The Skinny On Options Math

Probability theory in binary options. Binary option - Wikipedia

Figure 1.

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The Set-Up To find the middle of an uptrend, you need a higher high and a higher low. To find the middle of a downtrend, you need a lower low and a lower high. Figure 2 shows the start of an uptrend.

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Then, on a strong rally it makes a higher high followed by a higher low. This provides a high probability that the trend has shifted—at least temporarily. Figure 2.

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As long as the pullback stays above the prior low we are looking for a long trade, because we now have a higher-high and higher-low, which means either a wave 3 preferably or wave c is about to unfold and we want to be a part of it. Figure 3.

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Setup Figure 3 shows the basic set-up. Based on the higher-higher, we want to go long, but need to wait for a pullback to do so. We let the pullback materialize, but as soon as the price starts moving higher again we take a long position.

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Figure 3 shows an entry point where a very strong up bar moves above the highs of prior pullback-bars, indicating the buying is resuming. A stop loss is placed just below the most recent low on the current pullback or above the recent high on the current pullback if looking to go short in a downtrend.

With binary options your profit is already set, but for those trading traditional markets, a Fibonacci Extension tool can be used.

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If the pullback is relatively shallow compared to the prior wave, as it is in Figure 4, exit at the As a general rule, use the first extension level which is above the prior high in an uptrend, as shown in Figure 4 or below the prior low in a downtrend. The rectangle at the Figure 4.

With earnings season still in full swing there are many news events moving the markets every trading day. Along with earnings, we also have the usual economic announcements like the non-farm payroll Friday morning at am ET. The street is expecting K jobs will be added. There are many ways to trade news announcements, one of which is the binary option market. When trading binary options you have the benefit of defined risk with the ability to diversify your trading portfolio.

Target Final Word This strategy takes advantage of what appears to be the middle probability theory in binary options a trend. There is no way to know for sure when the trade is taken that it will work out.

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