Types of Binary Bets: High/Low
The High/Low binary bet is a type of binary trade in which the trader purchases a call option if he believes the price will end up above the strike price, or purchases a put option if he believes the trade will end up below the strike price on expiration.
In order to execute a High/Low binary trade, the trader must do the following:
- Determine the asset he wants to trade.
- Determine the strike price that will be used as the trade benchmark.
- Choose a trade direction (“call” if he believes the price will end above the strike price and “put” if he believes the trade will end below the strike price).
- Choose an expiration date.
- Pull the trigger.
Again this seems easy, but ensuring that the actual trade ends in profit is not as easy. Just like we mentioned in one of our previous articles, some brokers will only allow a minimum expiry of at least 7 days, making it more difficult to ascertain what the behavior of the price will be. The image below is a snapshot of a typical High/Low trade in the binary options market:
From this image, we can clearly see the market price, which is 1.30208 for the EUR/USD. The aim of this trade is to predict if the price of the EUR/USD will be higher or lower than this price at the expiration of the trade. The first step here will be for the trader to do some analysis, and then select his chosen price direction (High or Low). Once any of these buttons is clicked, the selection will be highlighted and the trader can then enter his staked amount, which in this example, is $100. The expected payout of this trade is 80%. So if the trader makes a profit (if he is “in the money”), then he will be paid $80 + his original $100 to make $180. If he loses the trade, he loses his $100.
On the right is a chart for the EUR/USD which the trader can use to visualize is trades. Unfortunately, many brokers do not offer charting tools on their platforms and it is difficult to analyze the charts.
As a binary options trader, how can you successfully trade the High/Low trade?
Some analysts advocate the use of news releases to trade this type of binary option, but the truth is that this is not practicable for a number of reasons. You can only use this on broker platforms that allow expiration days of between 3 hours to 3 days, as this is when the news effect is at its strongest levels. Attempting to use news events outside this time frame is unreliable. Even when you are allowed to use shorter expiry deadlines, the bet prices would have been adjusted so much that the payouts will be much smaller when compared to the staked amounts. It is preferable to aim for a risk-reward ratio of 1:1. Trades where there is more risk than reward are not very desirable.
That leaves us with the option of using technical analysis. The logic here is to use strategies that are determinants of price action, such as using chart patterns. If I were to trade a “High” binary, I would be looking for the presence of bullish reversal candlesticks, or bullish patterns such as double tops or ascending triangles. Conversely, I would be using bearish reversal patterns or triangles if I am putting my money on a “Low” binary.
With this in mind, the trader should proceed to download the trading platforms of brokers who offer forex, crude oil, spot metals and index futures on the same platform (such as FxPro) and use the charts to do their analysis. This adds more certainty to the trades.
Many traders are usually tempted to gamble on the High/Low trades. Just like in other financial markets, there is no place for a hunch trade. You cannot allow your money to run on the uncertainty of hunch trades. Use strategies that will clearly tell you where an asset is heading, and then you would be able to tell if the asset will end up as a “High” or on a “Low”.