Binary Trading. John Piper

      2. Longer-term moves

      Most of the bets we have looked at have been short term, most daily, but some of a shorter duration. But there are longer-term bets, not just the weekly up/downs, but some lasting up to six months.

      (For these we must visit www.BetOnMarkets.com and www.BetsForTraders.com.)

      Here is an example:

      The market you follow, FTSE in this case, has been going sideways for some months and the chart action has formed a triangular formation. This is a fairly well known chart pattern and the chart below shows the action.

      Chart 3.1: FTSE triangulates (1)

      You will see that I have labelled the waves of the triangle A, B, C, D, and E on the chart above and triangles are generally formed of five waves. Also you will notice that the triangle stays pretty closely within the two trendlines I have drawn on the chart. Finally you will see from the chart below the triangle was followed by a false break to the upside and then the true break came to the downside.

      Chart 3.2: FTSE triangulates (2)

      Triangles are like coiled springs. The market moves in a tighter and tighter range and everyone expects a breakout but no one is sure in which direction. Our binary trader knows two things at this point:

      1 That a breakout will come

      2 That it has the potential to be a significant move

      With these two factors in mind the trader will consider the action on the market he is watching and in particular look at:

       The length of time that the triangle has lasted. In the chart above FTSE was triangulating for around 5 weeks. This is a fairly short-term triangle.

       The maximum width of the triangle; as this provides a guide for subsequent action. In the chart the maximum width is about 800 points.

      With these points in mind the trader decides once he can count fives waves for the triangle on FTSE that he will sell a 300 point Tunnel with an expiry approximately 5 weeks from here. The first chart above shows this and he logs onto www.BetOnMarkets.com and this bet is called an up and down and is listed under the heading boundaries. Alternatively he may go to www.BetsForTraders.com where the bet is called a one-touch range.

      This bet will go to 100 if either boundary is touched. Our trader enters his chosen criteria in the relevant boxes and finds he is offered very low odds on this bet; in binary terms he has to pay around 90 for this trade which he considers far too high. In fact this is not unreasonable – a lot can happen in 5 weeks – in fact if you look at Chart 3.2 above you can see that the bet would have been an outright winner 3 or 4 weeks later.

      One other factor which I might usefully mention at this point is that as the triangle continues to develop this will reduce volatility in the market. Volatility is a measure of how much is happening. If not much is happening volatility is said to be low and this is one of the factors that does affect binary prices. The up and down or one-touch range bets we are looking at here should be cheaper in a time of low volatility than at a time of high volatility.

      Our trader decides to wait until he sees a breakout above or below the triangle trendlines. By doing so he can reduce the time frame and this will give him a much better price.

      The breakout comes, see Chart 3.2 above, and he prices the same 300 point Tunnel but with an expiry only 3 weeks from now. He is now asked to pay 62 for this bet with an expectation of a 38 point profit if the market moves 300 points over the coming month. He bets at £10 per point so risks £620 to make a potential £380. He can also exit early either to reduce his risk exposure or to take profits.

      2 weeks later he wins his bet – even though the initial breakout was a false break to the upside!

      You will notice that he has chosen a 300 point move which is somewhat less than the maximum width of the triangle. He wanted a time frame equivalent to that of the triangle itself but had to settle for less to get the price he wanted.

      As I wrote this the move was still in progress, but check the chart of FTSE for yourself to see the full move that came in from this signal – as we go to press late in 2008 it is still going!

      OneTouches

      In one respect the OneTouch is half of a Tunnel bet. As I have said, a Tunnel is useful when we are not sure of market direction. It can also be useful when we may feel sure of market direction but get it wrong. In this context it can make sense to trade a Tunnel even if you are sure. But there are times when a Tunnel bet is either not available or is too expensive.

      Here is one way in which to profit from this form of bet in such a situation:

      Using a OneTouch after an early fall

      Table 3.4: Trading a OneTouch

      Hi/Los

      As set out in Chapter 5 of Binary Betting these bets allow us to bet on where the high and/or low will fall during the day.

      Here are two ways in which to profit from this form of bet:

      1. Extremes

      Hi/Los provide another way of playing extremes. Maybe you believe a key high or low is in but are not convinced that sharp action is going to follow immediately. In this situation an up/down bet may not yield any profit but the Hi/Lo will do well.

      Table 3.5: Trading an extreme with a Hi/Lo bet

      2. Trending action

      It is something of a truism that when we look at a chart of market action some of us see the highs and the lows (what I also refer to as the extremes) and some of us see the moves between the highs and the lows – and these moves are called trends.

      Similarly some traders look to make money out of the highs and lows and others like to profit from the trends. The Hi/Lo bet is one way of doing both. I set out above how this bet can be useful with an extreme low and I now use a very similar example to show how it can be used when a market is trending – meaning the trader expects the market to continue in the same direction and not make a key high or low.

      Table 3.6: Trading the trend with a Hi/Lo bet

      Football Match – play for the goal

      In the previous chapter I touched on the key point that binaries differ from many other forms of betting in that the bet can be traded at any time between when you open the bet and when it expires. We have looked at this from the point of view of financial bets extensively. Now we are going to look at it from the perspective of a sports fan who wants to make money from a football match.

      Example