Most investors who first time come into contact with Forex market or binary options (BO) tend to choose the lowest possible intervals, counting on quick profits. In the article below we would like to present another – definitely safer approach to the BO – based on the end of the day strategy. Its main purpose is to play options expiring at the end of trading day.
Low intervals = high risk
Brokers of binary options now offer options for the most popular currency pairs, commodities and indexes expiring within 60 or even 30 seconds. While this can be an interesting way to invest and secure positions for experienced investors, for a newbie trader this can be to dynamic environment leading to a quick account wiping.
To get familiar with the market environment and how it works, it is definitely better to focus on options with longer expiry time. Great examples are intraday options that expire at the end of the day (usually between 21 and 24 depending on the session and the selected item).
What are the biggest advantages of this solution?
Basic assumptions of the end of the day strategy:
The approach proposed in this article is based on several basic assumptions:
Preparing the chart
At the very beginning, we need a Pivot Point (PP) indicator. It is not available by default on most MetaTrader platforms, but there are plenty of free and nice looking versions on the net. The indicator used in this article can be downloaded from here (link). Indicator shows main pivot point, three support and resistance pivots (S1-S3, R1-R3, and so-called mid-pivots).
In addition to the PP itself, the graph is also supplemented by SMA (simple moving average) with interval 33 and shift 0. As a result, the graph should now look like this:
Once the graph is ready, you can focus on its proper analysis. Below you will find the rules for PUT and CALL options
The conditions necessary to open the PUT option – expecting declines
The end of the day strategy for the PUT option assumes the following assumptions:
The above example shows PUT option explained step by step:
Conditions required to open the CALL option – on growth
The end of the day strategy for the CALL option assumes the following assumptions:
The above example of playing the CALL option is explained step by step:
The above examples show the exact rules for playing the OB based on the end of the day strategy. Here are some additional examples based on the strategy described, including the moments when this option should not be opened.
Examples of setups based on the end of the day system
In the above we could see two book examples of CALL and PUT options based on the end of the day strategy. However, it should be mentioned that such situations will not happen every day – much more often the market will show signals of lesser strength, but still having high profit potential. Few examples of such systems are presented on charts below.
Option CALL for USD/JPY
Session earlier was bullish so Fibonacci stretched up. The quotes are open over 33SMA and PP so the investor is betting on growth. However, during the day test of the daily Pivot doesn’t occur – does it completely excludes trade? Not necessarily. This is why additional Pivot levels (standard deviations of the main pivot) are also used, which are denoted S1-S3 and M0-M5. In this case Price Action formation (pin bar + inside bar) tested 23.6% of Fibonacci, 33SMA and mid pivot M3. After finishing the formation, trader was given the signal to open CALL option – which would close at the end of the day with a profit.
No option on EUR/USD
On H1 chart of EUR/USD Fibo, Pivot and 33 SMA suggested declines. However the candle signal on was not fulfilled on confluence of resistance and additionally Pivot S1 did not allow the price to drop bellow to the end of the session. There was no signal and no opened option.
Option PUT on GBP/USD
Example of far from the ideal signal – although the marked red candle tested 33SMA and Fibonacci resistance, it did not touch the Pivot level while staying over the pivot M2. Investor could, however, consciously assume a higher risk and open PUT position based solely on these signals. On the chart above, this would be the right solution, because the price at the end of the day actually closed lower, guaranteeing profit from the option.
CALL option on AUD/JPY – Failed
An example of a failed option – although the pin bar tested from the top PP and 50% of the Fibo correction, it was below 33SMA. Initially, the price moved up, but during the European morning it stopped at the first pivot resistance (R1), which caused the declines to the end of the day – resulting in CALL option closed with loss.
CALL option on CAD/JPY
Another textbook example of the CALL option. All assumptions fulfilled (Fibo, PP and 33SMA test), additionally pin bar signal – option closed with profit.
For the next two weeks we will present analyses and possible actions based on the above strategy and we will try to check its effectiveness. The results will be published on Saturday, 23.09.2017.