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A binary Betting trading strategy
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Last update : July 2010
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| Note - the following strategy should only be used by seasoned market professionals. I have therefore written it in a style where this group will have no problem understanding what is trying to be achieved. |
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| Binary bets seem to be taking the spread betting world by storm (for an introduction to Binary Bets click here). They're quick, volatile and easy to understand. But how can one make a return from them and what sort of trading strategies are available?
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- Trading is about accepting a given risk to make a probable reward
- The best trades are therefore a combination of low risk and high reward, as well as having a good probability of working
- It's not always easy to find these kinds of trades but here's one strategy using Binary Bets that follows all of these basic principles
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| So if you're struggling to understand the strategy my advice is to concentrate on simpler trading methods until your knowledge and experience is at a higher level. |
| Betting against a sharp move in the market |
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The trading strategy is simple. 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.
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- First make sure you have a solid grounding in Binary Betting
- Look for days when a big figure is due, ie US unemployment (1st Friday of the month at 1.30pm UK time)
- Only trade when the market makes a large move one way or the other (don't bother to analyse the news)
- If the market makes the large move, let's assume the FTSE suddenly jumps 40 points in 5 seconds, use the binary bet to trade the other way, ie buy the down bet
- Whichever bet you trade will depend on many factors so do your research before the announcement of the figure, for example sometimes it will make more sense to trade the daily bet, other times the hourly bet
- The down bet will likely be trading under 20 or maybe even under 10, so that's a small risk with a much larger reward (if the trade works the bet will settle at 100 but of course you can sell out at any time before it expires)
- On average the risk/reward of these trades is about 4 or 5-1 and the probability of success is around 70% which means the majority of the trades can lose but you'll still make a return
- But you have to be patient and pick your spots as these trades might only happen 5-6 times a year
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| The Binary Markets Will Always Be Quoted |
| 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 so it is still up on the opening
- 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
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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.
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| Use The Strategy On Smaller Timeframes |
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Binary bets are also quoted on hourly markets so this kind of strategy can be used to play in the short term. But you've got to be quick and nimble.
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).
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| Summary |
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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.
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| The importance of getting the right spread bet broker |
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There are good spread bet brokers and bad ones. Having a good broker won't guarantee you profits but a bad broker will probably lead to losses as a combination of their gamesmanship and suspect software takes its financial toll.
So who do I recommend? Simple, the 2 brokers I personally use for my own spread betting. Read this page for more details.
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FREE Report - How to Learn Spread Betting and Prosper
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How to build the all-important trading experience
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Where to get trading help and advice
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Which broker to use and why
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Simple 2 month training plan to follow
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Download the FREE report |
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Read more in the Spread Betting section:
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