Trading Volatile Markets
Learn how Nadex options and call spreads give you an edge in both volatile and flat markets
- User-defined risk protects you from roller-coaster ups and downs
- Turn the market’s emotionality into your secret weapon
- Trade the ups and the downs with equal ease
- Learn how to leverage even small moves in flat markets for substantial returns
We'll walk you through a real-life example in one of the most volatile markets: crude oil futures. See how to trade this market with a binary strangle, that lets you limit your risk while taking a position that can profit whether the market goes up, down, or sideways. You can't trade this strategy on any other exchange.
From the introduction:
Volatility is a term for markets that are making bigger moves up and down than they usually do.
If a market usually moves about 1% in a day and it suddenly jumps 5%, the volatility has gone up. The opportunity lies in being along for that 5% ride.
Big moves can mean greater profits if you are on the right side of the move. They’re also a good opportunity to use a strategy like a binary strangle that works without the need to predict the market’s direction.
The challenge comes when the big move goes against you. You can be right about the overall direction but still get stopped out by a quick, volatile move against your position.
What you need is a way to trade that:
- Works in both high- and low-volatility markets
- Limits your losses when the market moves against you
- Doesn’t stop you out of the trade, ever
- Lets you choose your maximum possible loss before you enter the trade
Learn how Nadex binary options give you choice over risk/reward:
The good side of risk is the opportunity that comes with it. Binary options offer realistic and daily opportunities to risk $20 to make $80. In volatile markets, the kind of price action that moves the binary from 20 to 80 happens more quickly and more often.
And what about the downside? With binary options, you know precisely what it is, before you place the trade. In the above example, your maximum possible loss would be the $20 you paid upfront, plus the $1 fee to enter the trade. If the option expires at zero, we won’t charge you a settlement fee. You can’t lose more.
Learn simple strategies you can use in any market:
Volatile markets mean bigger swings and therefore, more risk needed to get the reward.
That’s why the 1-to-2 Binary Trade makes sense.
[Let’s say you set] your maximum risk at $37.50… When you can choose your maximum risk, when you know you can’t lose more than that, suddenly volatility has a different meaning for you. The level of danger isn’t vague and unpredictable. It’s a precise number you choose.
And the upside? It’s also predefined, that’s true. Nadex binary options can’t go above $100 per contract in value. Nadex call spreads have a ceiling. You have to give up the notion of “unlimited profit potential” in a trade.
But in return, you get a clear profit target that helps you know when to exit. You’re less likely to hang on to a position, wishing and hoping for more.
Example: Trading the price of crude oil futures with user-defined risk:
At 10:00 am, before the Dept. of Energy’s Crude Oil Inventory report, a typical futures trader would have to consider not just one but two problems:
- Would the report be bullish or bearish (or neither)?
- Would the reaction be so volatile that even if you predicted correctly, you could get stopped out by the big price swings?
What if you didn’t want to predict the direction at all, but instead wanted to take a position that could profit (with a little care and attention) from a move in either direction or no direction? That could solve problem #1.
What about the $50 or $500 risk? Is that the only way to trade crude oil, by taking a go-big-or-go-home attitude? Maybe it’s the Texas connection, but crude oil traders sometimes have a reputation as wild cowboys—one that many enjoy. It certainly makes a good conversation starter at parties.
Fortunately, there’s a way to trade crude with lower risk and still impress people at parties. Twenty or thirty dollars of total risk for a potential profit of twice that amount is straightforward and simple with binary option strangles.
More Nadex Trading E-Books
Our trading e-books are available as a free download. From Binary Options 101 to advanced guidebooks on trading volatility and trend direction, our library of e-books gives you a solid education and a complete reference library for you to return to as you advance in your trading.
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