Binary Options Trading for January 2, 2014

The USD/CHF was definitely on the move up on Thursday, January 2, and made new highs that haven’t been seen since early December, surpassing the 0.9000 whole number in the process. My resistance 1 level was broken on the 3:00AM (EST) candlestick, and reached up to resistance 2 less than a half hour later before bouncing off.

The downward price retracement came back down not even halfway between resistance 2 and resistance 1, suggesting that the USD/CHF still had some upward momentum to continue to make new highs. In my experience, when an asset has made its move and is ready to cool off and consolidate, it will usually retrace back down to a previous support or resistance level in the market. Or at least something that could act as one. In this case, the USD/CHF had reached up to resistance 2. If it was ready to consolidate, it likely would’ve retraced back down to around the resistance 1 level. This would generally be an indication to me that the USD/CHF is likely to undergo a period of consolidation until some new force enters the market to shift supply-and-demand to some other level – for instance, a news event, or another market starting to open up (e.g., the New York open). The fact that the retracement was relatively weak suggested more upward price movement could be in store.

I used this bit of info to form the basis of my first trade. The weak retracement off of resistance 2 met support at 0.89580. It touched again on the 4:00 candle and rejected this level. So combining the evidence from the recent uptrend, the support level (albeit a weak one), the rejection off this support, and the market analysis tidbit I shared in the previous paragraph, I felt a call option on the touch of 0.89580 would be a pretty good trade to enter. Once it touched that price on the 4:05 candle, I took a call option.

This trade won by just over four pips by expiration. The trade did go out-of-the-money a couple times when it was open, but I felt pretty confident in it and got a nice winner out of it.

For reasons stated, I did not consider a put option on the re-touch of resistance 2. Due to the morning uptrend and weak retracement off of the previous touch of resistance 2, I simply felt it was too risky to place a put option on the touch of the level. My belief was that resistance 2 would be breached to make new highs. There would, of course, be many sellers at resistance 2 believing that it should continue to act as a resistance level. But the buyers seemed to have the power to easily break this, as evidenced again by the prevailing morning uptrend and weak retracement off the previous visit to resistance 2. This told me that the sellers simply didn’t have much strength relative to the buying crowd.

I was also looking at the 0.9000 whole number as a possible area that the market could get to. Usually important whole numbers like that get price driven to them in markets where they are within reaching distance. So my general idea was that the USD/CHF was likely to pay a visit to 0.9000. After that, I really didn’t have an idea.

Of course, a put option at resistance 2 would’ve worked. But resistance 2 was broken just after 5AM EST, and eventually burst out of the consolidation area just above it after 6AM. Getting up to 0.9000 occurred an hour later as expected. And that, in turn, was breached shortly thereafter before running into more resistance at the resistance 3 level. Essentially the entire morning saw a pattern of making a new high over and over again. Each formation of a new high was followed by a pattern of brief consolidation (sellers coming in at each resistance level to hold price steady for a while) before continuing on to make new highs (buyers exerting their force to break through resistance).

A put option trade at resistance 3 could’ve worked out similar to a resistance 2 trade. If one was really sharp in playing this market aggressively, you could have gotten into trades at the touch of resistance 2, the 0.9000 whole number, and resistance 3 and gotten a perfect 3/3 ITM on put option trades despite how strong the uptrend was. But, of course, I trade conservatively and wanted to stick with call options just to ensure I’m getting into the highest probability trades possible.

A trade I really wanted was a call option at the 0.9000 whole number after the retracement off resistance 3. I didn’t get that because the retracement off resistance 3 was weaker than I thought it would be. When this happens, it becomes almost obvious that resistance 3 is about to be imminently breached.

Anytime you get extended moves beyond resistance 3 – or support 3 in a severely downtrending market – you tend to get a mess of action in that territory. Support and resistance levels don’t always set up cleanly during price moves extended beyond the pivot point boundaries. Usually the most likely outcome is that the currency pair will eventually come back down into the price range between resistance 3 and support 3. On any given day, it’s pretty rare for a currency pair to spend too much of its time outside the resistance 3 or support 3 area anyway, unless for whatever reason one currency in the pair is making huge gains or losses relative to the other due to some macroeconomic or political event.

I did have a lot of time to spend trading on this day so I continued to watch and wait for a potential 0.9000 call option trade. But only if it sets up exactly the way I want it to obviously. Forcing trades is never something I do.

Expectedly, there was a mess of action above resistance 3, but after two hours of patient watching and waiting, I was finally able to get the trade I wanted. On the 9:35 candle, price came down and sharply bounced off 0.9000, which is my indication that that support level was relatively robust. So I entered a call option on the touch of 0.9000 (actually a little bit lower since it was falling and I got a better price as a result) on the 9:40 candle and wound up with an 11-pip winner by expiration. It was a great way to end the day. Obviously in binary options trading it doesn’t matter how much you win by just as long as you win, but double-digit pip winners always feel the most rewarding.

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