3 AUDIOBOOK COLLECTIONS
6 BOOK COLLECTIONS
How to Trade Binary
Options Profitably
What you need to know before you start.
Joe Keane
BinaryOptions4x4.com
Joe Keane
Joe Keane is a private trader and an
enthusiastic student of financial markets.
He trades his own money and has
successfully developed a winning trading
system that has allowed him to give up his
job and trade full-time. Joe has worked
closely with Steven Harcourt, author of the
best-welling Definitive Guide to Trading
Binary Options in developing the 4x4BOSS
Trading System.
Copyright © 2015 BinaryOptions4x4.com
No part of this publication shall be reproduced, transmitted or sold in whole or in
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This
publication is protected under the US Copyright Act of 1976 and all other
applicable international, federal, state and local laws. All rights are reserved,
including resale rights. You are not allowed to give or sell this eBook to anyone
else. All trademarks and registered trademarks appearing in this guide are the
property of their respective owners and all rights are reserved worldwide.
This eBook is a guide and is supplied for information and educational purposes only.
It is designed to provide accurate information with regard to the subject matter
covered, but it is supplied on the understanding that neither the publisher nor the
author is engaged in providing legal, accounting, or other professional advice. The
material herein does not constitute investment advice and nothing in the contents
should be interpreted as an invitation to invest in any product. The author is not a
lawyer or an accountant and if legal advice or other professional assistance is
required before making any investment decision, the services of a competent
professional should be sought. By reading this guide you accept and agree that
neither the author nor BinaryOptions4x4.com can be held responsible for the success
or failure of decisions relating to information presented in this guide and they are not
liable for any outcome or losses resulting from decisions made by readers of this
guide.
This guide may contain references to information, products or services provided by
Third Parties. Neither the author nor BinaryOptions4x4.com assume responsibility
for any third party material or opinions. Reference to such materials or services is
just an expression of the author’s opinion and does not constitute any guarantee in
relation to such materials or that you will be successful should you decide to use
them.
How to Trade Binary Options Profitably
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1.
INTRODUCTION AND OVERVIEW ........................... 1
2.
ALL ABOUT BINARIES.......................................... 5
3.
FINDING A BROKER .......................................... 17
4.
MANAGING FINANCIAL RISK .............................. 23
5.
AUTOMATED MARKET ANALYSIS......................... 27
6.
ANALYSING FINANCIAL MARKETS ........................ 32
7.
INFORMATION MANAGEMENT AND ANALYSIS ....... 41
8.
EXAMPLE OF A SET-UP ...................................... 45
9.
THE NEXT STAGE ............................................. 49
How to Trade Binary Options Profitably
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1.
Introduction and Overview
Binary Options are among the fastest growing retail products for
traders. They have many attractive features but many traders have
found that they do not always deliver on their promise. Has this
been your experience? Where is the problem? The fact that you
have downloaded this eBook suggests that you believe that Binary
Options are worth examination, but you have questions. That’s a
good start.
Most of the training materials on trading binary options identify
features such as the market selection, the timing of the entry, the
amount invested and the payout ratio as the key determinants of
performance for traders. This is true, but only up to a point, Because
while these factors determine the outcome for any particular trade,
profitability in trading means earning consistent positive returns over
the longer term, that is, over a large number of trades. Properly
managed, the outcome of any particular trade is not what matters
but the outcome over a long series of trades.
The concept of risk is central to a trading strategy. People usually
avoid risk, that’s a natural response. But traders realise they must
face risk, indeed, they must seek risk in order to make profits. And
once you find risk you must manage it.
The key factors of success when trading binary options are
 Broker selection;
 Money management;
 Market analysis; and
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 Trader psychology.
Each item in the list involves risk and its management. With the
exception of the need to place additional emphasis on the first in this
list, these are pretty much the same for all trading instruments.
However, the strategies that must be adopted are subtly different
when trading Binary Options.
Understanding the importance of managing risk is central to trading
Binary Options profitably. This is the case in all trading.
This eBook addresses each of these in turn and this list determines
the outline of the book. The next section provides an overview of
Binary Options. Any readers familiar with trading these securities can
move through this fairly quickly although it is well worth spending
time to ensure you understand the key determinants of returns.
Chapters 3 to 6 then deal, in order, with broker selection, money
management and market analysis.
The structure of the final element of this outline – the market
analysis – gives the 4x4 strategy its name. It analyses markets at 4
different time frames, which can vary depending on the overall
perspective of the trader but should retain approximate scale
proportions. The analysis also seeks to answer 4 questions the trader
must ask:
 In what direction should I trade a particular market – up, down
or no trade?
 Does my system permit me to trade this market?
 What rules apply to entry?
 When should I enter the trade?
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It is only when these questions are answered by the analysis can a
trade be entered.
You cannot control everything with any trade but it is you and what
you do that determines if you are profitable over the long run.
Trader psychology is a huge area in trading and trading according to a
plan is essential to ensure you have the discipline to make sure you
remain consistent with that plan. Sections 7 and 8 provide a way to
do this in practice. This is vital because if you do not trade
consistently according to a plan then you will be trading randomly
and you will lose all you money. Of that you can be certain given the
structure of binary options. The final section then points you
towards further sources of information and contains an important
offer.
Remember, it’s up to you to determine if you are profitable. Binary
Options provide a great opportunity to trade financial markets easily,
with a small capital fund and with good opportunities for profit. But
most traders lose. Binary Options provide you with the opportunity.
But there are certain steps you must take if you are to be profitable.
If you implement the approach outlined in this eBook correctly then
you will be in a good position to avail of the opportunity.
One final point. Not only is it important for you to learn about
trading, but it is also important for you to monitor how well you are
learning. It’s very easy to misinterpret a point or to miss something
important. So, to help you further I have written a workbook to go
with this eBook.
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We are also offering you two free bonus eBooks. The first entitled
‘Markets in Mind’ is from Andrew Dawson and deals with psychology
and mental preparation for trading.
The second deals with a very important issue where you will have to
make a decision: Which broker should you choose? There is one
clear rule: deal only with a regulated broker.
To get your free copies of the Workbook and the other bonus eBooks
just click here or on the image below. There is no up-sell and no
commitment here – they are all free for you to download.
I recommend that go through the workbook and then move on to the
other eBooks. The workbook also contains answers and explanations
and you can always come back to this eBook to get further
information on the points raised.
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2.
All About Binaries
The essence of binary options is that the outcome of the trade i.e.
the return to the trader, is one of two values – either 1, where 1
represents the original amount placed at risk (or some pre-agreed
percentage of this amount), or zero. It is this feature that gives the
name ‘binary’. So, a trader knows precisely, in advance, the potential
loss and the potential gain. The trade is either a win or a loss and the
value of both are known in advance.
