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Looking inside Binary Options trading...long post...

AaronMeeksAaronMeeks Posts: 2
I've been trading binary options much more extensively over the past several years. I use both Nadex and Euro type binary options. These two types have very different properties and applications even though both expire 0 or 100.

The Nadex binaries offer fantastic and plentiful opportunities to trade Out-of-The-Money (OTM) strikes that can become In-The-Money (ITM) at expiry. This allows us Nadex binary traders to be able to trade binary options where we can achieve Reward/Risk profiles better than 1:1.

Nadex binaries have Daily and Wkly expiries. In addition Nadex binaries allow the trader to be able to exit at anytime desired - and at "fair" prices. Liquidity is also very good.

Nadex offers 2-hr expiry binaries also during the NY trading session. These are great for me to trade against 30min to 2hr trends and breakouts while achieving Reward/Risk profiles > 1:1. And with Nadex - I can often hedge winning positions quickly to lock up profit windows.

The Euro binaries are much easier to trade and apply - these options are all At-The-Money (ATM) at the time of entry. There are Turbo expiries as low as 30-secs, 60-secs, 2 mins, and 5 mins. These Turbo binaries have the big disadvantage of payouts of about 70%. Win $0.70 per Risk of $1.00. Not attractive. Because of this low payout, it is essential to have a winning accuracy of > 60%.

Euro binaries also have expiries at 15mins, 30mins, some hourly also. These have better payouts - up to 80% to 85% to 95% for the most liquid assets like EURUSD in the most liquid trading period (like during overlap of London & NY sessions).

Still - with Euro binaries - due to its lower than 100% payout and short-term expiry - there is effectively little chance to hedge or lock up profits. Hence trading Euro binaries require a trading system that is highly focused on explosive directional momentum trades that carry thru the expiry time period.

The primary advantage I use Euro binaries is to trade short-term opportunities in the 5min to 30min time frames. For example, trading momentum/volatility in the first hour or so. Or trading momentum/volatility after key economic news.

If I want to trade/setup before key economic news, I can setup OTM strangles using the Nadex binaries - and do it effectively just mins before news release is scheduled.

No matter Nadex or Euro binary trading - the downside is that it is 0 or 100 at expiry. Unlike swing trading forex or index using wkly options, where I can go for an entire "swing leg" to the upside during pull-backs, and go after multiple +R returns using wkly options, trading binaries require a different approach.

I've found that I have to trade many binaries laddering up from a pull-back setup in a long trade. So, I may have to trade 10-20 Nadex 2-hr binary options for a swing leg that lasts 2-3 days. Or trade 10-20 Eurostyle 15-min binaries to trade up a swing leg that lasts 3-5 hrs in duration for that trend.

It is an interesting difference however vs trading one wkly option for a swing leg up. For example:

1. Wkly option trade swing leg up - Risk $100. Duration 3 days (or 18 hourly bars).
a. Let's say winner - Net Return (+$400) or (+300%) since I use OTMs.

Contrast with using Nadex 2-hr binaries OTM - each trade risk $25 using OTMs:

2. Nadex 2-hr binaries = trade 18 bars = trade 18x. Assume 5 losing bars (down bars causing 2-hr binaries to expire OTM). Assume 13 winning bars b/c trading upside momentum swing leg.

a. 13 winners (Risk $25 per trade) expire ITM - avg return (+$35 or more).
b. ($35 profit) x (13 wins) = (+$455).

c. 5 losers for that Nadex binary = (-$25) x (5 losses ) = (-$125).

d. Recovery trade(s) following recovery laddering = recouped 5 winners.
e. Recouped 5 winners going OTM into ITM = (+$35) x (5 recouped winners)
f. Recouped 5 winners = (+$175).

g. Net net for Nadex campaign = (+$455) + (-$125) + (+$175) = (+$505).

In summary - trading the Nadex 2-hr binary method resulted in more "opportunities". Even though have more losses - the net impact is increased profitability - and with much lower initial bet at Risk. The wkly option campaing had a bet of $100 and profit of (+$300 net). The Nadex binary laddering strategy had bets of $25 and overall profit of (+$505) in this example. Understand?

Key Lesson Learned: Opportunity Factor > "+R" factor for professional traders. Look at the gaming industry - on avg, casinos pursue anywhere from $0.01 to $0.05 per $1 bet by its patrons. Tiny "+R" ratio - but b/c of huge #s and opportunity factor - these casinos are highly profitable.

Please take the time to go over the above discussion and items again - so that you understand the concept of increasing your trading Opportunity Factor within the framework of a Trading Plan.

My time during the trading day now is spent very actively attacking momentum swing legs using Nadex binaries (for hourly bars that are T3 or T4). Or I use Eurostyle binaries for short-term momentum swing legs (M5, M15, M30 bars that are T3 or T4).

In this past week alone - I have entered and closed > 30 binary trades PER day! And using lower bet size, still have significantly increased profitability daily.

I will post some instructional Nadex binary sequences on a separate Nadex binary thread here

I will also post some instructional Eurostyle binary sequences on a separate Eurostyle binary thread. By the way - I only trade Eurostyle binaries with payouts of 85% or more on M15 and M30 T3/T4 sequences.

Well, that's plenty enough intro for now on Nadex & Eurostyle binary trading - at least as to my trading bias and approaches.

If you have any questions on binary trading - please do not hesitate to post here or PM or email me directly. I always endeavor to answer all PMs and emails.

Thanks for your time, patience, and attention.


Aaron Meeks
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