Obviously, binary options are not the most suitable tool for news trading. Classic binary options imply knowing the exact direction, which is practically impossible in the context of news trading . It is very difficult to predict where the price will go without having certain inside information on hand. Relying on market expectations is also a bad idea. Expectations are not met in about half of the cases, and the market’s reaction may radically differ from the predicted one.
The exception is trading using the Binary Gambit strategy on the OLYMPTRADE platform . The bottom line is that you can close the option ahead of schedule by returning part of the contract amount. Thus, you can make a profit regardless of the direction of price movement. Is it really possible to make money on this, let’s try to find out in practice.
The essence of the strategy
Important macroeconomic reports create a strong price momentum in the market, as a result of which the price can travel a huge distance in just a minute, comparable to the weekly volatility of the instrument. By opening two bidirectional trades right before the news comes out, we have the opportunity to get almost risk-free profit.
This is mainly due to the trading conditions of OLYMPTRADE . You can close the option ahead of schedule, returning up to 60% of the contract amount. Immediately after purchasing the option, you can return 60% of the contract. Further, the refund amount gradually decreases towards the end of the expiration period.
It turns out that it is more profitable to take an option with a long expiration period. Of course, the longer the expiration, the more difficult it is to predict the price movement. Therefore, an expiration time of 10 minutes will be the most optimal. You can close positions earlier, then the profit will be greater. But you need to be sure that the price does not return back to the opening price.
It makes no sense to trade all the news – there are too many of them, and not all of them generate excitement in the market. Only high-priority news should be taken into account, usually marked with three bull heads. Only this news can provoke a big jump in prices. At the same time, certain news, like Nonfarm Payrolls, create excitement in the market with enviable regularity. With experience comes the understanding of which news move the market more strongly than others.
You should also not give up traditional technical analysis . The same trading levels can serve well in revealing the hidden intentions of the market. For example, if the price broke through an important level during a strong impulse , it will not be possible to break it back immediately, which means it is time to close the unprofitable contract.
Let’s summarize the trading rules:
- Determine what news we will trade;
- 20 seconds before the news release, we open two oppositely directed contracts of equal size, with an expiration date of 10 minutes;
- Further, the outcome depends on the direction of the breakout:
- If the price goes up, close the Put contract in about 2 minutes;
- If the price goes down, close the Call contract in 2 minutes. After two minutes, you can still get back about 45% of the transaction. This means that with a payout amount of 75%, we will receive a net profit of 20% of the amount of one contract. (75% – profit, 55% – loss);
- We are waiting for the closure of the second contract and fix the profit.
The main tool for trading news is the economic calendar . It is a good idea to make a plan for the week ahead, writing down the release times of the most important news. Thus, you will no longer be distracted by the calendar, but will follow a clear plan .
I want to note right away that it makes little sense to test this strategy on history, since success, first of all, depends on the game with payout and return percentages. Unfortunately, there is no such historical data for options.
What can be checked is how the strategy will behave in different market situations. Let’s try to do a manual test from the beginning of the year.
ISM Manufacturing PMI: We have a fairly small gap. Nevertheless, the price did not change its direction during the transaction. We close the call option immediately, the Put remains to the end.
Consumer Price Index: The market did not react to the news at all or reacted late. As a result, by closing the OTM Put option, we also lose on the Call option.
FOMC Minutes: The news triggered a strong increase in volatility, which led to the risk of being left with two OTM options. Fortunately, the Call trade closed in profit.
Trade Balance: An excellent chamber ended with a smooth rollback. Here, unfortunately, the long expiration time did not play into the hands.
Nonfarm Payrolls: The most traded news met expectations. By closing the Call option, we leave the Put in the market. After 10 minutes, the Put is closed by ITM.
Retail Sales: Here we are dealing with retail sales data. Obviously, the price broke through an important trading level, since even after returning to the entry point, the price only tests the resistance and reverses back.
BOE’s Governor Carney speech: Traders need time to assess the impact of a particular politician’s speech. Therefore, uncertainty often reigns in the market at this time, accompanied by an increase in volatility. In this case, the previous trend persisted and the Put contract closed in profit.
So, the next big news is Canada’s Building Permits Index. Therefore, we open the EURCAD (or USDCAD) pair in advance and prepare for the release of the report. About 20 seconds before the news, we open two oppositely directed contracts with the same volume.
The news provoked a small jump (about 10 points), which was to be expected. The same report on America could have provoked a much larger movement. Nevertheless, according to the rules of the strategy, after about 2 minutes, we delete the unprofitable position with a return of 45% of the contract value. We leave the second contract in the market.
At the end of the expiration date, the second contract is closed by ITM.
As a result, we get 55% loss on the first contract and 80% profit on the second. The net profit per transaction was 17.5%.
In general, if you practice a lot, the strategy is mastered in a week. At first, try not to do anything stupid and follow a few simple rules:
- Do not enter a trade if the option payout percentage falls below 70%. This imposes additional risk, and the final profit will not be so great;
- Trade news only for strong currencies. First of all, it is the dollar, then the euro, the yen , the pound, the Australian dollar and the Canadian;
- Consider levels and other technical indicators in the analysis;
- Do not trade during the release of several important news at the same time. This can create an uncertain state in the market when the presence of a stationary direction is important to us.