The trader has 3 decisions to make when considering a trade.
 What market to trade?
 Whether to trade long – a call option – or to trade short – a put
option.
 How much to put at risk.
It all sounds very simple and it is this simplicity that may carry the
greatest risks for the unwary trader.
Binary Options trading has only been around as commonly used
trading vehicles in the sense in which they are described in this eBook
for a few years but the size of trading in the market has grown
rapidly1. It’s not difficult to see why as there are a number of
benefits from the point of view of a private trader, particularly a
trader with limited experience in the financial markets.
1
Binary Options are classed as ‘exotic options’ and are very different from traditional options that
have been bought and sold for decades although similar terminology such as ‘put’ and ‘call’ is
often used. While different variations are sometimes available, this eBook will concentrate solely
on hi/lo options i.e. those where the trader is offered a price at the market and must decide if this
price will be higher or lower at the time the option expires.
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 The trading process is very simple. It is only necessary to
decide if the market is likely to rise or fall within a period.
 Most markets are suitable most of the time as even in very
quiet conditions market will move and it is only necessary to
trade in the correct direction by even 1 pip in order to win the
full amount. This is very different from other instruments.
 Pricing is very simple – the trader is provided with a single
price at all times. This is usually termed the strike price at the
time the trade is opened and the expiry price when it is closed.
 It is possible to trade over very short time frames and the rules
are always the same. The timeframe refers to the period
between the strike price when the trade is entered and the
expiry. Many brokers offer timeframes as low as 30 seconds
with multiple other timeframes up to long periods measured in
weeks.
As a trading instrument, Binary Options offer private traders some very
attractive advantages.
 It is possible to open an account and trade in a very short
period of time with small amounts of money. Brokers will
typically open an account for just $200, some will do so for just
$100. However, I consider that the trading fund should be at
least $500 minimum, although not all of this need be actually
lodged into the broker account.
 Many brokers allow minimum stakes of just $10 per trade. So
it’s possible to learn to trade while keeping the amount of
money at risk low. Occasionally it’s $5, but many brokers have
a $25 minimum.
 Because of this simplicity, broker platforms are usually very
clear and simple to use with familiar drop-down menus, pilot
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buttons and text boxes. It’s easy to learn and difficult to make
a mistake.
 Because you are only interested in where the market closes
the trade will generally not be affected by unforeseen markets
spikes due to temporary bouts of volatility.
 Slippage i.e. not getting an order filled at the price that is
displayed, is not usually a problem and there are no
commissions.
 You know in advance how much you are risking. Your loss will
never be greater than this amount.
 Intense competition in the sector is reducing the costs of
trading, improving the offering that is provided by brokers and
resulting in additional services such as charts, training and
news services.
It all sounds like Binary Options are a very attractive way to trade,
and they can be. However, there are drawbacks.
The first is that the sector has been subject to some unscrupulous
operators who, because of the simplicity of the trading, have been
able to con inexperienced traders out of their money. This is the first
risk a trader faces – broker risk. There are many ways of doing this
and we discuss this in more detail in Chapter 3, but it is up to each
trader to choose a broker carefully. There are also legitimate
differences between brokers that need to be considered and we
discuss these below.
The second issue also arises from the simplicity and accessibility of
the markets using binary options. This is that new traders can be
lulled into over-trading i.e. placing too much of their fund at risk at
any time. This may arise from opening too many trades or from
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placing too high an amount at risk. This is financial risk and, unlike
broker risk, this is wholly addressable. Indeed, controlling financial
risk through good money management is one of the few aspects of
trading, along with deciding what market to trade and in what
direction, that is fully under the control of a trader at all times.
Therefore, since a trader cannot control most of the factors that will
determine results it is vital that he does manage what is under his
control. This important area is addressed in Chapter 4 below.
There are some important potential drawbacks. But with the correct
approach you can avoid problems and even use turn these to your
advantage.
The third drawback arises from the way in which brokers offering
over-the-counter (OTC) Binary Options, a very popular and rapidly
growing section of the make, earn their profits. Unlike most financial
instruments, there are no commissions, no bid-offer spreads and few
administration costs associated with these Binary Options. Brokers
earn money by means of the payout ratio. This is typically in the
range of 70% to 82% depending on the broker and the underlying
market being traded. What this means is that when a trader is
correct about a market and places a trade, the broker retains this
percentage of the winnings as payment for the service. Usually, if the
trade loses then the broker retains all the stake, although there can
be exceptions. This has important implications for traders as
discussed below.
Types of Binary Options
There are three different kinds of products that are marketed and
traded as Binary Options. The differences have arisen primarily in
response to regulations and traders need to be aware of what they
are dealing with. All types have an outcome that is one of two
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possibilities and all require that the trader correctly predicts the
movement of the market. However, there are important differences.
The first, and best established type, are described as exchange traded
options and sometimes as US-style Binary Options. A key feature of
these options is that they are regulated by the US Securities and
Exchange Commission (SEC) and so they can be traded legally by US
residents.
Assuming you hold to expiry, if you buy an option, the outcome is
one of two events – you either win $100 or you lose your stake. If
you sell the option, you could earn the price at which it is sold at or
lose up to $100. However, you can also cash out early to take some
profit or cut losses. These Binary Options have many similarities with
more mainstream instruments. A trader can purchase an option,
sometimes described as a contract, with a future expiry time at a
price that is determined on an exchange. This price will always be in
the range of zero to $100 and there is a bid-ask spread.
The basic decision is whether the value of the underlying security will
be above or below a stated level at the time of expiry. So, if you are
buying a call and the current market price is moving up towards the
target price then the price of the option will move closer to $100 and
will continue to do so as the expiry time moves closer. This is a
straightforward reflection of market demand and supply – the price is
reflecting the risks. The reverse will also be the case.
Brokers are only allowed to market exchange traded Binary Options
to US residents, although there have been many reports of this
regulation being flouted. Until relatively recently, exchange traded
Binary Options were provided to US residents by the NADEX platform
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only. However, competition has emerged with the Cantor platform
and a number of companies that had previously existed only as
providers of OTC options are now using this platform to provide SEC
regulated options in the US. Regulators in other countries, most
notably Japan, have also begun to adopt this approach in recent
years and so the use of this type of Binary Options is likely to grow.
The second type of Binary Options is described as over-the-counter
(OTC), or sometimes European-style, Binary Options. These have
been growing rapidly in recent years since they are very customer
friendly. Many consider them to be a form of gambling but a growing
number of countries have begun to regulate them as financial
products. The most important source of such regulation have been
the Cyprus SEC (CySEC). Since Cyprus is a member of the EU, this
means that these products are thereby regulated in every EU country
and can be marketed throughout the EU. They have also proven
popular in countries such as Australia and Canada with varying levels
of regulation.
