Binary Trading. John Piper

to develop.

       Find bets that complement one another: If one bet does go wrong the other profits. This can enhance your chances overall.

       Later in this chapter I talk about getting “good value” from your bets and the points I make above are some of the ways in which this can be done.

      2. Buying very cheap

      I believe that we all have a natural tendency towards a certain style of trading or betting. It is part of our character and we are much happier if we act in accordance with our instincts and emotions. Personally, I prefer to buy cheap and my style is to do everything I can to enhance my chances of success.

      Buying cheap also incorporates selling at a high price. I showed in Binary Betting how buying a binary at 30 is the same as selling one at 70 as far as potential risk and reward are concerned.

      In both cases we risk 30 points and our potential reward is 70 points. In terms of risk and reward they are the same animal. The same is true if we buy at 15 or sell at 85.

      But the point I made above with regard to buying high probability bets holds true. If we bet at 15 and the odds hold true we will lose. The spread will take us out. Here is how:

      The true cost of the spread

      If we buy at 15 the odds of success are against us and if those odds are born out we will only win one time out of every eight times. To calculate that I have assumed the spread at 10/15 and taken the mid-point which is 12.5. At 12.5 we risk that amount with a potential gain of 87.5 (100 – 12.5). That is exactly equal to odds of 8 to 1.

      So we lose seven times at £10 per point.

      Losses 7 x £150 (15 x £10) = £1050

      We win once and make 85 points (100 – 15) = £850

       Clearly this will not do

      We are down £200 and the reason is the spread. But even without the spread we would still only break even. The reason for this is that betting in this way does not offer good value.

      To work out the cost of the spread you take the cost of each bet (15) and deduct from that the cost needed to reflect the probability of 8 to 1 – that price is 12.5. So every time you trade the cost of the spread is 2.5 (15 less 12.5). Note that this is half of the actual spread of 5 points (15 less 10). We do each trade at £10 per point so each trade costs us £25 in terms of the spread. Eight trades at £25 for each one equals £200, which is our overall loss on the exercise.

      How to win from cheap bets

      With cheap bets it is difficult to use risk control as there is little risk to start with. But there are these options:

      1 Use a strategy of taking profits once you have, say, 20 points in hand. This will significantly enhance your chances of winning on any one day.

      2 There are also bets available which may be priced at 15 but which offer better odds. I discussed this in the section above and the same points apply to cheaper bets.

      3 You can also use other techniques to choose your trades again enhancing the odds. Careful selection is a key feature to profitable trading.

      4 There is again the option of choosing bets that complement each other.

      5 Cheap bets may be the best way to trade off indicators/chart patterns as these types of analysis will have a reliability quotient and as long as this quotient is better than the odds offered by the bet you will end up a winner.

      3. Buy low and trade the position

      We have touched on this under cheap bets when I suggested taking out a few points profit. However if we are going to trade the position we do not need to buy quite so cheaply as we will be quicker to get out.

      Look again at how binary bet prices move as set out at the start of Chapter 6 of Binary Betting. I made the point that action between 35 and 65 can be jet-propelled. But below 20 and above 80 it gets much slower.

       Why not turn that to your advantage?

      Buy between 30 and 40, then look to exit above 60. Or sell between 60 and 70, then look to exit below 40.

      Entering at those prices gives you the possibility of very quick profits but if price moves against you it would be a relatively sluggish process. It might still be fast, ultimately that depends on action in the underlying market, but profits should come in faster.

      If the bet does go awry you should have plenty of time to get out at your chosen level. Maybe you only want to risk 15 points, or 20, and you simply close out if the appropriate level is hit.

      With an approach like this you will need to consider your strategy carefully and here are some guidelines:

      1 You should ensure that your average profit equals at least two or three times your average loss.

      2 You must ensure that you profit at least half the time.

      3 If we were talking about spread betting I would add that you must not let losses run away – but that is one of the great benefits of binary bets – losses can’t run away!

      To end this section I will outline one critical element of system design. If you go for smaller profits there will be more of them and this is important as most traders have difficulty with lots of losses and a few profits. We all like making money most days if possible. But clearly the important thing is to come out on top overall and these two goals sometimes prove mutually incompatible.

      4. More complex strategies

      Here are a few ideas which you may find useful:

       The Tunnels and the OneTouches might be used as an unusual stop. With FTSE at +/- 15 a 55/55 Tunnel may be priced at 70/75 depending on volatility and time. Buying a future/spread betting away from the Tunnel and selling the Tunnel might be useful. If the Tunnel is touched you keep your 70, if the future benefits you make money on that. This could be combined with an in-the-money up/down bet.

       Sometimes it may make sense to buy longer dated up/down bets (i.e. daily) and sell shorter dated ones (i.e. hourly).

       You will sometimes find that different betting sites offer arbitrage opportunities as touched on in Chapter 5 of Binary Betting.

       If you buy a OneTouch and sell another at a different level you will achieve profit/losses at different levels. For example, if FTSE is at 6000 you might buy the 6040 OneTouch at 50 (bet #1), then sell the 6060 at 15 (bet #2). As these are OneTouches it is the high of the day that is important and the close or low is irrelevant. Here is how these bets would work out:

       If FTSE’s high is below 6040 you lose a net 35 points (50 down on bet #1 and 15 up on bet #2).

       If FTSE’s high is above 6040 but below 6060 you make 65 points (50 up on bet #1 and 15 up on bet #2).

       If FTSE’s high is above 6060 you lose a net 35 points (50 up on bet #1 and 85 down on bet #2).

       If you enter the bets in the example above at different times then you may get better prices but this is not guaranteed.

       You can also put in place similar structures with Tunnels and/or other bets.

      I have kept this section fairly short and sweet as more complex structures are something of an acquired taste and those so inclined will want to do the research themselves. The ideas above may provide a useful starting point.

      Having looked at four different groups of strategies, we’ll now turn to research.

      Research

      It