Category Archives: Nadex Strategies

Market tides can be predicted.

Ebb And Flow Strategy For Binary Options

Like an ocean, the markets are also affected by tidal factors, ebbing and flowing along with the trend. The trend is like the tide of the ocean itself, surging ahead as another wave crashes onto the beach, then pulling back, only to get ready for another advance. So is the motion of the markets. As the trend advances it does not do so in a straight line. The market tide surges forward on good news and then draws back as fear mounts or bad news is delivered. Timing these ebbs and flows of the market is one way binary options traders can profit.

I try to avoid the ebbs and to focus only on the flow of the market. The ebbs, which are the pullbacks during a bull market or the bounces during a bear market, are too short term when compared with the flow and much harder to predict. The flow of the market is the longer term movements that are in line with the underlying trend. Since the trend is your friend I always trade with the trend.

Benefits of this strategy include:

  • This strategy is appropriate for all types of trading including spot binary, NADEX binary options, 0-100  binary options and forex binary options.
  • This strategy seeks to weed out the noise of shorter term corrections, pullbacks and relief rallies focusing instead on the longer term trend following moves.
  • This strategy uses multiple time frame analysis
  • This strategy uses more than one indicator
  • This is a binary options strategy that works! I know because it is how I trade.

One Theory Behind Market Movements

One basic theory behind market movement is that for every rally there is a correction and for every bear market there is a relief rally.Another theory is that no trend moves in a straight line; there will always be pull backs and corrections. Technical analysis assumes that the rallies and correction are repeatable and predictable but what does this mean and how can binary options traders profit from it? It means that during any rally there will be peaks and troughs, rallies and declines that traders can profit from. The key is to time the markets and profit from the ebb and flow of the market as it moves through the peaks and troughs.

In this first chart (S&P 500 weekly price candles) we can clearly see that the long term primary trend is up. This is the tide and flow of the market. We can also clearly see that there are periodic dips, or ebbs, in the flow of the market as it moves higher.  Recognizing the pattern of ebb and flow is the key to using this strategy properly. Any time there is a dip in the assets prices is a good time to enter into long term positions. It is important to remember that not all assets will behave in exactly the same way, especially if they are range bound, so it is useful to add a couple of other indicators to your analysis to time your entries.  Two tools that I find useful to help pinpoint the dips and my entry points are the MACD and stochastic indicators. Notice how they both make dips in synch with price action.

Ebb and flow strategy for binary options

Ebb and flow strategy for binary options

 

How To Apply The Ebb And Flow Strategy To Binary Options

You can trade off of the monthly charts but the signals take a long time to develop, usually a month or more. Not all broker offer options with enough expiry to cover the time needed and you most likely don’t want to wait a month, two or more for a trade to close.  So, how to apple Ebb and Flow strategy to short term binary options trading. First, start with the charts as shown above. Use candlesticks of weekly price action with stochastic and MACD set to the standard settings. Any time that you can confidently say that the market is ebbing or flowing it is time to look for a signal. To find a signal move down to a chart of daily prices. This is where you will find entry points for trades with one week to one month expiry horizons.  When the market is in a flow period on the weekly charts you will look for bullish signals on the daily charts, any time the market is in an identified ebb period bearish trades will be taken on the daily charts.

Using the chart above as an example we can see that the asset is in a period of flow. The long term trend us up and the indicators are currently bullish so that means that only bullish signals will be taken. To find a signal move down to a chart of daily prices, shown below. The chart  shows that the asset is in a short term ebb period. Take note that this ebb is not a full blown pullback but a sideways consolidation; not all ebbs will result in a pull back or correction. Since the market is in an ebb the ideal thing to do is to wait for the MACD to cross or at least come to the zero line, indicating that market flow has begun again. Once the flow of the shorter term daily charts synchs up with the flow of the longer term weekly charts it is safe to begin entering positions. The ebb in early October shown on this chart resulted in a bullish flow with 15 days of trading where positions opened with the market open profited at days end.

spx daily ebb and flow

 

This technique can be taken down to a shorter time frame than the daily charts. If you use charts of hourly prices then hourly and end of day expiry are more appropriate. The caveat is that the shorter the time frame you are using the less reliable the signals. This is because short term movement is more susceptible to random market noise than longer term movements. To do this use charts of daily prices to set the ebb and flow of the market, then move down charts of 60 minute or 30 candlesticks to find a signal.