With OTC options, the broker provides a price, which is considered to
be the market price, and will be the price at entry – or strike price – if
a trader buys an option. There is no option ‘price’ as such but instead
the trader decides how much money to put at risk. If the trade wins
then the trader is returned the stake plus a stated percentage of the
stake. If it loses then the stake is lost.
It’s easy to see why these are proving to be so popular among new
traders since the risk is tightly limited and easy to understand, and
there are no further decisions in relation to exiting the trade or stop
losses. The trade is held to expiry and it either wins or loses. Many
have raised concerns about the lack of transparency in the underlying
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pricing and the potential for brokers to manipulate the stated prices.
However, there is no definitive proof that this is being done or even
that it could be done as a profitable strategy. Despite this, the
attractiveness of these products to new traders allied, to some very
aggressive marketing and a lot of nonsense on the internet about the
potential to earn big profits, has meant that concerns remain that
people can effective treat this type of instrument as gambling.
Traders need to consider the implications of this structure. If you
trade randomly then you should expect to be right 50% of the time.
After all, you are only required to identify if the market will rise or
fall. If we ignore the occasional times when a market will end exactly
flat there are no other possibilities.
So, if you always risk $10 and trade an instrument with a payout ratio
of 75% then over a number of trades you will win $7.50 per trade on
half of them, and lose $10 per trade on the other half. Your
expectation is that you will lose money and if you keep it up you will
lose all your money.
So you need to shift the odds in favour so that you win in excess of
50%. This is trading risk and shifting these odds and trading
accordingly is effectively the sole requirement of a trader.
The third type of Binary Options is exactly the same as the OTC
options discussed above except in one important respect. This is that
they are offered by brokers that are not regulated. This is a big
concern. The relative ease of accessing the required technology and
ease of marketing what appear to be attractive opportunities for
profit has meant that a lot of unregulated firms have begun to offer
OTC products. Usually these are fraudulent operations and traders
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have found that it is impossible to withdraw funds, even if the trader
appears to have been trading profitably. More commonly, the funds
are traded by a ‘robot’ or ‘;expert’ and lost or some other restriction,
often allied to a bonus, means that the funds cannot be withdrawn.
Traders should be aware that these actions are not necessarily illegal
and may be undertaken by regulated brokers but the trader must be
clearly informed in that case. With an unregulated broker there is no
such protection.
No matter what type of option is traded, the trader need a strategy.
The strategy in relation to unregulated brokers is very simple. Have
nothing to do with them. They will take your money. You will lose.
So ensure that the broker is regulated. More on this later.
Placing a Trade
When you go to put on a trade, you will need to decide the following:
 Which broker to use?
 Which market to trade?
 How much to trade?
 In what direction to trade?
 Over what time period to trade?
OTC Binary Options are unlike other products and so it is worth
outlining how they are traded. Let’s assume you have made some
decisions so that you are going to
 Trade with Banc de Binary;
 Trade the EURUSD i.e. the exchange rate of the Euro expressed
in US$; and
 Trade a stake size of $10.
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We will not concern ourselves here with how we arrived at these
decisions nor how we might decide on the direction or time period,
these are questions covered in later chapters.
You will need to enter an amount of money representing the stake in
the appropriate place on the broker’s platform. The screen grab
below is one example of a brokers platform and you can familiarize
yourself with others by looking around2. In this example a value of
$10 has been entered. When you open an account this will often be
displayed in your own home currency so there is no additional risk
involved.
The question asked is ‘will EUR/USD go up or down?’ When you
answer this, your answer relates to a specific point in time, usually in
the near future, although you can vary this length of time. This time
is known as the expiry time or date. In this example it is 10:50. This
is 10:50 am today since the platforms generally adopt the military
style 24-hour clock and would give a different date if the expiry was
not today but at some future date.
2
While Banc de Binary (www.bancdebinary.com) is used in this example, this is for illustrative
purposes only and I could have used graphics any one of many brokers. My use of this particular
broker here should not necessarily be taken to be a recommendation.
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The next piece of information to look at is in the box containing the
number 1.35293. This tells us that the Euro is currently worth 1US$
and 35.293 cent. This number will change from moment to moment
and, if you take a trade, at the moment you do so its value is the
strike price. You are being asked to decide if the expiry price will be
higher or lower than the strike price. So, in this example, you must
decide if you think that at 10:50 today, which was 3 minutes and 28
seconds after this grab was taken according to information in the
bottom right hand corner, the Euro will be worth more or less than
1.35293US$.
If you think the value will be higher then you will trade a call option
by clicking on the green box. If you think the value will fall then you
will trade a put option by clicking on the red box. That’s the first
question answered, although when you are trading you will not
necessarily make your decisions in this order.
There are 3 other pieces of information provided on this screen grab.
The first is the graph that comprises a simple line chart of how the
market has been performing. This chart shows a minute by minute
line stretching back for an hour. You can adjust this on the platform
but I’m not sure how useful a chart such as this actually is to you in
making your decisions.
The second piece of information is below this and comprises a red
and green bar which shows the percentages of traders that have
been buying calls and buying puts over this time period. Again this
can be worth a look, but is not all that important.
Placing a trade is very easy. But was this ever the difficult part of
trading? Making it easy to trade may make it easy to lose.
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The final set of information is in the box on the right and is
important. This gives the payout ratio for this market. It tells us that
the payout ratio for the EURUSD was 81% at the time the grab was
taken. This tells us is the percentage of our stake that will accrue as
profit if we are correct. If you look at the number at the top of the
box it is $18.10. This is because I chose a stake of $10 for this
example. So, if I am right I will be returned my $10 stake plus 81% of
$10 giving total of $18.10.
Clearly the payout ratio is an important factor in determining your
returns and something that brokers compete on very vigourously.
You should take it into account in deciding what you will trade and
with which broker, but it should not be the deciding factor in your
trading. This is an important factor that we return to below.
Having entered your stake, and decided on the market and the time
period, it is now just a matter of clicking with the red or the green
arrow to place the trade. All platforms follow these general formats,
although designs vary. However, you are always required to make
exactly the same decisions.
Trading exchange traded Binary Options is more similar to
mainstream products in that you see a price and you buy or sell a
certain number of options or contracts according to the amount of
money you wish to invest. You can then hold the options for as long
as you wish. Unlike OTC options you can cash out at the market price
at that time any time before the expiry time. This allows you to cut
potential losses if you see a market breaking in a direction against
your trade. While some OTC brokers offer a possibility to do this it is
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usually at a pretty high cost and should not really enter into a traders
strategy to any extent.
Binary Options differ from other options you might buy in an
important respect as your potential winnings and losses are both
known in advance. This makes them a relatively low risk instrument
as there is no margin involved, provided you have traded according
to good risk control rules. These are discussed further below.
