High Frequency Trading Strategy in Binary Options
High Frequency Trading Strategy in Binary OptionsAugust 9, 2012
Is high frequency trading even possible in binary options? Well, assuming you don’t have access to a sophisticated trading algorithm automating the trading process, I highly recommend you stay away from it. However, purely from a theoretical perspective the fundamental analysis is correct.
Let’s say you have the option of moving in and out of multiple short term positions in milliseconds based on a predictive analysis of a specific currency, stock, index, or commodity. Let’s continue to assume that that this will be based on the processing speed of the financial markets. Purely from a theoretical perspective you would be able to do it.
It is a well known fact that starting from 2009, it is estimated over than 50% of the exchange volume originated from high frequency trading contracts. In general, this type of trading creates a liquidity problem for the providers. For instance, the recent crisis in Knight Capital was spurred by what Forbes Magazine calls “computerized millisecond trading”. Does this cause you to lose sleep? Well maybe, but a true entrepreneur will always think of the opportunities that are available these days.
Take for instance binary options, is there any way a trader can incorporate these types of trading methodologies into trading binaries online and use that edge assuming he could simply make a massive amount of trades and move in and out after short periods of time or trading intervals? The closest thing to that would be the 60 second trading feature offered in the new CYSEC licensed brokers.
Before anything here’s a little something you always need to remember when engaging in trading binary options online. Speculating on futures trading, ETF’s, derivatives, stocks, commodities, currencies, (forex or binary forex), indices, as well as short selling of securities and leveraged ETF’s, involve a significant amount of risk.
As always you must have a rock solid trading strategy that factors in a plethora of financial parameters such as financial news analysis, proper charting of Candlesticks and Bollinger Bands, membership at all the important trading forums, and its crucial to gain access or develop a network of traders that provide trading tips to each other. Finally, you must draft a rock-solid bonus strategy. If the bonus is too high you will not be able to reach the required trading volume, and if its too low your leverage will be insignificant and so will your edge or hedge against the broker.
Now getting back to business, if you were to develop a high frequency trading strategy for binary options I would base it on hammers and cups and handles.
The image below represents the daily trade volume for Google. The red arrow points to the upside down hammer, and the blue arrow points to the handle formation. The entry point specifically for GOOG in this trading scenario factors in 3 parameters.
1. The moving average line is in general on the upward swing
2. The handle represents the trading zone
3. The upside down hammer is the exact entry point.
If you follow this trading pattern and enter on the upside down hammer, wait for the next candle to go above the resistance line, and then exit the trade you should be able to make a nice profit.
Now this is just one pattern I utilize when I want to make some fast money trading binary options. I have tried this trading strategy with OptionBit, Traderush, Optionsclick, and Anyoption. In most cases I was able to make significant gains, at worst I didn’t lose my original investment and withdrew my money through the cashier section of the trading software offered by the platform. There are different variations and names for this trading strategy, one of them is called “rapid fire” trading. I personally have had a good measure of success using my method of trading, so I recommend it.
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