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Binary options basics
 

Binary options basics

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Want to learn about binary options? Read this ebook about how to trade binary options.

Want to learn about binary options? Read this ebook about how to trade binary options.

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    Binary options basics Binary options basics Document Transcript

    • Binary Options Broker Review: BinaryOptionsDailyReview.com INTRODUCTION Big Money! That’s what I wanted but it just wasn’t happening as fast as I thought itshould. This guide will give you a jumpstart without all the frustration that I experienced when Ifirst started trading. I have been trading ever since I was a sophomore in high school. Ive always known thatworking in corporate America, like all my peers, was not the way I wanted to make money andlive my life. Ive seen way too many people slaving away going to their same dead end job 40hours a week, not having any free time or money to do what they want to do. Ive neverwanted to live that kind of lifestyle so I knew I needed to research other options. I stumbledacross trading when I was a sophomore in High School and I’ve never looked back. The first two years of my trading career were horrible! I kept blowing account afteraccount, making trading much more complicated than it had to be. I spent a lot of my timegoing through every type of strategy, system, and EA (automatic trading system) and trying totrade based off of other people’s opinions. I bounced from forex, to stocks, to commodities, tostock options! I believe that I went through all the mistakes that any newbies could possibly make.Forex is always the biggest frustration for me… I’m a daytrader and my decision always cost me,even though I’m right about the market direction. It was only about a year ago, during my usual bout of internet research that I cameacross a forum that had a thread talking about binary options. Binary options sounded way toogood to be true! Making an 80% profit in less than 30 minutes? NO WAY!! But I soon met awoman on the forum who was making thousands of dollars a week trading binary options...She turned into my hero in trading very quickly! I started learning about binary options and, aswith my prior trading; I was soon blowing my accounts one right after another. What was Idoing wrong? I refused to give up on binary options like I had previously done with my original trading.I spent a lot of time doing nothing but research. After hours and hours of staring at charts inorder to find out why I was having so much trouble, it all hit me. I was making trading toocomplicated! I realized that I was spending too much time listening to other people’s strategiesinstead of coming up with my own. I had ten indicators on my charts that were all telling me differentthings, making my trading needlessly complex. After I had my epiphany, my trading improvedquickly. What Im going to go over in this guide is everything that I wish I would have knownwhen I first started trading. In this guide I will go over all the basics that you need in order toform a solid strategy. As long as you have the dedication and the will-power to succeed, you willbe able to put together a strategy and a set of rules that works for you. Just remember that Page 1
    • Binary Options Broker Review: BinaryOptionsDailyReview.comnothing comes easy. The hardest thing in trading isn’t finding your strategy or your rules; it iskeeping yourself in check! You are your own worst enemy when it comes to trading, especiallywhen you let your emotions (greed, fear, anger, etc.) get the best of you. You have to learn tocontrol your emotions and trade by your strategy, because when you do you’ll be one stepcloser to success. If you put your time and effort into it, and if you stick to the information Igive you, I promise that your trading skills will improve.WHY TRADE BINARIES? Why is trading binaries better than any other type of investment? The answer is simple:you only have to click two different buttons! With binary options all you have to know iswhether it is going to close up or going to close down. Other types of investment require a lotmore information, such as knowing where to set your stop loss, knowing where to exit, andknowing when to move your stop to break even. This can become very confusing and the morethinking we put in trading, usually results in more severe losses! Simplicity isn’t the only plus to binary trading. Binary options also have a higher rate ofreturn than any other form of investment! No other investment will give you a 70-95% returnon your money in 60 seconds, 5 minutes or less than an hour. For example, one of the women thatgot me hooked ontrading started out her binary trading with $100. With her $100 investment and only one yearof trading she had enough money to buy a new house and pay off her car. There is simply noother type of investment out there that can let you expand as little as $100 to enough to buysuch big ticket items in such a small amount of time! Trading binaries is simple and gets you a high return, but is there another reason to trythis form of trading? The answer is yes, there is one more very big reason for you to tradebinaries: anyone can trade them! How many traders have $25,000 in starting capital to daytrade stocks? Probably not very many. If you deposit $1,000 as your initial investment and ifyou risk 5% of that investment you’re already making $40 profit per trade. (1,000x5%=$50,$50x80% return = $40) Those $40 returns will build your account to $1,000 trades before youknow it. When you build your account up to $1,000 a trade you only need to make one trade aday to make a return of $800 a day! ($1,000x80%=$800) Binary options will bring you thefinancial freedom youre looking for. You just have to remain patient and disciplined, wait forthat perfect setup, and jump on those perfect trades. Treat every trade like it’s a million dollartrade!Different type of Binary Trades There are several different types of binary options to choose from when binary trading. Page 2