And that’s all there is to it. Except that we haven’t said yet how you
should make the decisions!
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3.
Finding a Broker
The first risk that a trader should address is broker risk. This is not a
huge issue in most types of trading as a result of regulations and
various insurance schemes. Neither is it a major problem in respect
of exchange traded Binary Options in the US. However, the OTC
Binary Options sector is only partly unregulated, although there has
been progress in addressing this issue in Europe. As a result, there is
a risk that an unwary trader could end up losing their funds or being
unable to withdraw funds as a result of unethical brokers or outright
scams.
The lack of regulation means that there is the potential for scams,
which are of course illegal, but have occurred. Scams appear where a
website offers an apparently legitimate service and entices
prospective traders to put money on deposit. The site may even
provide trading facilities. However, if you deposit money you will not
get it back, even if you are successful in your trading. It may just
disappear from your account, it may trickle away as trades always
seem to lose by just a pip or two, or it may prove impossible to
withdraw the money even if you are profitable.
While all areas of financial investment have experienced scams, lack of
regulation means that the potential for bad practices in the Binary
Options sector is always an issue to consider.
Such scams are not unique to the Binary Options sector and almost
every part of the financial industry has experienced problems at
some time or other. I don’t want to overly exaggerate this problem
as many of the allegations may come from people who jumped in
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with unrealistic expectations of earning big profits. But be aware
that there is the potential for problems to arise. The internet has
plenty of forums and broker review site, some of which maintain
blacklists. I’m not going to repeat their findings here as I am not
about to go opening an account with a broker who has been
identified as dishonest in order to test the validity of the claims. Far
from it. Remember also that internet forums are not reliable and it is
not uncommon to see a broker being dammed by one contributor
with a tale of woe only to be praised by another. So, please do your
own research.
Take responsibility. You are responsible for your decisions and for
their outcomes. Never look for outside reasons or someone to blame.
I’m not going to recommend any particular broker but here some
guidelines that are worth considering:
 Is the broker regulated? If the broker is regulated within the
EU then there are protections in place and you can be pretty
confident that the broker is legitimate. However, if you are a
US resident, then be aware that EU regulated brokers are
prohibited by the regulation from offering OTC Binary Options
in the US.
Of course, the same firms can obtain SEC
regulation to offer exchange trade Binary Options to US
residents.
 Will the funds be held in a segregated account? This is a
minimum requirement and should be stated by the broker
without you having to elicit this information.
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 How many years has the broker been in business? More than
3 years is a definite positive. Avoid newcomers until they have
proven themselves.
 Is the broker part of, a subsidiary of, or affiliated with a larger
known financial operator or brokerage? A larger broker is
unlikely to want to have its reputation damaged by association
with a dodgy operation.
 Avoid brokers that engage in a hard sell or emphasise their
gimmicks (usually described as incentives, bonuses or
rewards). Your focus is on the single question: are they
reliable?
 Avoid brokers that have unexpected requirements in relation
to proof of identity or withdrawal requirements and read the
small print carefully.
 Look for reviews and study them, always remembering that
they might be biased and the reviewer might have an unstated
business relationship with the broker.
If you have genuine doubts then don’t open an account with that
broker. There are plenty of others and most are legitimate
businesses providing a service you require.
Apart from outright scams there is a second set of issues you need to
consider. These involve what might be considered to be somewhat
sharp, but legal, business practices and are particularly common
among OTC brokers. Usually, these take the form of restrictions that
are placed on your account that are notified to you, but their
implications might not be fully understood. It’s the old issue of the
small print and lack of comprehensive regulation. To make matters
worse, these are often introduced along with incentives so that the
trader effectively opts to have the restrictions imposed.
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It’s not just scams. Be careful of sharp practices, which are often legal,
but that may make it difficult for you to withdraw your funds.
Bonus deposits are one common practice whereby the broker
increases the value of the trader’s account by some percentage of
the actual funds that have been deposited. These bonuses are
usually in the range of 50 to 100% and so they appear very attractive.
The deposit is genuine and the money can be used for trading.
However, the bonuses are usually accompanied by restrictions on the
withdrawal of funds until a fairly large number of trades have been
undertaken. In effect, the broker is betting that a novice trader will
lose, but cannot then withdraw the funds from the account and must
continue to keep trading and continue to lose. So, the broker, or the
other party to the transaction, wins back the bonus and the original
deposit.
There is nothing illegal about this. However, unless you have a well
proven system and have experience in trading binaries, you are far
better to decline the offer of any such bonuses.
Some brokers also grade their accounts often using terms such as
premium, gold, platinum and so on with the type of account
depending on the size of the fund that you deposit. However, the
benefits of many of these offerings are limited. Some brokers provide
access to data and charts for free to all clients and I would certainly
consider this a benefit.
There are plenty of places you can get free charts on the internet and
there is no shortage of training available, much of it for free. Have a
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look at a site such as TraderFreebies.com to get a start. Everything
there is for free and if you wish to get some paid training then you
can see some of the choices.
Decide what you want in advance. Don’t be swayed by special offers
from brokers and never invest more than you had planned. There are
plenty of free resources on the internet to get you started.
The advice here is simple. Decide what level of deposit you wish to
make in isolation from consideration of these incentives. If you then
find you can benefit from one of them by dealing with a particular
broker then that is a benefit to you. But it is a secondary
consideration. Your decisions regarding these issues should be based
on what you require. Know this in advance. Know what else you
need in terms of access to charts and see what’s on offer. But don’t
make decisions just because a broker appears to be offering
something for free.
Consider the following when coming to a decision:
 Some brokers concentrate on newcomers offering low deposit
limits and low stakes. Is this important to you?
 How big is the range of markets and instruments offered? Is
this important to you?
 What withdrawal costs and rules apply? At a minimum there
should be 1 free withdrawal per month with money arriving
into your own account in about 5 business days. Make sure
this is clear.
 How do the payout ratios compare? You may get a very good
ratio on one market, but how do the other markets look
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 How does the broker compare in terms of offering support. A
dedicated support channel is a minimum.
Avoiding scams is obviously important. There are a number of sites
on the internet that provide reviews of various brokers. These can
provide useful information but, ultimately, it is up to you to make the
decision. You should also know in advance what you want and look
for it rather than taking what is provided. Remember, the
responsibility for this decision is yours, and yours alone.
Spend a bit of time searching for the best broker. You need to be
satisfied, although your broker is never your friend.
Once satisfied, open the account. Spend a day or so on learning how
the platform works including what access to data are available. What
additional information might you need? Learn the different
instruments and decide which ones you might like to trade. Start
with the €/$ rate and the S&P Index, or similar. These are widely
traded markets with good payouts and not likely to lurch suddenly in
one direction. You can, and should, move beyond these markets
later. Trade on a demo account if one is available. How did you do?
