I trust by now, you feel you have a deeper understanding of what constitutes a binary option, and perhaps what does not, and of the potential these instruments offer.The range of products available is diverse, and ultimately the choice of what you consider to be a binary option will be yours. In this book I have given you my own opinion, but it is just that, my opinion,because as always there are two sides to every debate.
No doubt many readers will disagree with my ideas and suggestions and you may be one. All I have tried to do throughout is to probe deeper into the world of binary options, and the possibilities they offer. To offer a balanced view and to argue my case. My own preference is the on exchange binary option which is more flexible and powerful, whilst the off exchange is less so.
However, both on exchange and off exchange are perfectly valid trading instruments.Off exchange products are everywhere and it would be churlish of me not to include them in this chapter. They are a perfectly legitimate trading instrument when used in the correct way, but there is a problem. Far too many off exchange products are promoted as a simple yes/no decision, with no other thought process involved.
The flip of a coin, the roll of a dice or the draw of the card. I am also conscious on exchange products are not for everyone, or simply may not be available. The exchange traded products of the CBOE and the NYSE require specialist accounts and deeper funding. The binary options from Nadex and IG index, may not be available in all jurisdictions. Off exchange products are much more widely available, and my task in this chapter is to provide as much information as I can about the pre-trading decision process.
Whatever the instrument, the steps involved are identical and embrace a three dimensional method. Whether you are trading off exchange or on exchange options, the starting point is to consider these three elements, namely the technical, the fundamental and the relational. If you want to treat binaries as gambling, then this is your choice. If you have read any of my other books, you will know I have my own trading methodology developed over 20 years.
It’s based on volume price analysis. It works in all timeframes and in all markets. It is what I believe in and use in my own trading and investing. All I am saying here is, whatever approach you adopt, analysis comes first, opening positions second.If I can start by saying the following ideas and strategies are more appropriate for ‘longer term’ timeframes, and by longer term I mean those binaries which are a minimum of 15 minutes. Whilst this is an arbitrary number, it does draw a line in the sand.
My view, rightly or wrongly, is it almost impossible to forecast market direction with any degree of confidence on timeframes below this. Those binaries operating on seconds and minutes, are simply betting. They can be great fun, but not for sustained and consistent profits. You may even feel 15 minutes is per haps too short, and I would tend to agree, but we have to start somewhere.
In taking a position using a binary option, whether on exchange or off exchange, there are some core principles which apply, and which will help to frame the context of any trading position. First, and perhaps foremost, is the knowledge that no market ever trades in isolation. We can all look at a chart as the price action unfolds, but every market is linked to every other, and it is the constant changes in sentiment from one to another, which ultimately drives money flow.
When you stop and think about this logically, it makes perfect sense. The financial markets are about one thing and one thing only. Risk and return. Higher returns require higher risk, lower returns lower risk, and it is this constant oscillation between risk on and risk off, which is reflected in every market second by second and day by day. The VIX we looked at earlier in the book is perhaps the classic example, as fear and greed ebb and flow on the index, but this principle applies to all markets, of which the forex market sits at the heart.
The foreign exchange market is unique in many ways, not least in the variety and range of risk which is displayed by all the currencies and their associated pairs. Understand the characteristics of a currency, and you begin to understand its relationship to related markets,which in turn will help give you a deeper understanding of the market. It will help you understand why a market is behaving in the way it is, and in turn how to look for signals and clues in related markets. The clues are there, you just have to find them. Far too many traders spend their time transfixed on one chart studying the price action intently. Using a single chart, and this myopic approach, is limiting to say the least.