    • Binary Options Broker Review: BinaryOptionsDailyReview.comPersonally, I like to keep things simple by using the Cash or Nothing options while I trade, butthere are other options available, as well. Some people like these other types of options betterand some people don’t, it all depends on your own personal preference. I will talk about a fewof the major binary options. Cash or Nothing: This is the most popular type of option. It is essentially all or nothingtrading. For example, if you think Google is going to close above $300 and its currently tradingat $300 when you place a call one of two things will happen: if it closes $.01 or anywhereabove $300 you will get 75-95% profit, but if it closes below $300 you will lose your entireinvestment. In this type of binary options, and with the other types, good money management isimportant. If you don’t manage your money, you will lose your investments. However, if youmanage your money right, then Cash or Nothing options are incredibly simple. In fact, thesimplicity of this type of trading is why it is so popular among traders. You either place a call(you think it’s going to go up) or a put (you think it’s going to go down) and you’re done. Nothrills, no worries. Touch Options/No Touch: This type of option is also fairly simple. In Touch Options/NoTouch you are basically betting that the prices will or won’t touch a specific level by thepredetermined expiration. For example, if Google is hitting a massive resistance at $300 and itcan’t break through, you would then place a trade saying that Google won’t touch $301 by theend of expiration. If it doesn’t touch $301 then you would end in the money. If Google was sitting on a $300 support level you would guess its going to continue to305 dollars, so you would bet that Google would hit $305 by the end of expiration. These typesof options are the best during high volatility (fast moving markets). If the liquidity (volume, howmany people are trading) is low then you might have random spikes that could mess you up! Range Options: Another type of option is the range option. In this type of option, if theasset you are looking to trade is channeling in a range (going sideways) then you can traderange options. If you say that the asset is going to close within the range and it does, then youwill be itm (in the money). On the other hand, if it closes outside of the range than you wouldbe otm (out of the money). Conversely you can also say that the option is going to close outside of the range, and ifit closes out of the range then you will also be itm. In this case, if the option closes inside therange then you are otm. Page 3
    • Binary Options Broker Review: BinaryOptionsDailyReview.comWhy do traders fail? There is a long list of reasons for trading failure that can probably go on forever. I can’tgo over all of them, but I will talk about the main reasons people fail at trading as well as a fewways to avoid failure. I failed at trading for two years before I figured out that it was the sameold mistakes I was making over and over again that were causing me to fail. It was so simple tofix these problems once I figured them out! I couldnt believe it took me two years to learnhow to become profitable! My breakthrough came one morning when one of my friends who was interested intrading came over to watch me trade. He sat there and watched as my account went from$400 to $1500 within a few hours. He couldnt believe it! Then, before he knew it, my accountwas gone. I told him, "Thats why its harder than you think! Did you see how fast I lost mywhole account?" His response ended up changing my trading career forever. "Well, Joe... why the h*** did you blow your account? It shows right here in your rulesthat you weren’t going to trade over 5% of your account per trade. It also says that once youhave two losers in a row you’ll quit for the day AND it says you wont fight the trend. It looks tome like you took five trades in a row that were losers, and if I saw correctly you were placingputs (when you think it’s going to go down) during that huge bullish move (when the market ismoving up) The last trade you placed was 60% of your account... You didnt follow a single oneof your rules!" I was astonished to realize that, even though I had my list of rules written out, Iwas blatantly ignoring them! There is no point in having rules if you are going to break them. If you’re breaking yourrules you’re basically playing a high risk gambling game and you might as well lose your moneyat a local casino! Thanks to my friend I take the time to read my short list of rules as a refresherbefore placing a trade. To this day, I have not broken a single rule. Learn from my mistake andmake this your number one rule: Don’t break your rules! It sounds like common sense, and itsounds pretty easy, but it takes a lot of patience and dedication to do so. Just make yourselfget up an extra five minutes early to read your rules before making any trades. If you do, you’llhave them fresh in your mind while you are making your trades. Remember, if you don’t followyour rules, you are upping the odds of failure. Once you have this first rule down, you have achieved a major victory. Congratulateyourself! But don’t think you know everything just yet. There are quite a few more big errorsthat a trader can make that can be just as disastrous as ignoring your rules. Here are some ofthe major problems traders are faced with: 1) Having No Plan - It is a known fact that most new traders dont create a plan formaking trades. If you dont write down youre plan, which includes your rules and trading Page 4