When your confidence grows and you feel comfortable fund the
account and get ready to start to trade.
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4.
Managing Financial Risk
OK, you have an account (or accounts) open and you are familiar with
how the platform works. All ready to go? Not just yet. Before
deciding what you will trade, when and in what direction, you must
decide how much you will trade. Being clear about this is the key to
managing risk when trading binary options. Most of the advice in this
regard, and in the remaining chapters of this eBook, is equally
applicable whether you are trading exchange traded or OTC products.
However, to avoid repetition it generally refers to OTC situations.
Advice on risk management is available from a number of brokerages
who provide eBooks or other training materials. In general, these
appear to fairly consistently advocate 5% as the maximum risk per
trade for a passive trader and identify 10% per trade for an
aggressive trader. This means that you would make the stake on
each trade equal to 5% (or 10%) of your trading fund. They also note
that the total amount of money at risk at any time should not exceed
15% of the fund for a passive trader i.e. there should be no more
than 3 trades open, or 25% for an aggressive trader.
Learning to manage financial risk is the single most important lesson.
But beware of some of the information that is provided.
While you might find these eBooks useful, you should remember that
they are provided by brokerage firms and it is reasonable to assume
that they will prioritise their interests. These which might not be the
same as yours.
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For a start, you should dismiss the notion of whether you might be a
passive trader or an aggressive trader either at some points in time or
in general. You can never be sure of the outcome of any trade and
having a consistently successful system that provides you with a
sufficiently high level of wins, with good risk control, is the way to
success. You should be confident but emotionally neutral regarding
the markets. Being aggressive or passive are emotional states and
are damaging.
So dismiss that idea. So, what percentage of the fund is it
appropriate to risk on any trade? I consider that 5% is too high and I
would never countenance 10% risk. To see why, assume that you
trade with 5% risk but you do not have a proven system so that you
are correct only 50% of the time. After all, you have nothing yet to
think we can do better than random. Assume you place 5 trades in a
day. The chances or probability of being wrong and losing our stake
on all 5 is 1 in 32 i.e. 1 over 25. If this was to happen your account
would lose 25% of its value in just one day (or set of 5 consecutive
trades). Are you comfortable with that? I know I’m not. It would be
enough to put me off trading for a considerable period.
It’s very easy to lose a large percentage of your funds very quickly no
matter how good you are at analysing the markets. Avoiding this
should always be your primary concern.
Notice also that if you lost 25% then you need to make 33% on your
remaining fund just to recover. If we assume an average payout ratio
of 80%, this means we would need to be right for the next 8 trades in
order to recover quickly. The chances of that are 1 in 256 i.e. 1 over
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28. Notice not only how quickly losses can mount and how much
more difficult it is to recover?
The golden rule is that you should not risk more than 2% of your
equity on any trade and ideally you will limit it to less. Never be
tempted to increase this just because you feel good about the
markets and feel like being ‘aggressive’.
There’s a further issue also, Assume you have 3 trades open in
different markets and some unforeseen event causes market
disruption. It could be a political announcement or a natural disaster.
You would lose all 3 trades. If you have 15% of you fund tied up in
those 3 trades it is a very bad day for you as a trader indeed.
I recommend two rules that must be followed:
 Never risk more than 2% on any trade and consider a lower
amount;
 Never have more than 15% of your fund at risk at any time.
This is a maximum not a target and it is unlikely that you will
have more than 7 trades open at any time.
Never, ever risk more than 2% of your funds on any trade, no matter
how confident you are. The market doesn’t know or care that you are
confident and will move as it will irrespective.
There is plenty of alternative advice out there but it tends to lead to
risks that I would not wish to take. The danger is that you could incur
losses in a very short period of time from which it would be very hard
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to recover.
system.
So be cautious, particularly when starting to test a
Remember there is no shortage of opportunities to trade and the
markets will be open again tomorrow – so you don’t need to risk too
much on any trade or at any point in time. Just make sure you are in
a position to trade tomorrow in order to be able to avail of the
opportunities.
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5.
Automated Market Analysis
We turn now to analysing markets to find trades. Here we begin to
answer the questions regarding which markets to trade, in what
direction and over what time period. This is a huge area and it would
be possible to spend a lifetime reading a library of books on the
subject. First, however, it is worth discussing briefly a way in which
it may be possible to find trades without undertaking any analysis.
The availability of access to increasingly powerful computers over the
past couple of decades has caused the idea to really gain popularity
that market analysis can be automated leading to the popularity of
mechanical trading systems. The systems themselves are not
mechanical in any sense, they are merely computer programs
running statistical processes. What is mechanical is the way in which
they are used in terms of decision making: the program identifies a
trade and the trader, if involved at all, then places the trade without
further questioning. In other words, the response to the signal is
mechanical.
The growth in popularity of Binary Options has led to a growing
industry of supplying such systems to traders. It’s not difficult to see
why this might be so. Binary Options are attractive to inexperienced
traders who may not have a good knowledge of how to analyse the
markets or develop a trading system. So a software program that
automates the process and provides a signal appears to be an
attractive tool. So, do such robots have a place in a trader’s toolkit?
Are they a good investment?
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First, understand what these robots are doing. They are analysing
market data, often using quite simple processes, to identify when
certain patterns emerge. When the program is run on a particular
market it does a calculation and provides a signal. Vendors of
signaling software or robots often claim success rates of 80% or even
more, the implication being that if you took the trade in line with the
signal then you will have a winning trade 80% of the time. This
sounds good, but is it too good?
You might hit it rich – but you probably won’t. So don’t waste your
money on any ‘system’ that ‘guarantees’ big profits.
Compare it with the results that are obtained by most traders and
the success targets of the main authors. In general, financial traders
in traditional sectors aim for success rates in the range of 40 to 45%,
although day traders will look for higher. With good money
management you will be very successful if you achieve this. In Binary
Option trading as no stops are required it is reasonable to expect that
random trading will produce 50% success. But since this market is
basically a zero sum game – for every winner there is a loser of
equivalent $ amount – plus there are costs, then it must be the case
that the average trader is returning less than 50% in dollar amounts
i.e. the average trader is not breaking even.
A success rate of 80% with a payout rate of 80% would mean that
after 100 trades of $10 each the trading makes a profit of $440.
Assume that we are trading with 2% risk per trade and 5 trades per
day. It would take about a month to reach 100 trades. For $10 risk
per trade then the fund must have been $500 to start. We would
have made a profit of 88% in a month. The next month we can
increase our trade size to $18.8 as we add our profits to the find and
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so on each month. In 1 year, at the start of month 13, our fund will
have grown from $500 to over $1 million. So, in a year, you’re a
millionaire. Does this seem a reasonable expectation to you? If it’s
that simple, why isn’t everyone doing it? Any why are all the traders
in traditional markets not using these simple programs instead of
aiming for returns in the region of 10 to 15% per annum?
