Trading reversal bars using binary options allows traders to lower their risk on entry using Out of the Money (OTM) binaries.
Trading Reversal Bars Using Binary Options
In this video example, a reversal bar forms on the USD/JPY. In this case, price goes straight down makes a new low and then closes at the top, forming an upside reversal bar. Going one binary strike price out at 103.29, with a 7 am expiration, New York time, lowers the risk to $31.25 per contract or a total risk of $125, if trading four contracts.
However, the next bar, forms a potential reversal bar to the downside (price forms a high but closes on the low). Instead of exiting immediately, the trader can form an exit point, ie if price return to the ATM binary strike price at 103.25, then they will exit. Otherwise, they will give the trade a chance to move in their direction.
The price action did move in the trader’s favor and the trade was closed profitably five minutes before expiration. Although the trader could choose to stay in the trade until expiration, with price trading right at the strike price, risking the profit already realized may not be a good idea because price could move against the position and a full loss could be realized.
Note: Exchange fees not included in calculation
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