    • Binary Options Broker Review: BinaryOptionsDailyReview.comstrategy, how are you supposed to stick to that plan? When your emotions start going out ofcontrol during a trade, you need a written plan that you can go back to. Without a plan you willmost likely end up like the other 95% of traders that never make it. - Having a plan is very important, but first you have to know what information goes intoyour plan. The following are very good pieces of information to include when forming yourtrading plan: 1) What time of day are you going to trade? (What session?) 2) When are you going to quit trading for the day? (After x amount of losers, after a specific time of the day, after x amount of winners/profit?) 3) What is your trading strategy? 4) Money Management (How much are you willing to risk per trade) Thats it! Keep it as simple as possible; if you make it to complicated it will be too hardto follow. Make it short and sweet! 2) Emotions - Most of the time when I lost money this was one of the biggest culprits.If I had a single losing trade I would suddenly lose sight of my plan and let my emotions takeover which often led to bad decisions and more bad trades. Traders all have two modes that we go into while trading: Reactive and Responsive.When I have a losing trade, I go into the reactive mode. While in the reactive mode you loseyour perspective and you have difficulty controlling your actions and decisions. You dont thinkbefore you act! If youre like me, you have to walk away from the computer when you go intoreactive mode. For example, when I get a loser now, instead of forcing trades, I make myselftake a ten minute jog before coming back to the computer. If I dont get away from my tradeswhile my emotions are taking over, I will blow my account! When trading you always want to be in the responsive mode. When in this mode yourmind is relaxed and you can look at the bigger picture. This isnt just for trading, but foreverything in life. If you start feeling yourself going into the reactive mode start taking charge.Stop yourself! All you have to say is “Im doing it again, I gotta stop that!” Once you realize thatyou’re in reactive mode it’s much easier to get out of that state of mind. You just have toacknowledge it. - To avoid letting your emotions ruin your trades, trade like a robot! You cant letemotions control you. If you have several winners in a row and you get cocky, the next tradethat you throw 50% of your account balance into will probably lose, because you were tradingbased on your winning streak optimism and not your plan. And if you lose 50% of your account Page 5
    • Binary Options Broker Review: BinaryOptionsDailyReview.combecause of a stupid trade, no doubt you will get angry and depressed and quickly slip into thereactive mode. You might try to make up for your 50% loss by putting your remaining balanceinto the next random trade at that point, and I can tell you that you will lose this last tradealmost every time. I can safely make that assumption because I lost money on trades like thatten times! I never did win that last trade :). Just tell yourself that you will never be 100%accurate, you simply have to accept your losses and move on. Once you can accept minor set-backs you will be well on your way to achieving the freedom youve been looking for. 3) Over Trading - When I first began trading I was in the get-rich-quick mode. I wantedto turn my $100 into thousands within the first week. I was placing over 30 trades a day, andwas consistently blowing my account on a daily basis. One day I sat down and did the math. If Icould trade 3/3 each day making $1,000 trades, that would be $2,400 a day. Everythingcompletely changes when you start looking at trading like that. There is no reason to makethirty trades a day. The key to success is consistency! Take the perfect looking setups and tradea maximum of five times a day. Instead of trading with 59% accuracy trading thirty plus times aday, trade with 75% accuracy with as few as five trades da y. You will make just as muchmoney, and log in less screen time. When you overtrade you have a lot more risk of losingbecause the market isnt perfect. The more trades you place, the more chances you have tolose. If the setup isnt perfect, stay out!! - I overcame the compulsion to overtrade when I made a checklist to use as a tradingguideline. Before I made my checklist, I would take any decent looking trade. With binariesyou cant take "decent" looking trades. You want to take the trades that are going to win! Bymaking a checklist you HAVE to wait for those perfect looking trades. I printed out notecardswith a list of my strategies. If I can’t check each box on my list, I won’t take the trade. I cantbelieve how fast the cash started adding up once I created and utilized a checklist. If you have aproblem overtrading, I would highly recommend creating your own personal list to help keeptrades on track! 4) Making it Complicated - I think its impossible not to run into this problem at somepoint. When we all first start it seems like trading has to be harder than it really is. There’s noway that it could be simple, right? We all go on a search for the holy grail of successful trading,adding ten indicators at a time on our chart and trying out every different type of strategy justbecause someone else is making money off of it. We think to ourselves, “If theyre makingmoney with that strategy, then it will make me money too!” even though that may not be thecase. In order to show you just what I mean when I say “making it too complicated,” I’m going Page 6
    • Binary Options Broker Review: BinaryOptionsDailyReview.comto show you one of my earlier charts from my first days of trading. Let’s take a look: You might think that this chart is a joke, but that is what my charts looked like for oversix months. I tried any and every type of indicator because I knew that I had to find the holygrail of trading. You wouldnt believe how many traders have charts that look like this! Theproblem with this method is that all of these indicators are conflicting. You dont need morethan one trending indicator, and you dont need more than one momentum indicator. The biggest lesson I learned in trading is K.I.S.S. Keep It Simple Stupid! Figure out whatworks for you, and keep it simple. You often have to make trading decisions in split seconds, sowhy would you have ten different signals conflicting with each other while youre trying tomake your trade? Now lets take a look at a more recent chart: Page 7