Clearly there’s something wrong here. The providers of these
software products are probably not lying if they say that testing has
produced 80% success. Instead, they have run a program on a past
data set and identified a set of parametres for various statistical
indicators that best predicted what happened next in that dataset. It
is conceivably possible that this could be correct 80% of the time.
However, it’s a whole different matter to try to predict what will
happen next into the future.
Automation has a role to play. But it should be as an aid to your
analysis, not a replacement for it.
So, do these programs work? Some systems will be total failures
while some may have a role to play within a trading system as an aid
or an alert system. But that, in my opinion, is all. I am not saying you
should not have a look at automation. If you are considering buying
such a program and there are claims in relation to its success, ask if
the claims are based on back testing or are based on live trading. I’ve
tried this a few times and have yet to get a clear, convincing answer
and so I have drawn my own conclusions.
A further development of this that appears to be common in the
Binary Option sector is that you sign up to a mechanical trading
system with the broker who then automatically trades your fund
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without any input from you. Sometimes this is described as having
your trading undertaken by an expert.
Don’t go anywhere near these offers. You will lose your money.
Remember, the broker wants to ensure that you trade very often as
that is how he makes his money. If the ‘expert’ was really that good
he would be retired to the Caribbean, not trying to entice you to put
up your small fund. The fund will simply be traded by an automated
system that might be as good as you, but will lose your money. A far
better approach is for you to keep control of your money, learn how
to trade and get better. If you don’t take this responsibility then
don’t complain afterwards.
Never ever turn your funds over to a broker to be traded by an
automated system or by an ‘expert’. There are far more enjoyable
ways out there to waste your money. Take responsibility.
There is one further point also. A number of the programs are quite
reasonably priced and, if they are useful by increasing the success
rate by even a couple of percentage points, a trader would soon
recoup the cost. However, many of them also come with instructions
that you must open an account with a certain broker, or up to 5
different brokers, in order for the signal to work. Various reasons
may be given but this is really just a sophisticated form of affiliate
marketing. The software providers are able to supply the software
quite inexpensively as they makes their money from commissions
paid by brokers for new recruits. Don’t fall for it.
In conclusion, I don’t think that automated signaling or trading should
replace your own analysis using a system that you understand and
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that you implement consistently. Automation can be beneficial
within a system by providing alerts that defined patterns have
occurred in a certain market. It can also be important in providing a
constraint to ensure that the rules of the system are maintained and
in managing information. But these objectives are quite different.
Seeking the ultimate automated system serves to divert traders from
concentrating on learning how to undertake good market analysis.
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6.
Analysing Financial Markets
You will never know what way the market will move at the time you
place a trade and this will not change no matter what analysis you
undertake. So you must not approach the analysis seeking to engage
in prediction because, if you do, you will fail. Fortunately you don’t
need to engage in prediction.
Van Tharp put it well when he wrote:
you don’t need prediction to make money. You just need
wins that are bigger or more numerous than your losses
which need to be smaller or fewer.
The problem with applying this thinking to Binary Options trading is
that we already know that, because of the payout ratio being less
than 100%, a trader’s wins are always going to be smaller, not
greater, than the losses.
This immediately breaks a major
requirement of most trading systems that concentrate on ensuring
that wins are perhaps 2 to 3 times the size of losses. But with Binary
Options we can also be fairly confident that our win rate will be
higher than it would be with other instruments, even if we don’t
know what we are doing. So the whole emphasis is on ensuring that
the wins are more numerous than the losses. For typical payout
ratios, to be profitable you will need to ensure that more than 57% of
your trades are wins.
Let’s say you manage this across 100 trades in a month with $10 at
risk each time representing 2% of your trading fund. With an average
78% payout you will have a profit of €14.60. Does this sound low?
But this would be a return of just over 2.9% on a fund of €500 in just
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a month. Continue to do this every month for a year and your fund
will have grown to €686, an increase of over 37% per annum and
your fund will have almost doubled after 2 years. Of course, you
might do much better, but when you recognise that it would be an
outstanding achievement for a trader to earn and maintain this level
of return then you are approaching this business with realistic
expectations.
Because the wins are going to be smaller than the losses, it is essential
that the percentage of winners is above 50% with 60% a target.
So, how are you to get your win rate up from the expectation of 50%
that would be achieved with random trading to the minimum of 58%
that is required? Traders make profits on a trade when they trade in
the direction in which the market moves while the trade is open.
That is obvious but the essential requirement is to shift the focus of
attention away from predicting in which direction the market will
move to deciding in which direction to trade.
We start with understanding what the market has been doing and
find a market that is doing something that we consider to be suitable
for trading. We need to know its direction as we need to trade in this
direction. If a market is moving in a definite direction it is trending.
So, we need a market that is trending. This is not prediction since we
can observe a trend. Of course, every trend eventually ends. So, your
system must be able to react to signals that the trend is weakening to
ensure you don't trade at these times.
There are various definitions of what might be considered to be a
trend, the most usually repeated being a definition that a trend is a
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sequence of higher highs and higher lows, or the reverse. While this
is true it is not a sufficient foundation on which to build a trend
following trading system. If we are going to follow the trend we need
to have more than just a vague notion of what we mean by a trend in
the market. In fact we need to define in considerable detail what
qualifies as a trend.
Identify the direction in which the market is moving and trade in that
direction. This is not prediction but observation.
One of the first things we need to do is define the time period we are
considering. The 4x4.com strategy recommends looking at 4
different time periods for the analysis. These should be related to
the time period across which the trade is expected to be open and
related to each other by (approximately) a constant scale.
So, for example, if you intend to trade an option with an intraday
expiry of 1 to 4 hours then you should look at a
 Daily Chart to identify the underlying trend in the market. This
will identify which markets are potentially suitable to trade.
 A 4 hour chart to help to assess the trend and identify which
set-ups might be suitable.
 A 1 hour chart to see if a set-up may trigger soon.
 A 15 minute chart to help to time the entry.
These timescales are related to each other by a factor of 4 – I know
that there are 24 (that would be 6 by 4-hour charts) and not 16 hours
in the day but markets experience quiet periods and so parts of the
day in almost all markets see little movement and low volumes.
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If you intend to trade with an expiry with a short period – let’s say 5
minutes or less – then you might look at a 4 hour chart to find the
underlying trend, a 1 hour chart to assess the trend’s behaviour, a 15
minute chart to see if there is a potential set-up in the near future
and perhaps a 3 minute chart to time the entry. On the other hand, if
you are looking to trade a long term expiry i.e. it will be held
overnight and possibly for a number of days, then a 1 week chart, a 1
day chart, a four hour chart and a 1 hour chart would be suitable.
