The Choice is Yours with Binary Options

The Choice is Yours with Binary Options

The Commodity Channel Index or CCI indicator has been around for several years and is effective for showing extreme moves and/or a potential trend changes. This indicator is likely to be found on any major charting platform, and is also available on many of the lower-end and free charting services found online.

The Choice is Yours with Binary Options
The Choice is Yours with Binary Options Getty Images

The thesis is simple.  When the indicator is above the +180 level, then the market is theoretically overbought, and a trend change may occur; and when the signal is below -180, the market is theoretically oversold, and a rally could occur. The CCI indicator is suitable for all time-frames, but today we will use it with five-minute bars.

The five-minute bar chart below of the EUR/USD shows price has been in an upward momentum for an hour or so. In the meantime, the CCI indicator went into the overbought area, and then price turned lower with the most recently completed bar. The CCI responded by reversing direction and is now starting to move lower, suggesting that the trend could be lower now.

The Choice is Yours with Binary Options

The CFTC-regulated binary option market in the U.S. is growing quickly as exchanges offer options on many currency, commodity and equity index futures with expirations from weekly, daily, hourly and even intra hourly.  

These options have a base $100 value and always have limited risk and understood reward. When buying binary options, the risk is the purchase amount while reward is the difference between the risk and $100. When selling an option, the potential reward is the sell price while the risk is the difference between the sale price and the $100 value.

If you thought that this lower trend change would result in follow through, then five minute binary options could be a great place to utilize your ideas. While five minute options can seem to be very aggressive, in reality, if you typically scalp the market to profit from short term moves, then these options could be suitable for you. Or if you are interested in trading short term, then the limited risk combined with the binary payout maybe ideal for your situation.

We will look at a couple of examples using the CCI indicator on the 5-minute bar chart when selecting 5-minute binary options.  Please keep in mind these five-minute time-frames have already passed; these examples are not intended as trading advice, but rather to demonstrate how this indicator can be used when trading binaries.

The Choice is Yours with Binary Options

In this illustration, the EUR/USD is trading at 1.05216.  The table above shows the currently available 5 minute binary options for this currency pair, including multiple options for taking the short side. If you think that the next five minute bar will simply close lower, but you don’t have a specific target, then you could sell the 1.0521 option for $52.25, meaning that you could earn that amount on settlement that doesn’t even have to be a full pip lower.

However, if you believe that the follow-through will have heavier momentum, then you could sell the 1.0519 option.  If this pair settles about three pips lower in the next five minutes, you could earn $77.25 while just risking $22.75. These are not the only options or time-frames from which you can choose.  Besides other strikes and timeframes that could be sold, if you held a different view and thought this market would go higher, then you could buy any of these options instead of selling them, while understanding the exact risk versus reward before entering the trade.

The choice is yours.  Binary trading gives traders with any market view, within almost any time frame, the opportunity to craft a unique strategy based on their own opinions and a wide selection of markets.

 

Note: Exchange fees not included in calculations.

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