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Hello ladies and gentlemen traders.
Today we are going to break down a few tricks that can help improve your trading results when trading binary options. Of course, they will not help you without a profitable trading strategy, but if your system is already trading profitably, you can try to bring it to a new level by gradually increasing the position.
When predicting price movement, we always play with probability. Therefore, the success of an individual trading strategy is described by the complete statistics of its transactions. Scaling (scale in) positions, in its simple form, helps to manipulate these statistics, increasing the indicators of the finished strategy.
Using different principles of position scaling (scaling), we can take trading efficiency to a new level. But remember the following rule: scaling is not an independent trading system. Using scaling without a profitable system will not only not bring you the desired result, but it can also negatively affect the balance of the trading account.
Positions can be scaled in two directions. In other words, we can add to the existing position as the price moves towards the forecast, gradually increasing the average price of all transactions. Or, we can average the position in a losing zone, thereby trying to make a late entry at a better price.
Both approaches are aimed at improving trading performance and bottom line. Applying the technique correctly, we can really achieve amazing results.
In this method, we are talking specifically about the position, and not individual transactions. All purchased options within one signal must be a single entity. To achieve this, the expiration time must be the same for all purchased contracts. That is, when adding an option to a position, you need to take into account that it must be executed exactly at the same time as the others.
Topping up positions
Opening positions in parts on binary options (scaling)
The essence of this method is simple: if the price is already moving in our direction, why not increase the overall position to get more profit? Top-ups on a trend have several obvious advantages:
- By splitting capital into pieces, you risk a much smaller amount per stratum. If the price immediately goes wrong, the contract will close with only a small loss.
- By adding up on corrections, you thereby increase the final profit when the trend already has a stable direction.
Obvious disadvantages are also present:
- If the forecast turned out to be incorrect, subsequently, you can get a much larger loss on the overall position than with a one-time entry.
- Buying additional contracts “at random” can also negate all the benefits of the approach.
So let’s look at one example. Let’s say you bought a Call option with a long expiration time. How and when should you open additional positions?
First of all, you need to take into account that it is quite dangerous to open positions in the course of the trend movement. That is why it is necessary to add to the position precisely on price corrections, where it is most profitable. Then, you need to find a reliable way to determine these very corrections.
Graphical analysis is one of the oldest and most proven trading techniques. Analyzing the chart itself is a good way to identify corrections. The simplest chart pattern is these support and resistance levels . Determining levels on a chart is quite simple. Any trading level must have multiple confirmations. At a minimum, the price should test the level 2-3, that is, push off from an imaginary line on the chart before the level can be considered formed.
Thus, after entering an increase, we draw several resistance levels on the chart. As soon as the price breaks through the level, it becomes the support level. A good time to refill when the price returns back to the broken level. This method allows you to enter on trend corrections, that is, at the best price.
When buying additional contracts, do not forget to indicate the same expiration time as the first purchased binary option. Thus, we combine all contracts into one entity, and they work as a whole position.
Of course, rebounding from levels is not the only time for top-ups. In fact, you can use any signal of an indicator or other pattern on the chart. The main thing is for the market to indicate the continuation of the trend – this is the whole point.
If in the first case we considered a situation where everything is going according to plan, the signal came true and the price immediately went in the preferred direction. Now we will consider the case of early entry, when for some reason we made a mistake in determining the moment of completion of the previous movement.
An important rule: you should only average a position when you are confident in your forecast. That is, the price prediction is still up to date, despite entering too early.
In this case, there is a high probability that the contract will close in OTM and we will receive a loss. But, deliberately breaking the capital into parts, we can foresee such an outcome of events.
Having hit a price retracement, obviously, we need to wait for it to complete in order to correct the average entry price. At the same time, the first contract may even close at a loss, but in the end we will still be in profit.
The graph shows an example of a position breakdown into 3 parts. After entering at the top, the price almost immediately starts going in the opposite direction. What to do? Using the principle already described, we determine the key support level on the chart and wait until the price reaches the level.
As soon as the price touches the level, we buy another contract in the same direction, with the same expiration time. The more entries are below the forecast level, the more likely it is to make a profit. Thus, we average the price of a common position, since we open subsequent positions at a more favorable price.
If the basic principle is to be understood, then in practice there can be difficulties. In fact, there are no strict rules here. But do not forget that the goal is to make the position profitable, or at least increase the likelihood of a successful trade outcome. Of course, it’s not worth thoughtlessly adding to the position.
Positions can also be scaled in both directions. In most cases, the price will tell for itself which method is most appropriate.
For example, we will use a strategy based on Bollinger Bands . The rules are simple: if the candlestick closes outside the channel boundary, we enter the direction of the breakout. We choose the expiration time in two periods from the entry point. That is, if we are trading on the M15, the expiration time should be 30 minutes.
In this case, we will not apply scaling on the current timeframe, but switch to M1. To enter small time frames, we will use the RSI indicator . There are no fixed rules, so let’s consider different options for trading signals.
So, the first deal was opened quite successfully, the price almost immediately went in our direction. We will refill when the RSI enters the oversold zone. The approach is not standard, but it has its own rationale. In this case, we wait until the price gains a good momentum and refill as it moves, buying additional Put contracts.
An example of buying a Call contract when the price immediately went in the wrong direction. We wait until the RSI leaves the oversold zone and try to average the overall position by buying additional Call contracts. Despite the fact that the first contract was closed at OTM, the other two remained in profit.
Sometimes everything goes according to plan, and the price moves in the intended direction even without noticeable corrections. In this case, it could have been refilled when the RSI line crossed the 50 level back.
As you can see, the method is very flexible and allows you to make the trading process more thoughtful and far-sighted. We do not enter all the money at once, but only a small part of it. After that, we observe the development of the situation and adjust the position as necessary. This is a completely natural development of any trading system, and if used correctly, it significantly increases its efficiency.