Binary Options are tailor made for a scalping strategy. The some of the most popular options expire in a span of only one minute! Other popular options contracts also expire in short time frames, with 5 minute, 30 minute, and 1 hour contracts being popular. This short time frame means scalpers are at a huge advantage.
This is not an instrument for investors, not for a fundamental analysis, and the shortest options are not even made for a real swing type day trade. This is made for traders who spot very short term momentum, or the possibility of a very high probability move in price. This specialty is the realm of a scalpers.
Binary Options, The Scalpers Paradise
Scalping involves capturing small movements in price over a short period of time. The challenge with scalping is to make those small movements add up to enough profit to be worth a trader’s time. With binary options, even the smallest of moves can result in an 80% profit for a trader. This is why binary options have been called the perfect way to trade for scalpers.
To make money scalping, a trader needs to find a spot of likely short term momentum. At How We Trade, we like to find these spots by find breaks in significant levels. Simply take a direction long or short as a security moves through a significant price level, and let the short term momentum carry you in the money. We find these to be the highest probability trades.
How do you spot significant levels? We have two methods we like to use. The first is the whole dollar price level break.
Whole Dollar Price Level Break
The whole dollar price level break is tried and true. This happens when the price of a security moves through a whole dollar price level such as $25.00, or $40.00. This works absolutely the best when the whole dollar level is a multiple of $10.00, but every dollar level works well. The move through these price levels are most often quick surges, so take your short term trade as it breaks, and let the option expire for big profits.
Significant Technical Level Breaks
When a significant technical level breaks, there is also a nice momentum surge as HFT programs all take positions in the same direction. There are many many technical levels a trader can look for, but price levels that work best are a previous long term high or low, such as a 52 week high. It does not need to necessarily be a full year’s time frame though, a 1 week, or even intra-day high or low may work equally as well, the point is the stock needs a significant level to burst through. Remember you do not need a lot of movement, you just need a highly reliable small movement.
Other significant levels may be found with indicators such as a 200 period moving average, a significant Fibonacci retracement, or a level that has a huge amount of volume posted on a stocks order book that is getting taken out. When the books is finally cleared, the price will usually jump quickly in the direction of the cleared volume. So as an example, if the volume on the book is on the offer, when the buyers clear the book the price will usually jump up quickly, and vice versa for high volume on the bid. Take a long position through a large cleared offer and a short position through a large cleared bid.
Choose A Strategy
No matter what your choice of strategy, it is always good to compare various options for each security. Each stock and each security will trade differently, so the wise choice is to watch each security respond to each strategy. Get a feel for the way it trades, and when you are comfortable begin taking positions. Once you have a strategy that works well, stick with it as long as you are making money.