Binary Options Trading for July 9, 2013: 4/5 ITM

Tuesday (July 9) was a really tough day to find a EUR/USD set-up to my liking. I started watching the EUR/USD very early (12AM EST), which is well before the European open. I did have the 50% Fibonacci retracement line in play at 1.28757, a pivot level at 1.28535, and another pivot point with the green resistance 1 line at 1.28969. Usually, these types of support and resistance levels would make for a pretty good trading day if price is showing any sensitivity to them.

I did consider a put option up at the resistance 1 level, which was rejected on the 2:50 candle. But the market never did come back up to the 1.28969 level so I never took the trade. Those who have read my blog with some regularity will understand that I rarely trade just the touch of a support or resistance level. I wait for price to touch and reject the level, followed by a touch of that same level on a subsequent candle. It helps to ensure greater accuracy on my trades by making decisions via the price action (which many successful trading strategies boil down to), rather than just trading price levels.

Shortly thereafter, price came down to the 50% Fib retracement and bounced off immediately. Again, since there was no subsequent touch of the level (1.28757), I did not take the trade even though it would have been a trade that worked out. After that, price made about a twenty-minute trip below the Fib level before coming back up.

It was in this time period that I realized that the 1.28867 level was forming a pretty strong resistance area. Price had come up and bounced off of that level on two separate occasions in that past hour or so. I would have taken the put option on the candle after the second touch of 1.28867, but it did not re-touch. The market once again re-touched the 50% Fib retracement and bounced up. It was on the 4:45 candle (first red arrow) that I finally took my first trade of the day – a put option at 1.28867.

On the 1.28867 put option trade, trend wasn’t necessarily a factor. But after the recent dip below the 50% Fibonacci line, that suggested to me that price might want to break back below that level again soon. My interpretation of the market dynamics is that down at the 50% Fib level, you should a big wave of buyers that will push the price back up, especially since the market burst through it with no hesitation on the 1:35 (big green) candle. In essence, the 50% Fib – a very important level when drawn on the daily or weekly chart – should basically act as a support level if the market decided to retrace back down toward it. The fact that price stayed below that level for around twenty minutes implied that sellers were actually doing a pretty decent job of holding the price down and that the 50% Fib wasn’t as robust as I thought it would be. So even though the EUR/USD did rise back above the level afterwards, I had more confidence that the sellers would have the capacity to push it back down.

So I applied this line of thinking into taking my put option at 1.28867 up at the resistance that had formed there. Overall, it seemed like a really solid set-up. In fact, I was up by about twenty pips at one point in the actual trade itself, before closing out for about a 14-pip winner.

My next trade was a bit unusual in that it’s not one of the typical trades that I take for binaries. Pretty much all the trades I’ve been making have been on the 5-minute chart using the same S/R and price-action strategy applied over and over again. But to be honest, I really wanted to take advantage of the downtrend over the past 2+ hours and the fact that price was hovering around the major price zone of the 50% Fibonacci retracement at 1.28757.

So what I did is I went down to my 1-minute chart to get an even closer view of the price action. On a 5-minute chart, you can see that my second trade isn’t so crystal-clear on that time compression. However, on the 1-minute it makes a lot more sense. Price nicely bounced off of the 50% Fib before retracing back up to the level where I took my first trade, then fell underneath, and came back up to  1.28757. On the 5-minute chart, it wasn’t really shaping up ideally, but the 1-minute compression gave me a clearer perspective of what was going on. Once I saw the hammer candle form (long top wick, small red body), the price action suggested that the 50% Fib would hold and the downtrend would continue. So I took a put option at around 1.2876 (just above the Fib level) around the open of the 5:20 candle. This trade worked out really well and was in my favor the entire time. It closed out about four pips in favor.

The main takeaway point here is that I have take no issue with using different timeframes in order to get a different perspective on the price action. I stick with mostly the 5-minute chart for short-term binaries, as I feel it gives a price action perspective most amenable to these types of trades. Larger compression time-bars don’t reveal enough of what’s occurring on a more microscopic scale relelvant to the typical binary trading timeframe (10-15 minute expiries). On the other hand, the 1-minute chart doesn’t give a large window view of previous price data and contains a lot of noise that often isn’t necessarily indicative of how the market may be moving. There’s simply very little price data encapsulated in each candlestick due to the short timeframe. But in this circumstance, the 1-minute compression was able to show what was occurring on a very small scale and is ultimately what got me in a trade that I probably wouldn’t have taken otherwise if I was only fixated on the 5-minute chart.

Even so, it turned out that I wasn’t yet finished for the day. My late morning and early afternoon was free, so I decided to watch the market for a little bit in the New York afternoon session beginning around 1PM.

The first trade I took occurred on the 13:35 (1:35PM candle). Again, this is another trade that may seem atypical considering my usual trading style. But I’ve learned some things from studying smaller time compression forex charts from the New York afternoon session that I’ve felt could be useful in trading short-term binary options. One of them is how poorly big candles tend to do in representing legitimate price moves. In the morning, it’s often different. If a large candlestick forms in one direction or the other, it usually implies that price is genuinely moving in that direction and that the move will sustain itself. But in the afternoon, when a large candle forms, it’s usually an indication that price will fail and snap back in the opposite direction, in my experience. There are exceptions, of course, especially if a news event is occurring (Ben Bernanke speaking or something of that nature). But if one occurs randomly, as it did here, then chances are it’s just a bank dumping some money for whatever reason followed by a counter-move in the opposite direction on the following candles. Occasionally, you’ll see these on afternoon forex charts (EST hours).

When price fell over 30 pips on the 13:30 candle, rejected the support 2 level, and formed a long bottom wick, I took a call option on the open of the 13:35 candle. It did retrace back up and I wound up with a nine-pip winner, pretty good for an afternoon trade, which is a little quieter than the New York morning session where it’s common to get 10+-pip binary trades.

I also took a put option on the 15:05 (3:05PM) candle. I did not wait for a touch-reject-retouch type of price action formation. It was the afternoon, which tends to be a more tranquil trading period so levels will often hold better. In the afternoon alone, the 1.27904 level had already held twice and I definitely thought the odds were in my favor that it would not break out above that price. So I took the put option and had about a five-pip winner.

My final trade of the day came down at the 16:00 (4:00PM) candle at the support 1 level of 1.27824. I did not take the first touch of the level on the 15:45 candle, as price had shown only marginal sensitivity to the level that afternoon. But given that price had rejected 1.27824 on that candle and therefore formed a level of support, I decided to take a call option on the touch of support 1 on the 16:00 candle. The trade did hold for a while, but it fell below my entry on the closing candle and I lost the trade by about two pips. But nonetheless, it still left me with a solid 4/5 ITM day.

Sorry for the longer post today, but I’m glad I was able to introduce a couple new things into my blog here. As always, if you have any questions, comments, or feedback, please let me know below or ask on the forums here on the website.

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