Limitations Of This Strategy

There are some limitations for this strategy. First, if you wait for the MACD to hit zero or to actually cross back over to the bullish or flow side before taking the signal the move has already begun. At this time you may have missed up to half of the really good entry points. In order to catch a higher number of profitable entries you have to anticipate the flow before it really starts. If you look at the chart of daily prices you can see that when prices begin to flow back upward the bearish MACD is declining. Watch the bearish MACD for peaks when the underlying market is rallying. The decline in the bearish peak can be used as an early signal that market flow is reversing back to trend.

Another limitation is resistance. Without some form of resistance analysis this strategy is left open to potential losses from unanticipated market reversal. This can be avoided by simply drawing potential resistance lines on a chart at least on time frame higher than the one on which you are taking your signals.  Fibonacci Retracements are another great way to predict potential areas for resistance and support that could adversely affect trades made using this system.

 Additional Resources For Using The Ebb And Flow Strategy

Money - jon eben feild cc asa 20 wiki

NADEX Binary Option Strategy

In The Money Binary Option Strategy For NADEX Traders

As I was sitting here one day studying NADEX and pondering several ideas for trading I made a realization. It seems silly now thinking about it, I feel as though I should have noticed this trade sooner. Due to the nature of NADEX binary options and them having different strike prices it is possible to buy or sell options that are already in-the-money (or out-of-the-money for short positions). Think about it, buying a binary options that is already in-the-money. That means you are buying profit. Instant returns, all you have to do is wait for expiration.


In most instances in-the-money NADEX options don’t have much profit margin left. They are exchange traded binary options so when the market thinks an option is going to close in or out-of-the-money its traded value usually goes to $100 or $0 (or close enough to not matter). This should make sense; the options are binary and are only worth $0 or $100 at expiration so when an option is in or out of the money it should be worth $0 or $100. However, due to market conditions there are times when deep in-the-money options can be bought at a discount and provide near instantaneous profits. Similarly, there are also times when deep out-of-the-money options can be sold for the same near instant return.

Nadex 0-100 options have more options.

Nadex 0-100 options have more options.

What Are NADEX Binary Options?

I want to back up here for a step to make sure we’re all on the same page. What is a binary option and what is a NADEX binary option. A binary option is an option that has only two possible values at expiration, all or nothing. In the case of European style binary options this usually means a fixed return in the range of 70-80%  for profitable trades and a return of 0-15% in the case of losing trades.European and other off-shore binary options are not tradable and can not be sold prior to expiration.

NADEX options are tradable, unlike European style options, and have prices that fluctuate between $0 and $100 depending on the price of the underlying. At expiration the options are binary in nature, worth $0 for losers and $100 for winners. The price of the option is between $0 and $100 and changes with the price of the underlying asset. Typically, when an the price of an underlying asset rises above the strike price of the corresponding NADEX option the price of that option will go to $100 or close enough to not make a difference.

  • Click Here – For more on NADEX binary options and the differences between trading NADEX and European style binary options.

The Realization

What I realized is that there are times when you can sell options with an instant, or nearly instant return.  What I mean is that is sometimes possible to buy a NADEX binary option when the underlying asset is above the strike price at a price low enough to allow for an attractive profit. The same is true for short NADEX positions. It is possible from time to time to sell an option at a price that allows for some “guaranteed” profit.  In practice this is actually two different trading strategies; the Bull In-The-Money NADEX Strategy and the Bear Out-Of-The-Money NADEX Strategy. In this article I will outline the basics of each technique and then go into more detail in later posts.

  • Buying a NADEX binary option that is in the money means that it is already above/higher than the strike price. The option does not have to move in order to be profitable, it already is. An added bonus is the protection you gain from buying in the money options. The underlying asset actually has room to move counter to your trade before it reaches the break even point, much less creates a loss.

The Bull In The Money NADEX Strategy

The In-the-money NADEX strategy is a lower risk, conservative strategy aimed at bringing consistent returns. This strategy works particularly well with support/resistance lines, trend lines, Fibonacci Retracements and any other point of support you may find in a bull market. This can also be used to trade the bottom of trading ranges and bounces/bottoms in bear markets. The point is to try and find an asset that is trading near a likely area of support or price level that your analysis tells you the asset is not going to move below. This can be in any time frame, long or short. The very best support lines are ones that are confirmed in more than one time frame and with more than one indicator.

