Binary options are a great new way to trade the markets and interest in them in the US is growing each day. That is why we invited Mark Hodge (Head Coach at Rockwell Trading), to share his thoughts on How To Trade Binary Options. Our event with him was a big success, and we've received great feedback and numerous requests for a recording of his presentation. As promised, we are including the video and recap of his presentation for your convenience and review.
Mark began his presentation by bringing us up to speed on the fundamentals of binary options trading and the role of Nadex (North American Derivative Exchange). As the presentation progressed, Mark shifted gears and shared his favorite technique for spotting binary option setups using his PowerX Strategy.
The three main topics covered in Mark's presentation incuded:
- What are binary options
- How to trade binaries
- How to find high probability trades
WHAT ARE BINARY OPTIONS
So what are binary options? They are all or nothing, "Yes" or "No" options. The Yes/No proposition is derived from the fact that you base a trading decision on whether the market will be above or below a given level, and if you keep the contract until expiration, you will either be right or wrong on your decision. So, if you are right, the contract will settle at $100 or if you are wrong, it will settle at $0. What it really comes down to is if you believe a market will be bullish or bearish. If you think the market will move up above a given value then you can buy a contract and if you think it will move down you can sell the contract.
The maximum risk with a binary option is defined by the difference of what you will pay for the contract and $100, so if you are buying a contract for $40 you have a potential to make $60, if the market goes your way and you stay in until expiration, and your maximum risk is $40. In the table below you can see a summary of how the risk and reward works with binary options. This same risk and reward is also clearly visible on each order ticket, so you will know exactly what you can lose and what your reward potential is before you enter a trade.
HOW TO TRADE BINARIES
When looking to trade binary options, you have a diverse number of markets to chose from. Here are some of the most popular markets that are available through the Nadex exchange.
Nadex is the only regulated binary options exchange in the world. It is based in Chicago, Illinois and is subject to the regulatory authority of the Commodity Futures Trading Commission (CFTC). There are other binary option exchanges outside the US, but none of them are regulated. When trading binary options with Nadex , your funds are maintained in a segregated account; there is 100% transparency on every trade; and there are no market makers or institutions attempting to manipulate the price of the option. Nadex is an exchange, and their primary function is to facilitate a trading transaction by matching buyers with sellers, and sellers with buyers. And in return for providing this service they collect a small transaction fee per trade. You are never trading against the exchange and the exchange will never profit from your loss or gain.
Before entering a binary options trade, there are few steps you need to go through as shown on this slide:
Once you decide which market to enter, you must then decide what direction you think the market will move in, and then look for a strike price and expiration time that gives you a high probability for success and at a risk/reward level that meets your requirements. For example, you may find an an entry that has an 80% chance of success, but you may be risking $80 to make $20 at expiration. Or, you may find and antry with a 60% chance of success and you are risking $40 to make $60 at expiration. Both entries may be successful and only your risk/reward tolerance may help you decide which one to take.
HOW TO FIND HIGH PROBABILITY TRADES
When it comes to finding high quality trading opportunities, Mark likes using the PowerX Strategy that he has developed. Using this strategy, Mark looks for signals and set-ups in the index, commodity, and currency markets. He identifies these entries using daily charts and signals generated by the simultaneous interaction between the MACD, Stockastics, and RSI indicators. As a result, Mark gets a fast read on whether or not a market is likely to close lower or higher on the following day. This is vital information in determining if a market is giving a good signal for a binary options trade, and what strike price and expiration time to consider.
The PowerX Strategy has solid track record of predicting market movement and is valuable in determining:
- Higher probability entries with attractive risk/reward ratios
- Daily and weekly option expiration projections
- Identifying spread possibilities
If you would like to learn more about the PowerX Strategy, and how to use it to trade binary options and other markets, then we recommend you look at this special offer from Mark Hodge and Rockwell Trading:
Watch full session with Mark Hodge here: