Binary Trading. John Piper

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СКАЧАТЬ a set of indicators [see below] to produce signals and then look to see which binaries may offer the best risk/reward at that time, based on what is known of the system producing the signal.

       Approach these markets opportunistically. Look to see what may happen and trade the binaries accordingly.

      I mention indicators in the second point above and this term may be unfamiliar to you. There are many ways of deciding what to trade, when to do so and at what price. One of these ways is known as technical analysis. This involves using mathematical formulae to produce such indicators as: moving averages, stochastics and overbought/oversold. These work on a statistical basis and are designed to give traders an edge. Other traders use charts and chart patterns, and this is my own preferred way of deciding how to take positions. Yet others use fundamental analysis. All these forms of analysis – in fact any manner of taking the decision of what to trade – is valid, dependant on only one factor: are you making money or not?

      Now we will look at the four types of strategy.

      1. Buying near certainties

      The price of a binary bet may be said to reflect the odds that the event will occur. For example, if we see that FTSE is up and the bet that it will close up is priced at 80/85 we might decide that the odds that it will close up are between 80% and 85%. We might take the midpoint and say the odds are 82.5%.

      If this statement is correct then we do not obtain any value by trading this bet. I will show one of the reasons why it is so important.

      If the binary is priced around 80 the actual spread may be 78/82.

      If we assume that the odds of the event occurring are 80% that means that the event will occur on 4 out of 5 occurrences. So, if you buy the bet you will win 4 times out of 5.

       Is this good?

      Unfortunately it is not good enough. Here is how it works out.

      Every time you buy the bet it costs you 82. You must not forget that spread! You bet at £10 per point so your stake is £820.

      You win four times (meaning the bet goes to 100), and each time you win 18 points (100 – 82) at £10.

      Your winnings total 4 x £180 = £720

      But you lose once and you lose your entire stake of £820.

      Overall Loss: £100 (£820 – £720 = £100)

      So how do we turn this unfortunate result to our favour?

      Here are a number of ways I have found that work:

       Use risk control. If the bet goes below 50 get out: This cuts the losing bet from £820 to around £320. Be aware, however that this approach will also cull some of your winning bets – there are no free lunches!

       Find bets that may be priced around 80 but give better odds: This requires a betting idea and research [discussed later in this chapter]. It is impossible for me to set out bets that will give you this advantage because if I were to include the ideas I have researched they would immediately lose their value. Others would do the same trades and this would shift the price. A small shift is enough to destroy any edge the idea had. By the time you read of the bet it would have become useless.

       Use additional techniques to choose your trades: These may include fundamentals, technical indicators or chart patterns. Some traders do very well on gut instinct alone, although this can take some time 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 СКАЧАТЬ