The next step is to scour the available options on the NADEX platform. Look at strikes that are below the current price of the asset and below your identified level of support. I like to stick with the closest expiration available but sometimes move out to the next available which gives a range of 1-5 hours till expiry. For the most part you will find options with values at or near $100 but there may be one with a price of $90 or less. These are the options I like to target.

At face value the risk/reward ratio is on the low side. You are looking at making 11-17%. For most binary options traders this is way to low. It’s lower than the 80% return you get with European style options and it’s lower than the return you would expect to get trading a more aggressive NADEX strategy. The point of this strategy is that the 11-17% return you can expect with this strategy is almost free money. It’s money left on the table by other traders and all you have to do is pick it up. The Bull In-The-Money Strategy is a conservative, low risk strategy with consistent returns comparable to combination strategies found in equity options trading.

How To Use Bull The In The Money NADEX Strategy

  • The first step is to identify a potential area of support. I like to use trend lines, 30 and 150 day EMA’s, Fibonacci Retracement, stochastic and MACD histogram for my technical analysis. I also like to use a 3 time frame approach. First I analyze the long term trends and areas of support/resistance on charts of weekly prices. I draw these lines all in one color for easy reference. The long term trend is not as important as the near trend in this strategy, it’s the areas of support and resistance we are looking for here.
  • Next I move down to charts of daily prices. If any of my lines drawn on the weekly charts are present here they are my most likely areas of support. I also look at the daily price action to see if any shorter term areas of support are present and then draw those lines in a different color. This chart is where trend is most important. If the near term trend is up then you can continue with the bull strategy and play off of support. If the trend is down then you will need to switch to the bear strategy and make your trade based on resistance.
  • To take a signal move down to charts of hourly or even 30 minute bars. Wait for price to move down to your closest support line. Wait for it to find support and begin to bounce. At this time look at the option chains, look at strikes that are in the money, preferably below your closest support line. Strikes should have expiry no later than the end of the current day but shorter is better.  If the option is less than $90 (returns greater than $10 or 11%) then I consider it to be a good trade. It is possible to make returns greater than 20% using this method but on average I am getting in the 10-15% range.
daily chart with support and resistance analysis.

daily chart with support and resistance analysis.

This chart of the EUR/JPY shows long term support, drawn on charts of weekly prices, in blue. Near term support, drawn on this chart of daily prices, is in pink. The long term trend line is up and that is echoed by the 30 day EMA. Because the trend is up in the long and near term I would be looking to buy positions with this strategy. Also, because the pair is closer to the bottom than the top of the range I expect to find more upside bias as well. Now it’s time to move down to the charts of 30 minute bars to look for a trade.
Hourly price chart showing longer term support and resistance

Hourly price chart showing longer term support and resistance

After moving down to a chart of 30 minute closing bars look for short term areas of support and resistance. These are drawn in yellow. On this chart the trend is sideways and range bound but heading up to the upper end of the range. There is additional support at the 132.000 level and the 30 bar EMA around the 132.200 level. Potential trades exists below the yellow support line, the 1.3200 level and below the 30 bar EMA. With this in mind lets take a look at the available options.
In the money 0-100 binary options can still pay a profit.

In the money 0-100 binary options can still pay a profit.

I have already determined that in this case I want to be a buyer of options and not a seller. However, because price is closer to resistance than to support and I am a curious bastard I had to look at possible sell scenarios as well. The best choice, with an expiration about 1.25 hours away, was the 132.51 strike. This is an out of the money strike that would pay $14 if sold. This position comes with a 0.205 spread between the current price and the strike price, giving some cushion and room for movement. It is pretty close to current price and counter to trend so a high risk trade in the end and not one that I am really looking at making now.
Out of the money 0-100 options can still pay a quick profit.

Out of the money 0-100 options can still pay a quick profit.