    • Binary Options Broker Review: BinaryOptionsDailyReview.com This is my simple chart. No fancy indicators, nothing special. Everything I need is on thischart. The moving averages show me the direction I want to be trading, the pivots show methe support and resistance levels I want to keep an eye on, and the stochastics show me whenprice action gets to extremes for a solid entry. Which chart do you think would be easier tomake a split second trade with, the first one or the second one? Hopefully you said the secondone. So many people make trading overly complicated. If you cant see your price action, youhave a problem! You should never have more than THREE indicators on your chart at any giventime: Trend, Momentum, and Support and Resistance. If you cant look at a chart and instantlytell where to trade, youre not doing it right. Remember: K.I.S.S!!! 5) Lacking Patience - This is the killer of binary traders. Having patience and discipline isthe key to trading. If you dont already have these skills, you must make the effort to masterthem. If you don’t, you will inevitably make one mistake after another while trading. It tookme TWO years to master patience and discipline. Perfecting the ability to follow your rulesinstead of making impulsive decisions based purely on your adrenaline rush is a lot harder thanit sounds, but it is necessary for successful trading. As strange as it sounds, we want to make trading as boring as possible. If tradingbecomes exciting and you start letting that adrenaline flow at critical decision-making momentsthen you are far more likely to make mistakes. If that chart you’re looking at doesnt line up100% with your rules, then don’t trade! When I first started trading I absolutely loved everysecond of it. The fast money, the adrenaline rush, it was great! But I also lost all of my money.:) When I started forcing myself to follow my rules and resist impulse trading, I started makingmoney. Do I enjoy trading now? Not at all! But does finishing a day with a $5,000 profit make Page 8
    • Binary Options Broker Review: BinaryOptionsDailyReview.comthe lack of adrenaline rushes worth it? H*** yeah! Trading isn’t really meant to be fun, it’smeant to make you money. If you have the patience and discipline to follow your trading rulesyou will no doubt make money. Sometimes you won’t find a good trade for more than an hour.You might not even find a good trade all day long. That’s why patience is the key to becoming agood trader. Only when you find a trade that fits your rules 100% and you can hear itscreaming to you “TAKE THIS TRADE!!” should you invest in it. I can’t stress this point enough, because when I started trading it was one of the biggestfactors in my constant money losses. I would often get into a trade knowing full well before Imade the trade that it was most likely going to lose. Why would I take a trade if I thought itwas going to lose? I still cant answer that question, but I have a pretty good suspicion that Ijust liked that trading adrenaline rush. In the end you have to ask yourself, “Is an adrenalinerush worth losing my hard earned money?” Remember to be patient and disciplined. Withoutthese two key components, no matter how great your strategy is, you will fail in the long run.__________________________________________________________Your First Decision: Are you going to trade With the Trend, Ranges, orCounter Trend? In the trading world you will always hear different things regarding trades. Somepeople will tell you the only way you can make any money is by going with the trend, whileother people will tell you the complete opposite. Be aware that there are thousands of waysthat you can trade. You have to decide for yourself which is the best for you. If someone wasmaking $1,000,000 a year and they let you in on their strategy, chances are that strategy mightnot get you the same results because it isn’t the correct strategy for you. It might even end uplosing you money. It took me a long time to understand that someone else’s successfulstrategy does not automatically mean that it will be successful for me. Once I figured that out Iwas able to discern what trading methods fit me. To help you discover your personal strategy, I’ll start off by talking about ranging andtrending markets. Understanding trending is important because I have heard more people saythat they make more money trading with the trend than by trading any other way. They alwaysrefer to Newton’s first law: "Law one: Everybody remains in a state of constant velocity unlessacted upon by an external unbalanced force." What is a Trend? The trend is, simply, when price action is moving hard in a general up or down direction.When a trend is Long it is going up, and when a trend is Short it is going down. No trend isperfect and nothing goes up or down in a straight line forever. Remember that trends work onevery time frame. You will find trends on the one second time frame and on up to any timeframe. Page 9
    • Binary Options Broker Review: BinaryOptionsDailyReview.comWays to Identify a Trend The first way to identify a trend that I will go over is my personal favorite: Two MovingAverages. The reason I like this setup for determining the trend is because it never lies. If theshorter moving average is above the longer term average then the trend is up. If the shortermoving average is below the longer moving average then the trend is down. Just keep in mindthat if you plan on trading with this setup you must have discipline: If it’s saying go long, thereis no reason to go short. This is a 5 minute chart of AUD/USD (Australian Dollar/US Dollar) with two movingaverages. The 10 EMA (Exponential Moving Average) is below the 30 EMA - so if youre tradingwith the trend you would only be looking for short setups. Page 10
    • Binary Options Broker Review: BinaryOptionsDailyReview.com This is a weekly chart of AUD/USD - The 10 EMA is above the 30 EMA -In this case youwould be looking for long setups only. Another popular way of determining the trend is by using Higher Highs and Higher Lowsfor an uptrend, and Lower Lows, and Lower Highs for downtrends. I personally like the movingaverages better because I like to see the lines showing me where the market is going, but thisway works just as well. Page 11
