If you area really early riser, this can be a great time to capitalize on volatility.
In “The Ultimate Guide to Trading and Investment”, Josh Martinez wrote about the London Breakout strategy discussing two key observations:
- The Low or High of the daily session often reveals itself between 2am-5am EDT, after the opening of the European Exchange and the London Exchange.
- The opposite High or Low tends to reveal itself between 8am-2pm after the opening of the New York Exchange.
Think of it like a see-saw, with the hours of 5-8 being the fulcrum.
This observation is about as binary as it gets. If you can identify a Daily Low that occurred between 2-5am, then the probabilities are in your favor that the Daily High will occur later in that trading day.
Let’s take a look at the week of May 8-12 2017
ThinkorSwim workspace prepared by Sean Jantz, BinaryTradeGroup.com
On this hourly chart, you can see 5 consecutive days where this pattern was obvious.
What can you do with that information?
- Nadex Spreads – If you get up early enough, there is an opportunity to pick up a nice chunk of the early morning move, where the GBP/USD can easily move 50 pips or more.
- In-The-Money (ITM) Binary Options – If you’ve identified an uptrend or downtrend you can BUY or SELL from a strike price close to where the trend started. Your risk premium is higher, but so is your probability of success.
- At-The-Money (ATM) Binary Options – If you can lock in at ATM trade early in the trend, then your risk capital is less and your reward potential is higher
- Out-Of-The-Money (OTM) Binary Options – These trades have a lower probability of success, but also a lower risk premium. If you can catch a trend early, there is an opportunity to capture profit.
Let’s take a closer look at Wednesday, May10:
As it’s pretty clear to see, the morning high at 4:30am was never threatened for the rest of the day. If you were awake that early in the morning, you had the opportunity to capture a large chunk of a 50 pip move to the downside with Nadex spreads.
You could have placed a daily (3pm) binary options SELL order from the strike price nearest the daily high. Although your risk premium would likely be higher, the “see-saw” effect keeps the probabilities on your side.
A Word of Caution
- If you don’t see a trend, or if the market is chopping sideways, then you may want to sit this trade out.
- UK Economic news is usually released at 4:30. Always check the economic calendar. If there is a high impact news report, it’s best to let the markets digest the news before you trade.
- Finally, the “see-saw” pattern doesn’t happen all of the time, but it happens quite frequently. Some times the Daily Low and High occur after 8am.