Analyse the market at 4 different timescale to find the trend, assess
the trend, identify the set-up and time the entry. This is the overall
design of the analysis and identifies if an opportunity exists.
Assume we are dealing with an intraday expiry of 1 to 4 hours. In this
case, the following questions are asked:
 Daily chart: In what direction should I trade this market? You
are only allowed to trade in direction of the trend.
 4 Hour chart: If there is a trend, does my assessment of the
trend indicate that I it might by suitable to trade? If it is not
suitable then move on to a different market.
 Hourly chart: Is there a set-up in place or one likely to develop
in the near future? If not then come back later.
 15 minute chart: At what point should I enter the trade?
Let’s look at these stages in more detail according the Binary Options
4x4 plan.
Is there a trend?
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It is generally not sufficient just to look a chart to see if there is a
trend and there is a range of indicators that can be used to identify if
a market is trending. These include:
 Trendlines, particularly if a market has bounced from a
trendline a number of times;
 Moving averages in order of their time periods, for example, if
price is above a short term average such as a 13 day, which is
above a medium term average such as a 50 day, which is above
a long term average such as a 200 day then there is a good
trend in place.
 A bounce from a support or resistance level that indicates that
a pullback is over and a trend is resuming;
 An indicator such as ADX above a key level and rising;
 Special charts such as Ichimoku charts;
 A move between the central line and the boundary in a sloping
band such as a Bollinger band or Keltner channel.
You need more than a vague idea that there is a trend as you must be
able to assess the suitability of the trend for trading.
This is just a selection, you can take your pick. Contrary to what
might sometimes be claimed, there are few set rules in relation to
this analysis and the values that are required. What matters is that
the analysis is consistent and that the indicators are understood.
The 4x4 model uses a range of indicators in 3 templates to identify a
trend. These are scored and the scores are aggregated and weighted
to provide a single number, in form of a percentage, that rates the
trend. Basically, if the market scores below 40% then a trend
following approach will not work well with this market.
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If the market scores above 40% then it moves on to the next stage
which is the start of assessing the trend. If the market passes all tests
then it will be considered for trading.
Should the trend be traded?
This is first examined on the daily chart and then part of the analysis
is done on the 4 hour. A visual analysis is sufficient here as we have
identified a trend, now we are just assessing it and not trying to
second-guess the results of our analysis. There are three key points
to watch out for. First, do indicators such as ADX confirm the trend.
Second, is the market trading outside the Bollinger band. If it is then
it may be overly extended and we should wait until we see a pullback
and recovery.
The third stage is to see if there is a potential set-up. A set-up is set
of rules for entering a trade. It can be considered to be a set of
criteria that a market must fulfill before we can enter a trade. This
may be a particular set of values on specified indicators or a
particular pattern.
You must enter a trade only if there is a set-up whose criteria are
fulfilled. This is to ensure you trade according to consistent rules.
The approach that is used by BinaryOptions4x4 and involves detailed
rules for over a dozen set-up and these details are all supplied to
members. An overview of one such set-up is provide in Chapter 8
below to give you an idea of what is involved. The set-ups are rules,
but there always remains some element of discretion on the part of
the trader in deciding on a trade. The purpose of a set-up is not to
remove the trader from the picture but to act to guide the trader
towards the best possibilities in a consistent and cohesive manner.
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That is the exact opposite to what happens with random or
emotional trading.
Making the Decision
So far we have only identified a potential trading opportunity: we still
need to make a decision. To guide this, the examination of the 4
hour and 1 hour charts should also incorporate a process to see if we
can find a reason not to take the trade. If we cannot now find a
reason not to trade then we go ahead and trade. Notice that you are
now looking for a reason not to trade. You already have reasons to
trade. If you cannot find a reason not to do so then the decision is
made.
Having found an opportunity to trade, can you find a reason not to?
Among the reasons might be:
 An important news announcement or release of economic data
that is likely to disrupt the market. Trying to trade news is not
a good plan You don’t know what will happen and so, at best,
it’s a 50:50 outcome, which is not good enough odds for us.
 Unusual market action such as a sharp spike, sudden volatility
or unusual volume. Wait for the market to provide a better,
clearer signal.
 The market is approaching an important support or resistance
line as it is unlikely to break through at the first attempt.
 There is a divergence between an important indicator and the
price, for example, if price is rising but the indicator is not.
 It’s late on Friday, unless you are trading very short term.
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Can you find a reason not to trade an identified opportunity? There
may be other reasons also.
Timing the Entry
The remaining requirement is to time the trade entry. The precise
requirement here will depend to a large extent on the set-up
involved as each set-up has timing-related rules. One good generic
rule is to enter a trade when many indicators and conclusions from
your analysis are supportive without any major contradictions.
Your analysis to date will have ensured this on longer term charts.
On the shortest timescale you can look for the following:
 A bound from support or resistance, or a trendline, in the
direction of the trend. This often coincides with a resumption
of a trend following pullback.
 A move of an oscillator such as Williams %R across some predefined level as the price moves in the direction of the trend.
 A cross of a slower moving average by a faster one in the
direction of the trend.
 A recovery from a divergence by an indicator such as MACD so
that it is aligned with the trend.
Make your final decision according to a strict process or checklist so
that the decision is broken down into a series of simple questions with
Yes or No Answers.
The point here is that you are simply timing your entry to improve
your chances of success. You are not deciding whether or not to
trade, although you may find a reason to delay taking the trade and
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then find later that the opportunity has passed. If this happens, don’t
worry. There are always plenty more opportunities. But learn from
what you did.
Keep Records of Your Trades
The final requirement is to keep a record of your trades. This should
include data such as the time, strike price, instrument, expiry time
and price, and performance. You should also note any comments you
may have or anything that occurred to you in deciding to take the
trade, possibly as a comment on one cell of the spreadsheet. Your
recording should also keep a running total of overall performance,
your risk taking and the level of returns you are earning.
Keeping records of your analysis and your trading means that you have
a chance to learn from your mistakes – and from your successes.
The purpose of keeping this record is to help you learn, not simply to
keep an account of the trades. It would also be very useful to see if a
losing trade would have been profitable is taken over a slightly
different time horizon. So design this record in the way that best
suits you and review it regularly.
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7.
Information Management and Analysis
The trading strategy that is outlined in the previous chapter is quite a
conservative approach in that there are quite a lot of stages for a
market to pass before it can be traded. But this is necessary as we
must always remember that our goal is to increase our win rate.
Don’t worry if it seems a bit complex at first as it will become very
familiar very quickly for anyone using the approach.
At its core is the premise that we never know what any market is
going to do and so we try to eliminate from consideration markets
that do not look like they are going to move in a particular direction.
One result of this process is that it can generate quite a lot of
information. This is particularly the case in relation to longer
timeframes where we are eliminating a large number of markets in
favour of a few that hold promise.