    • Binary Options Broker Review: BinaryOptionsDailyReview.com HH = Higher High HL= Higher Low LH = Lower High LL = Lower Low When the market is making Higher Highs and Lower Lows then its in an uptrend andyou only want to be trading long. When the market is making Lower Highs and Lower Lows youonly want to trade short. This method is really popular because in order to make a HH or a LLthe market has to break the previous low/high. Generally when the market breaks the previouslow/high it continues in that direction. The last method I will be showing you is called Trendlines. To draw a trendline you haveto have two touches, and the third one confirms it. The problem with trendlines is that theyhave a lot of false breaks. For example, you might have a trendline break, but then the next barcloses back above it. If youre determining the trend with trendlines then just remember to becareful of the false breakouts. Page 12
    • Binary Options Broker Review: BinaryOptionsDailyReview.com EUR(Euro)/USD Daily Chart: If you like trading with trendlines to show you the trend,you would only be going long on this chart. You have over eight touches on this trendline. It isvery solid! Once a trendline gets broken, usually the trend changes. Once the trendline breaksyou want to start looking to draw another trendline, but to the short side!Rangebound Markets Rangebound price action is when its in a channel moving sideways, neither bearish norbullish. I like to call it consolidation. After a big move it usually takes a breather and movessideways before it takes off again. Some traders like to trade when the market is rangebound.They think its a lot safer then trading with the trend because the trend can reverse at anytime. When you are trading rangebound markets you are looking for a channel that the priceis fluctuating between. Youre looking to sell at the top and buy at the bottom. You can keeptrading the channel until it breaks. Page 13
    • Binary Options Broker Review: BinaryOptionsDailyReview.com EUR/USD: These are the patterns you would be looking for in rangebound trading. Callat the bottom, put at the top! You could trade this all day long until it breaks. Some ranges last a long time, but sometimes they only last two touches.Counter Trend Trading Counter trending is basically trading against the trend. If the trend is up then you are Page 14
    • Binary Options Broker Review: BinaryOptionsDailyReview.comlooking to go short, and if the trend is down then you are looking to go long. Some people onlytrade counter trend. Counter trend can be just as profitable as trend trading, but its also alittle trickier. I would definitely consider trading ranges or with the trend, but if counter tradingworks for you then by all means go for it! I am now going to go over a few ways to tradecounter trend: In the chart above the trend is down, price action is below the moving average. Pricewas heading down and a massive pin bar formed (which I have circled). A pin bar is a verystrong reversal candlestick pattern. In this chart the pin bar went down and touched exactly onthe pivot point. That is a very strong signal, because if you want to trade counter trend youwant to make sure that there is massive support/resistance backing it up, indicators backing itup, or some strong divergence. Page 15
    • Binary Options Broker Review: BinaryOptionsDailyReview.com This chart shows another major downtrend. It is somewhat difficult to see, but the pricewas making new lows and the stochastics indicator was making higher lows. There were alsotwo major pin bars. This indicates another great Counter Trend move. The great thing abouttrading counter trend is that you are in at the beginning of the trend. With binaries you dontneed to be in at the beginning of the trend, you just have to be right for a short period of time.Benefits and Negatives of With the Trend, Ranges, and Counter Trend There are always going to be benefits and negatives with any type of trading that youtry. These benefits and negatives don’t make any one type of trading better than another, so itstill depends on what kind of trading you want to do. I would recommend trading the channelsor trading with the trend if you are a beginner, but if you feel comfortable with other methodsof trading then use them. You can trade all three types, if you want, but I would recommendpicking one and mastering it before moving on to the next type. It is always a good idea to do some research to find out what type of trader you want tobecome. Do you want to trade against the trend, do you want to trade when its ranging, or doyou want to trade with the trend? It all comes down to personal preference.Trading Tools Now that we have gone over a few types of trading strategies, we are going to moveinto the different types of trading tools that you have at your fingertips: support andresistance, price action patterns, and candlestick patterns. Some people trade solely off ofindicators, some off of candlestick patterns, etc. My recommendation for you is to determinehow you would want to trade and then combine the different types together. Understanding Page 16
    • Binary Options Broker Review: BinaryOptionsDailyReview.comthese tools is an important part of being a successful trader.5 Energies in Trading Something I learned from Barry Burns that I think traders will find useful in relation totrading tools is the 5 Energies in Trading. The five he uses are: 1) Up or Down (trend) 2) Momentum 3) Cycle high/low (when do you get in?) 4) Support and Resistance 5) Time frame x 3 (example, if you’re trading off the 5 minute chart for your entries, you would times that by 3= 15. You would look at the 15 minute time frame to determine the trend.(the direction you will be placing all your trades) When you combine all of these trading energies together in a checklist, trades that meetwith every energy is a high probability trade.Support and Resistance Support and resistance basically shows you where price is likely to stall out and reverseor at least consolidate in a trade. You dont want to be entering a call when price is starting tohit a resistance, because, while it could easily blow through the resistance, it could just as easilytank. You always want to have some type of support and resistance indicator on your chart.When you combine support and resistance with other indicators and patterns it is very reliable. There are several ways to find support and resistance, but I will go over the mostaccurate and the most popular. Page 17
