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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 according to the Binary Gambit strategy . 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.
Currency pairs : any
Timeframe : 1 minute
Option duration : 10 minutes
Trading time: period of release of economic reports
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 release, we have the opportunity to get almost risk-free profit.
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, as a rule, marked with three bull heads. Only this news can provoke a big jump in prices. At the same time, certain news, such as 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 abandon 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 period 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 . A good solution is to make a plan for the week ahead, writing out the release times of the most important news. Thus, you will no longer be distracted by the calendar, but will follow a clear plan .
Testing on history
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 course of the transaction. We close the call option immediately, the Put remains until 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 has broken 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 implications 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 continued and the Put contract closed in profit.
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, yen , pound, Australian dollar and 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.