Making Nadex Binary Option Scalps Pay Off

Making Nadex Binary Option Scalps Pay Off

Making Nadex Binary Option Scalps Pay Off
Making Nadex Binary Option Scalps Pay Off Getty Images

If you are new to trading binary options on Nadex, you may have heard of other traders “scalping” their trades. Just what is scalping?

Scalping is a term used for short-term quick trades. It is not held until expiration. The idea is to get in the trade, have the value go up a certain amount and then get out. It is taking advantage of quick, small moves or the time decay.  An example of scalping could be buying a binary at the price of 30 and exiting at 40 or 50 or even 60 which would be a 100 percent return of your initial cost. .

At first, you may only make small incremental profits or losses but you are learning and striving for trading consistency. It’s not about that one trade but your total overall trading having a higher percentage of profitable trades over losing trades and trade management.

Trading binary options with shorter duration’s results in the binary pricing to be much more sensitive to the underlying price movement. Obviously when first starting you should start small while you learn trading consistency and remember increasing contract size can make both profits and losses larger.

It is important to focus on the percentages and the returns instead of the dollars. Instead of dwelling on the fact that you only made $30, look at the fact that you risked $30 to make $30. That is a 1:1 risk to reward ratio or a 100 percent return, probably achieved in a matter of minutes.

Here are two examples of scalping 20-minute binary options using NQ (E-mini NASDAQ-100 Futures). The first example was US TECH 100 >4799.5 sold for 79.50. The risk on this trade is only $20.50 on an out of the money (OTM) contract. The second example has more risk. Since it was US TECH 100 >4803.5 sold at 45.75, it is an at the money (ATM) contract. At that time, the market was moving nicely and both trades were up in profit quite quickly. With a little over five minutes left until expiration, both trades were up $38.

Making Nadex Binary Option Scalps Pay Off

With a little under four minutes until expiration, both contracts had continued to gain more profit.

Making Nadex Binary Option Scalps Pay Off

However, the market popped up to 4800.75 at expiration causing the US TECH 100 >4799.5 trade to lose everything, while US TECH 100 >4803.5 remained profitable.

Making Nadex Binary Option Scalps Pay Off

Many traders wonder if they should scalp or hold their trades. Sometimes you may make a little more by holding until expiration, but the market can also go against you making you wish you had taken the profit. Read the charts and technical indicators.

If you see the market is starting to pull back against  a profitable trade, realize what you are risking, IE manage your trade. Don’t get greedy and know when to exit. Understand risk/reward ratios and time decay.

Setting a “take profit” order can remove the emotion and the greediness out of your trading. It can help in your risk management. When entering a trade, you already have a plan of having a 1:1 risk reward ratio. Then if you risked 20 on the trade, your plan would be to exit when you are up 20. On the trade above selling a binary entered at 79.50, a take profit order could be set at 59.50 in order to make $20.

Setting a take profit order like this is easy on Nadex. It will automatically exit you out of the trade when the market reaches the set point. Likewise, if you wanted a 2:1 risk reward ratio, you set a take profit when it reaches 39.50 for $40 profit. The image below shows an example of a take profit order, which is simply an exit working order.

Making Nadex Binary Option Scalps Pay Off

If your trade is quite profitable as in the two examples and you’re holding until expiration for a small amount, it is like you’re risking what you’ve “made” for the little bit you might make. In the example, one trade was up 39.75. Holding until expiration is like risking 39.75 to try to make $6 more is not really worth it.

Scalping is good especially if you don’t want to sit in front of your computer for hours waiting for trades. It can be done on Nadex binary options using five-minute, 20-minute, intraday or daily expiration’s. The best way to scalp is to place the trade and immediately set a take profit order. This may help you realize why some of your trades might not have been turning out profitable. Sometimes exiting early and taking whatever profit you have can turn your trading and your trading account around.

Note exchange fees not included

The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered an offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere. Please note, exchange fees may not be included in all examples provided. View the current Nadex fee schedule. Nadex accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representations or warranties are given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk and any trading decisions that you make are solely your responsibility Trading on Nadex involves financial risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results. Nadex instruments include forex, stock indexes, commodity futures, and economic events.

Nadex binary options and spreads can be volatile and investors risk losing their investment on any given transaction. However, the limited-risk nature of Nadex contracts ensures investors cannot lose more than the cost to enter the transaction. Nadex is subject to U.S. regulatory oversight by the CFTC.