The best trade scenario in today’s example turns out to be the 132.11 strike. I set my order ticket to a price of $84 but got a fill $0.50 better. This will result in a profit of $16.50 at expiration if the pair remains above the strike price. This trade does not have the same amount of cushion as the bear scenario but comes with the added support of the moving average and the underlying trend (which add risk to the bear scenario). Another thing to note is that this set up has a better pay out than the bear set up. The next shot shows the chart with the chosen strikes prices marked.
This chart shows the strike price relative to support and resistance.

This chart shows the strike price relative to support and resistance.

Looking at the trade this way helps evaluate the risk and reward. The trend following trade has a strike that is below the nearest area of support while the contrarian version is not above the closest area of resistance. Just based on that analysis would make me lean toward the trend following trade. Bear trades are still possible here, just maybe not at this time. Perhaps when prices move toward resistance they will show signs of containment. If this were to happen a bear out-of-the-money position may prove successful.
Buying and selling 0-100 options would have profited in this example.

Buying and selling 0-100 options would have profited in this example.

After drifting sideways over the next hour or so this trade closed in the money and I profited the $16.50. Notice how prices retreated to the 30 bar EMA but were held there. This area of support provided protection for the trade, a barrier if you will, to loss. With the market currently positioned the way it is I would look to the next available expiration to make a similar trade. Because prices seem to be drifting sideways, and because I know that at the time of this writing there are market moving events brewing with the ECB and the BOJ scheduled for later release this may be a potential candidate for a straddle.

The Bear Out-Of-The-Money Strategy

The bear out-of-the-money strategy is just like the bull strategy but in reverse. When the near term trend is down you can play this strategy from resistance. The first two steps are exactly the same. The difference is which side of the option you are positioning yourself on. For the bear strategy you are selling short positions so you need to target options that are out-of-the-money and above the closest area of resistance.

  • To take a bear signal move down to the charts of hourly or 30 minute bars. Wait for price to move up to resistance and begin to stall or reverse. Look to the option chain for an option with a strike above the current price of the underlying and above the closest resistance line. If I can find one with an expiration of one day or less that sells for more than $10 I consider it a good trade. I tend to get better returns using the bear version of the strategy but that is not always the case.
The Range Bound Out Of The Money Strategy For NADEX Binary Options
Savvy traders can turn this strategy into a double winning straddle or strangle. Some of you may have already noticed that both of my listed examples profited. The in-the-money position closed in the money and out-of-the-money position closed out of the money. This is less likely to happen in a strongly trending market but range bound markets are perfect. The best method, and most profitable, is to “leg” in to the trade. That means enter into one position first, wait for it to appreciate, and then enter into the second position. In practice this means buy the long position when the market is at the low end of the range and sell the short position when the market is at the high end of the range.

Some basic pin bars.

Pin Bar Strategy Trading For Binary Options

The Pin Bar, Weak Strategy But Great Tool

The pin bar is a great tool for binary options traders but is a weak strategy when used on its own.

The Pin Bar Strategy is nothing new, especially to those of you who like to use Japanese candlestick charts. This is a reversal strategy based on price action and chart patterns. If you are familiar with candlesticks you will recognized this signal as a “shooting star” or “hammer” reversal, depending on market trends. The Pin Bar strategy was first introduced to the contemporary trading world by Martin Pring in his book Pring On Price Patterns. Martin Pring is one of the leading technical analysts of today and is the author of one of my favorite books, Technical Analysis Explained.

What Is The Pin Bar Strategy?

chart with pin bar

chart with pin bar

The Pin Bar Strategy is a 3 candle, or three bar, reversal signal. It is a useful signal in every time frame and works especially well when used in conjunction with another technical indicator like an EMA, trend line, retracement or other support/resistance tool. The strategy is based on the classic shooting star and hammer reversal patterns from Japanese candlestick charts. However, unlike a shooting star or hammer which needs the third candle to close to confirm the signal, the Pin Bar strategy is actually signaling a trade with the pin bars close.

This is how it works, assuming the market is in an up trend and you are expecting it to hit resistance. The market move up and moves up, then one day makes a long white candle and closes just under a resistance line you are watching. The next day the market moves up again, crosses over the resistance, moves higher and then sells off to close at or near the days open. The second candle is known individually as a “tombstone doji” or “shooting star” and is the signal of potential reversal. This is the entry signal. The exact opposite is true in a down trend. Simply wait for the market to reach a support level and then watch for the hammer doji to form.

