor: all binary options trades expire. So even if the trader gets the direction correct but the timing of the expiration is off even by one second, the trade will end up a loser.
So any strategy used in trading rhe High/Low trade must be able to detect the possible direction as well as the length of time that the move will last, which is what the trader then uses to select a suitable expiry time.
Perhaps a third factor that may be considered is the variant of the trade available on the platform. Why are trade variants important? A variant of the High/Low trade may have a different format or different setting from the classical versions seen on most European style platforms. For instance, some parameters may change. An example of such variable parameters is the price used as entry price. Some variants of this contract may allow the trader to set an arbitrary price as the entry price. Some may allow the trader to either set the expiry time or provide a greater range of expiry times.
An Approach to a High/Low Trade
The High/Low trade is found on all binary options platforms. It is a function of direction and timing. For direction, the trader can use chart patterns, candlesticks, price action or indicators. The approach to be introduced today is that of the use of chart patterns and indicators combined.
For timing, the trader is best left with the use of the time charts to make an intelligent guess, as no trader can predict with accuracy how long a move will last. The candlestick is a function of price action over the time frame of the chart. So you would want a situation where the price action has taken off in the preferred direction, and for enough time to be given to the trade to enable it end up in profit territory. Some trades such as the 60 seconds trade, already have preset expiry times so any trade analysis is done around this time frame.
Using chart patterns and indicators for direction
There are several chart patterns in the market, but for binary options, it is better to use chart patterns that are simple to interpret and use, and indicators which point to very clear signal confirmations. One of the biggest mistakes of novice traders who discover chart trading is their over zealousness to use many indicators. Sometimes to a degree where the screen and, most importantly the price action, are completely cluttered by indicator lines, arrows, dots, channels, etc. This makes the trading experience unnecessarily over-complicated where it doesn’t have to be.
The most successful traders only use moving averages, support and resistance lines, volumes and often confirm trends with fundamental analysis and higher time frames. Remember that lower time frame is dependent on a higher time frame and not vice versa. If you’re trading 15m charts you should confirm your entries on a 30m or 1h charts.
Trade expiration settings
All binary options expire, so timing is important. Timing here refers to the choice of the expiration time which fits the proposed length of time the trade is expected to perform according to expectations.
If you are using a white-label platform such as those from 24 option or Ubinary, you will be presented with a list of expiry times, the most common being 15 minutes, 30 minutes, 45 minutes and one hour. You will also get end of day expiration. If you are using a broker like Binary.com, you have a choice of choosing your own expiry time.
The key question here is: what expiry times that conforms to the trader’s expectations can be used by the trader from the default settings on the trading platform?
The key is in knowing the time frame on which the analysis was conducted. If for example, the trader is interested in using a one hour expiry time as provided by the broker, the will probably have to use a 15-minute or 30-minute chart for the trade analysis and then allow about 3-4 candlesticks for the price action to move into profit territory. 3-4 candles on a 15-minute chart is equivalent to an expiry time of 45 – 60 minutes.
The process is a bit easier when using a platform that allows you to customize your expiry times. You will be able to set the expiration as you like, depending on the time frame used for analysis.
If you are using a breakout pattern, you have to understand that after price breaks out of the restraining trend line, there is a tendency for it to want to go back to where it came from. Therefore, you must allow for this brief pullback before executing the eventual trade.Published in Education