The Skinny On Options Math

# Probability theory in binary options. Binary option - Wikipedia

Figure 1.

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.

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

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.

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.

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.