    • Binary Options Broker Review: BinaryOptionsDailyReview.comPrice Action Support and Resistance: When youre using price action as support and resistance you are going to look for twopoints on the chart that you can connect. Most of the major s/r (support and resistance) isgoing to be horizontal, but you are also going to have diagonal support and resistance (formingchannels and triangles). If you look at the chart above you can see that the price action justflowed around the support and resistance. When I first started drawing support and resistance on my charts I had a hard timefinding the major levels. To make it easier on yourself, just start out looking to the left and puta horizontal line on all the major tops and the major bottoms. After you finish drawing thelines, look for any lines that don’t have at least two touches and erase them. Now you can sitback and watch how price flows around your levels as time passes. When prices start breakingout, simply create new highs and lows in order to update your support and resistance lineswhen new tops and bottoms are formed.Fibonacchi Levels This is another form of support and resistance. Fibonacchi numbers seem to berandom, made up numbers, but Fibonacchi levels are found everywhere in nature and reality.Why do Fibonacchi levels work? Who knows! They just do, and I’m grateful for it. My bestguess as to why they do what they do is because we can all only lose for so long. For example,humans all tend to react the same way with fear and greed, selling when we reach a certainpoint and closing out of the position when the trade is going against us. I think that is the mainreason that Fibonacchi levels work, because even though we don’t realize it our brains functionto the beat of Fibonacci’s. The only thing you need to know about why they work is that the Page 18
    • Binary Options Broker Review: BinaryOptionsDailyReview.comdo. With Trading we use the 23.6, 38.2 , 50, 61.8 and 100. My personal favorites are the 50and the 61.8 retrace, because thats half the move. You would be REALLY surprised at howoften price pulls back and touches the 50 retracement to the dot! You draw Fibonacchi lines in an uptrend from the previous low swing to the next top. Ina downtrend you draw from the previous high to the new low. When using Fibonacchi levelsyou are waiting for price to pull back and making observations about how price reacts to eachFibonacchi. In my own charts I have removed the 23.6 and the 38.2, because I find the highestprobability to be the 50 and the 61.8, but I have talked to some traders that only use the 23.6and 38.2. You have to find out what works for you. Fibonacci is another great tool to use forS/R.Pivot Points Pivot points are another great tool for supports and resistance. Quite a few pit tradersuse pivot points. The reason pivots are so popular is because theyre leading instead of lagging.They are calculated from the previous day’s high, low and close. Generally there are seven linesthat are shown on the chart: R1, R2, R3, pivot point, S1, S2, and S3 (R= Resistance, S= Support).Each level is a major support and resistance. The nice thing about pivots is that they are pre-determined. You dont have to go back to look at previous highs or lows. They areautomatically calculated, so they are a lot easier to use than price action support andresistance. For those of you who like to know the mathematics behind indicators, the math behindpivots are pretty simple:Resistance 3 = High + 2*(Pivot - Low)Resistance 2 = Pivot + (R1 - S1) Page 19
    • Binary Options Broker Review: BinaryOptionsDailyReview.comResistance 1 = 2 * Pivot - LowPivot Point = (High + Close + Low)/3Support 1 = 2 * Pivot - HighSupport 2 = Pivot - (R1 - S1)Support 3 = Low - 2*(High - Pivot) If you take a look at the two charts above you can see how profitable pivots can be Page 20
    • Binary Options Broker Review: BinaryOptionsDailyReview.comAlmost every time price gets close to a pivot, they usually stall. Often they reverse when they hit the next pivot. If price is hitting a pivot and youre looking to go long, wait until it atleast closes above the pivot. There is no point in chancing the price reversing at the pivot.Round Numbers Round numbers are another great way to look at support and resistance. The reasonround numbers work so well is because they are seen on every time frame. If you are drawing support and resistance off of the five minute chart, you are not going to be seeing the samesupport and resistance on the daily chart. If you are looking at round numbers, it doesntmatter what time frame other traders are looking at, because theyre all looking at the same round number that you are. A lot of institutional traders place their stops and take profits atround numbers. Page 21