On the third day you have a couple of options for picking an entry point. You can enter at open, expecting the market to move lower (or higher) during the day. This is the riskiest entry because there is just no telling where the market is going to open and where it is going to go before the close. Hammers and tombstones are potential reversals, not guaranteed ones.

This pin bar would have resulted in a loss for day traders.

This pin bar would have resulted in a loss for day traders.

You can also enter after the open. At this point there are a couple of ways to take the signal. The best signal occurs when the market opens below the previous days close, moves higher and then drops back from resistance (or bounces from support in a downtrend). The buy in this case would be when the market moved back below (or above) the previous days close. Another good signal is when the market opens higher(or lower) than the previous days close and then moves lower. The signal here again is when the market moves lower/higher than the close of the second candle.

Why The Pin Bar Strategy Is Good For Binary Options

This strategy is good for binary options because of its versatility as a tool and trading signal. It can be used in any time frame, with any asset, in either direction and can be trend following or contrarian. The signal is easy to read and when used in conjunction with other tools can generate some really powerful signals. This strategy can also be applied trading ranges and is great with high volatility assets.

Why The Pin Bar Strategy Is Not Good For Binary Options

The Pin Bar Strategy is not good for binary options because it is not a strategy, it is a tool. Using the pin bar as a strategy will lead to frustration and loss. For one thing, true pin bars are rare and risky. They are risky because there is no guarantee the market will reverse on the third day, or even move in a way that creates a profitable trade. When used by itself the Pin Bar Strategy can and will produce a lot of false signals. A strongly trending market can make a wide variety of candles on a day to day basis that have no impact on the overall trend. Not to mention that the strategy makes no efforts to weed out false signals or make allowances for overall technical conditions. Pin bars are more effective when used as a tool and part of a more complex strategy and not on their own.

Pin Bar Techniques For Binary Options

As an individual strategy the Pin Bar is a hard one to endorse but as as a tool it is a very easy one to put my stamp of approval on. The Pin Bar Strategy is a reversal strategy at heart but it can be used in multiple ways. It can be used to predict a reversal of trend, it can be used to predict the end of correction, it can be used to identify trading ranges and to confirm support and resistance. The important thing here for binary options traders to remember is that all of those things are potential entry points with higher probabilities of profiting.

bearish pin bar in uptrend

I prefer to use the pin bar to confirm trends but also use it to predict resistance. For me, a counter trend pin bar is a signal to get ready to trade. At this point I will wait for a correction, test of support/resistance or other movement that produces a trend following buy signal. The second signal could be another pin bar, or it could be a MACD or stochastic crossover. I always get strong signals when following the trend so that is how I use pin bars. I use Fibonacci Retracement, trend lines and exponential moving averages to determine support/resistance and market conditions. Pin bars that confirm the trend are potential signals to buy, pin bars counter to the trend are signals to wait and see what happens.

I think this is a good pattern and tool for all traders to know and use. It is a classic technical chart pattern, a text book Japanese candlestick pattern and a telling indicator of support/resistance. However, remember that as a strategy it has some real drawbacks. Trading the pin bar is risky. It is as a tool that the pin bar shows its true strength. It is very important to incorporate support/resistance and other technical indicators with the pin bar, or better yet, incorporate the pin bar into your support/resistance analysis. The pin bar is a risky trade but it can be a profitable signal when used with other strategies. It can work with 60 second, 5 minute, hourly and daily binary options strategies.

More Technical Analysis For Binary Options Traders

For more on technical analysis techniques I recommend Martin Pring’s two books Technical Analysis Explained and On Price Patterns. These two books are comprehensive looks at what technical analysis is, how to use it and how to apply it to your trading.

Technical analysis is the same, regardless of what your chosen financial instrument. The same techniques that have worked in futures, forex, commodity and equity trading will work just as well or even better for binary options traders.

The best books on Japanese candlestick charting are written by Steve Nisson. He was the first and remains the best westerner to unveil candlestick charting techniques. This style of charting was developed in Japan and has it roots in the feudal rice markets of the 1600’s. Candlesticks were made for binary options traders. The nature of the candles is identical to binary options; yin and yang, up and down, black and white.

These books can be purchased on line at the Book Depository. The Book Depository has 100’s of titles relevant to binary options traders, free shipping world wide and has some of the lowest prices of any online book merchant.