Weekly Binary Options Give Staying Power in Trend Trades

Weekly Binary Options Give Staying Power in Trend Trades

It’s a long and winding road from the Sunday 6PM open on Nadex to the close of trading on Friday at 4:15pm.  The noise of news is a constant force driving markets up, down and all around.

Redwood trees, Muir Woods National Monument, California |
Redwood trees, Muir Woods National Monument, California | iStock

Looking at markets on a weekly basis can be a technique to smooth out volatility and identify larger overall trends.  The five day score of gains or losses is an arms’ length look at the action that all but eliminates the giant gyrations.

The “A” to “B” weekly move is what is important, not how it got there…

Sometimes it is hard to see the forest through the trees when oil inventories, FOMC meetings, and earnings reports come at us in a deluge of data and information. It captures our mental attention.

Weekly binary options can be used for over/under positioning in Oil, Gold and Stock Indexes just to name a few.  Weekly limited-risk binary plays are not impacted by intraday market volatility to the degree that a futures trade in those markets would be. Even if you protected yourself with stop-loss orders, you still risk being knocked out of the trade if your stop is hit. With binary options, you can never get stopped out, no matter how volatile the market might get during the week.

Think big picture…Where will things be a weeks’ end?  The binary can position for price continuation or trend reversal with only the finish to focus on.

A series of weekly declines could be an opportunity to fish for a bottom using a weekly binary instead of catching a falling knife with conventional trading vehicles.  The max risk and reward are not something you have to guess at or estimate with a binary play. You choose and set your maximum risk and reward before the trade.

Markets often overshoot levels of significant resistance or support to test trader’s mental metal even when they are right. With conventional trading vehicles, those extra ticks can mean either being drawn down further than you were prepared for or being stopped out altogether. A binary option might go to your maximum loss amount, but it cannot go further, no matter how far the underlying market overshoots a price level. 

When trading futures or stocks, a financial consideration of how much dollar exposure makes the markets that much more challenging pushing our fear boundaries.  A binary option can provide a psychological edge, reducing the fear of unexpected losses, because of their limited risk. This ability to limit risk allows you to focus on playing the big picture probabilities.

Alan Knuckman is the founder and chief strategist at BullsEyeOption.com. 

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