    • Binary Options Broker Review: BinaryOptionsDailyReview.com The above two charts show all of the lines that are automatically put on the charts at themajor/minor round numbers. Notice that price stalls and reverses at these major roundnumbers!The reason I love round numbers so much is because everyone is looking at the same levels.Prices dont always reverse at these levels, but most of the time they at least stall. You dontwant to be jumping in if price is just hitting support or resistance at a round number. There are several other ways to find support and resistance, but these are the mostpopular and most accurate that I know of. You don’t want to have Fibonacchis, round numbers,and support and resistance all on the same chart. Choose which one fits you bestand stick to it!Price Action Patterns Some traders like to trade using nothing but price action patterns. They like to tradewith patterns like Double Tops, Double Bottoms, Symmetrical Triangles, Ascending/Descendingtriangles, flags and channels. These patterns have been around since the beginning of charting.If you scroll back on any chart, time frame, currency/stock/commodity you will find each andevery one of these patterns. I am not going to go over all of the patterns that traders use, but Iwill go over the ones that I find to be the most profitable. The first patterns that I am going to talk about are Double Tops and Double Bottoms.These are my favorite patterns to trade, because they are high probability trades. The reasonthat these two patterns are such high probability trades is because price is trying to break aprevious high/low. If price stalls out and cant break, it usually turns into a pretty highprobability reversal. You would want some type of confirmation prior to entering the trade,such as a candlestick formation (pin bar, doji, hanging man etc or an Indicator confirmation –Stochastics, William % R etc) Page 22
    • Binary Options Broker Review: BinaryOptionsDailyReview.com EUR/USD Daily: In this chart the price made new highs, then pulled back and was retestingthe high, but it couldnt break it. The trend changed from bullish to bearish. S&p500- This chart shows what started as a major down trend, which retested the low andcouldnt break it. Very bullish!! The next patterns that I am going to talk about are Triangles. Triangles are my secondfavorite patterns to trade. Triangles patterns are basically like a spring tightening up waiting toexplode. These are perfect patterns for binaries because they tend to go in the direction of thebreakout long enough to hit expiration after which you can buy on the retest of the triangle. Triangles have to have a minimum of two touches. The third touch confirms thepattern, but you dont have to wait for it. Everyone trades triangles differently. There are threetypes of triangles: ascending, descending, and symmetrical. Page 23
    • Binary Options Broker Review: BinaryOptionsDailyReview.comSpy: Symmetrical Triangles are neutral patterns. They usually occur after strong moves; eitherup or down. Some people say that they are continuation patterns, but because it seems like itis a 50% chance that it’s going to continue and 50% chance its going to reverse I always tellpeople that they are neutral. Wait until price closes outside the triangle. Page 24
    • Binary Options Broker Review: BinaryOptionsDailyReview.com Ascending Triangles have to have a minimum of two touches on the base (like a doublebottom) and a down sloping trendline with at least two touches. Ascending triangles are bullishtriangles, so you wait for the break and close above the downward sloping trendline. Descending Triangles have a minimum of two touches for the upward sloping trendlineand a double top (two touches minimum for the top). You would short at the break and closeof the upward sloping trendline. The next pattern that I’m going to talk about is Flags. Flags are continuation patterns.When a stock is trending hard it has to pull back, thus creating a flag. Flags are a very easy wayto enter with the trend. Page 25
    • Binary Options Broker Review: BinaryOptionsDailyReview.com This chart is an example of a bullish flag pattern: Oil is trending up, pulls back and a flagformation forms. You would buy on the close above the upper trendline. This chart shows an example of a Bearish Flag: The trend was heading down, a minorcounter trend forms the bear flag. Break and close below the lower trendline would triggeryour put. Page 26
    • Binary Options Broker Review: BinaryOptionsDailyReview.com The last pattern that I’m going to talk about is a Channel Breakout. Channels are one ofthe most popular patterns because they are so easy to recognize. You can easily tell when themarket starts consolidating. This pattern is great because when the market breaks out, itusually breaks out hard! This chart shows the market when it was trending up hard and then started toconsolidate, forming the channel. Be sure to notice all of the wicks… if you didnt wait for theclose below the channel you would have gotten whipsawed all over the place. It is veryimportant to wait for the CLOSE outside of the channel. Once the candle closed below thechannel it tanked. Now you have an overview of the main patterns I would be looking for during trading. Ifyou like this way of trading, then there are a lot of other patterns you could be looking for. Iwould definitely recommend picking a few of your favorite patterns and mastering one or twoat a time. There is no reason to try to learn all of them at once when you only need to find oneperfect setup a day to make a living. Another recommendation I would give to those of you who are serious about trading bypatterns is to do a Google search for the specific patterns that you want to master to find agood comparison, and then go back through all of your charts to look for those patterns.Trading is all about experience. If you master one pattern you will soon start to recognize whenthe pattern will fail. On that same note, I would also recommend adding in some kind ofindicator to go with your pattern trading (I will go over indicators in another section). Page 27
