Trend Trading EUR/JPY Currency Using Binary Options
On Friday, May 26th, the EUR/JPY began developing a downtrend. Price had failed to make a new high and instead began making lower highs and lower lows (the definition of a downtrend). Additionally, after the conclusion of the G7 meetings, German Chancellor Angela Merkel gave a very somber speech stating that “the days of when Europe could completely count on others were over to a certain extent”, which only fueled the Euro currencies to gap down at the open.
Selling the EUR/JPY currency using an Out of the Money binary option at the 123.60 strike for $82.50 allowed the trader to limit their risk to $17.50 per contract or $35 trading two contracts. After entering the short trade, a profit target was set at $10. The profit potential, if the target is filled is $72.50 per contract or $145 if trading two contracts.
Although this would be considered a low probability trading, if only looking at the binary prices, the edge was that the market was moving down. If this movement continued, then the trader had the opportunity to increase their risk to reward ratio significantly.
The profit target at $10 was filled at 22:39 pm New York time.
The total risk on this trading, based on trading two contracts, was $35 and the reward, based on trading two contracts, was $145. The risk to reward ratio was for every $1 of risk, the reward was $4.14.
Note: Exchange fees not included in calculations.