    • Binary Options Broker Review: BinaryOptionsDailyReview.comCandlestick Patterns Candlesticks were originally founded in Japan. Homma created them for his riceexchange, but later went on to use them to make millions in the stock exchange. He made over100 winning trades in a row by using pure candlestick patterns and nothing more. Candlestickpatterns are great because they show you what is happening within the price. If the trend is going up and all of a sudden the candles are getting smaller with a lot ofwicks above them, it shows that the trend is weakening. The trend, in most cases, willconsolidate before taking off again, or it reverses. You want to combine candlestick patternswith support and resistance and indicators. If you have indicators saying to go long, and theprice is sitting on support and has bullish reversal/bullish candles, then you have a great setup!! There are hundreds of candlestick patterns and hundreds of different names for thosepatterns. You dont need to know the names of the patterns; you just have to learn to read thepatterns themselves! Always ask yourself whether or not the price is closing at the high or thelow of the candle, are the wicks getting longer, are the bodies getting bigger or smaller, and arethe candles red or green. I am going to go over the main candlestick patterns that I look for which are the mostreliable. I dont really look at the different type of patterns (bullish, reversal, bearish) because ifyou just watch how the candle forms then you know which ones they are. The main patterns Iwatch for are dojis, engulfing patterns, pin bars and inside bars.Doji- A doji is when the candle has a wick above and a wick below the opening price of thecandle. The price is moved up and below, but when it closes it closes at the open. It shows thebears and the bulls are neutral. If the price has been going up hard and a doji appears, it showsthat the trend is weakening.Engulfing- Engulfing Patterns are great because they show how strong the momentum is. Anengulfing pattern engulfs the entire previous bar. If price is trending up hard and then pullsback, youre waiting to re-enter with the trend. A bullish engulfing pattern would be a goodway to get back into continuation with that trend!Pin Bar- Pin bars are my favorite candlestick patterns. Pin bars have a really small body andreally long wicks! Pin bars show the rejection of a price level. If price is going up hard and thenhas a really nice upper wick and a small body closing closer to the bottom, that shows that thetrend most likely is going to reverse.Inside Bar- Inside bars are another great setup. The candlestick basically has to close inside ofthe previous bar. When you are trading inside bars you want to trade when the "mother bar Page 28
    • Binary Options Broker Review: BinaryOptionsDailyReview.com(bigger bar) gets penetrated. The chart above quickly shows you an example of each type of pattern. Candlesticks willincrease your trading success by an enormous amount. Candles tell you the story of the priceaction. If price is closing near its highs then dont be fighting that. Go with it! You dont want to use candlesticks alone, you want to use candlesticks in conjunctionwith support and resistance and indicators. You are looking for confluence between the threein order to make the best probability trade. The reason I particularly like candlestick patterns is because they show you themomentum. Momentum is the key to binary options. If price is tanking like a rock, and it hits areally solid support and then has back to back dojis, it is showing that the trend has completelyneutralized. If it then breaks out to the upside, you are getting in on the beginning of a newtrend. The great thing about binary options is that it only has to go one bar in your favor to enditm (in the money)! Dont make trading overly complicated by trying to learn every single candlestickpattern and what theyre called. Just stick to the candlestick patterns that I have listed here,pick your favorite ones, and research them until you have them down. Page 29
    • Binary Options Broker Review: BinaryOptionsDailyReview.comMy StrategyAfter like 10 thousands of hours staring at the chart, I started to realized how the marketworks and how to make a living from it. Now I’m able to trade consistently, pulling offBinary Options market every month and make a pretty good living from it. I have 3 to 4 tradeentries that I could take everyday, if you have patience to wait for it to develop, the winningrate is around 90%, most people fail because they don’t have enough patience.This method is definitely a freebie for you guys because I don’t want others to have to endure becausesuch difficult times like me. The method is combination of price action: supply/demand level,trend-line, Fibonacci and candlesticks patterns. A little patience to wait for it to materialize line,and you’ll be In-The-Money 90% of the time. MoneyLet take a look at the chart below: heNotice and uptrend line, so definitely we’ll only look to CALL here, price goes back to testtrend-line, test the resistance-turn support line and a pin bar is being painted. CALL there turn-supportand 90% In-The-Money, pretty easy, all we have to do is wait for the combination of it. Money, combinationWhen it all bolds together, it’s time to make money.This kind of set-up work well in all time frame, from 1m chart to 5m, to hourly chart to daily. up time-frame,Take a look at this 15m Aud/Usd chart: Page 30
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    • Binary Options Broker Review: BinaryOptionsDailyReview.comIt is one of the strange ironies of this strange life that those who work the hardest, who subjectthemselves to the strictest discipline, who give up certain pleasurable things in order to achievea goal, are the happiest men."- Brutus Hamilton"Nothing of importance is ever achieved without discipline. I feel myself sometimes not whollyin sympathy with modern educational theorists, because I think that they underestimate thepartthat discipline plays. But the discipline you have in your life should be one determined byyour own desires and your own needs, not put upon you by society or authority."-Bertrand Russell"Hands untrained in the use of tools destroy what they want to build. It takes skills to use toolsto achieve the result desired, whether its tearing down an old house or building a new one.Skepticism is a tool serving both purposes. But it must be used by a trained mind, a mindcapable of disciplined thinking."-J.B. Charles"No horse gets anywhere until he is harnessed. No steam or gas drives anything until it isconfined. No river is ever turned into light and power until it is tunneled. No life ever growsgreat until it is focused, dedicated and disciplined."-Harry Emerson Fosdick Page 32