You need to manage the information that is generated by your
analysis. Otherwise it is just confusion.
We need a way to capture the results of this analysis – an
information management system for our trading.
After all,
information is only useful if it is available when needed, can be
interpreted properly and can be used. A trader will have to record
the results of the analysis of markets in such a way that it will be
available later. The problem is that if it is written in summary form
then it can be open to mis-interpretation whereas long written
reports will not be read. Just try it! If you write something today and
return to it tomorrow or the next day you will not read it properly,
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especially if you have a number of such reports to read each day.
Mistakes creep in.
How a trader manages the information that is generated by the
analysis undertaken is a very fundamental issue to be addressed but
is seldom discussed. One way is to try to replace data with colours.
So, for example, if a particular market is suitable for trading then
rather than writing this out simply have a way to colour references to
it.
The 4x4BOSS is an information managing tool where the rules of the
trading system are built in to guide you towards the best trades.
This is basically what is done by the 4x4 BOSS – Binary Options
Strategy & Setups. This spreadsheet-type software is used by
BinaryOptions4x4.com members to record the results of the analysis
they undertake. The beauty of the BOSS is that on one page it can be
instantly seen for any particular market, or up to 10 markets:
 if there is a trend;
 its direction;
 the strength of the trend;
 whether it is overly extended and likely to pull back; and
 whether there are any set-ups in the system whose criteria are
met by that market.
Therefore, it can instantly be seen if there is an opportunity to trade
the market and, while this does not yet tell us to enter a trade, the
BOSS map tells us which set-ups should be used should a trade be
taken. There is no need for long-winded written reports, no need to
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read and reread text, and no room for misinterpretation. Here is an
extract from a BOSS report3.
It is possible to see, at a glance, which markets have a hot trend –
they have more red cells under the Screens and Strength columns.
The direction of the trend is also immediately obvious as is the
direction in which a trade will be taken, should a trade be taken. The
Extended? And Diverge?’ column indicate if there are concerns about
the trend that might prevent you from trading. Finally,. The BOSS
shows which setups should be considered if a trade is taken. In
effect, if a setup is indicated then the market is worthy of further
analysis to see if a trade should be entered.
When this analysis was produced, the EURUSD was displaying quite a
strong downtrend with a number of possible setups indicated.
However, there were much weaker trends on GBPUSD and Gold. The
trends in USDJPY, S&P500 and Oil are all strong but there are
concerns about these markets being overly extended or having
3
Note that this is provided for illustrative purposes only and refers to a specific point in time.
Clearly the underlying data will have changed since the analysis was undertaken and so the
conclusions are no longer relevant. Furthermore, upgrades to the BOSS and some notation may
change over time and current or future maps may show stylistic difference from this illustration.
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technical weaknesses that could make them prone to a pullback.
Some set-ups could still be considered, but caution is advised.
The BOSS provides all this analysis for both the daily timeframe
(shown above) and the 4 hour timeframe. Having this information to
hand means that a trader can assess at a glance which market offers
the best opportunities for trading and should therefore be analysed
further. It also means that the results of the analysis are clear
afterwards, even if the analysis is put aside for a period of time.
BinaryOptions4x4.com members are provided with all the
information that is required to undertake the analysis in connection
with the BOSS, as well as how to read and understand the chart.
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8.
Example of a Set-up
From the descriptions above, you will be aware that the 4x4 system is
basically to find a trend, assess its suitability and then identify a
particular set-up. There are a number of set-ups within the system
that are specially designed to ensure consistency with the analysis.
Here is one example that you can try. Remember that you must have
first identified a suitable trend and that you only trade in the
direction of the trend.
The BOSS points to where the best opportunities are: you then
decide if you want to take them according to the rules of the set-ups.
Based on the set-up being followed here, the analysis should proceed
as follows:
 Look at 4 hour chart. Visually confirm the trend and that the
market price is not approaching a major support/resistance
level. Confirm also that it is within the Bollinger band.
 Check that no important news announcements are imminent.
 Look at the hourly chart.
Bollinger bands.
Check that price is within the
 Define a seven (7) hour exponential moving average (EMA7) on
the opening and also on the close and draw them on the chart.
 Look for the close to cross above the open for a call option
with the reverse for a put.
 Ensure that Williams %R is above -50 for a call, or below -50 for
a put. Check that there is no divergence on the MACD.
 Check the 15 minute chart for timing. Look for the same on
the indicators.
 If all is in place then enter a trade with a 1 to 3 hour expiry.
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The logic of this set-up is as follows:
 The trade is in line with the trend at multiple timeframes and is
supported by technical indicators;
 When the EMA on the close moves above the EMA drawn on
the open then the market is in an uptrend as the close in each
period is above the open. The reverse also applies.
 The indicators show that there is momentum in the direction
of the trend. This increases the potential for the trend to
continue.
 The 15 minute analysis is simply to aid timing.
Look at this analysis on the chart below. This is a 1 hour (60 minute)
chart of the S&P500 Index at a time when there was a good uptrend
on the daily and 4 hour charts (not shown here) price was within the
Bollinger band on both.
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The top part of the chart shows the index using a candlestick chart.
Look at the point above the yellow arrow. The 7 hour EMA of the
close has just crossed above the 7 hour EMA of the open on the
previous bar. That’s the signal. The MACD has turned up strongly
and the Williams %R has crossed -50 and is rising. The conditions for
the trade are all fulfilled. A trade taken at that point would have
been a winner across all the relevant time periods.
A set-up is a set of rules that identifies a good opportunity to trade.
Only trade if the criteria are met. Otherwise your trading will be
random and you should not expect to have more than 50% winners.
Notice that the price levels out at about the middle of the chart – this
is probably the night time period when markets are quieter – and the
two EMAs approach each other although they don’t actually cross.
They then begin to move apart again suggesting that another trade
might be possible. However, look at the MACD. As price moves to a
new high it is falling and the histogram is below the zero line.
Similarly, the Williams %R reading is falling and is soon in the lower
part of its chart i.e. below -50. There is a technical divergence and no
trade is allowed using this set-up. If a trade had been taken it might
have been a winner on a short time period, but it would have been
loser over most periods. These are not good odds.
At the high, the index moved outside the Bollinger bands, indicating a
reversal or a pause in the trend was likely. While not shown on this
chart, the index actually remained flat or close to this level for the
next two days, precisely the sort of trading conditions that would eat
into profits. SO even though there was a good daily uptrend, unless
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47
the conditions of the set-up are filled no trade should be taken. This
underlines the importance of this 2 stage type of analysis.
With a little practice you will soon find that a set-up such as this with
written rules is easy to learn and apply. There is always some
discretion, but consistency is achieved through rule based trading.
Notice in particular that there is nothing complex here but you must
undertake the analysis and have a way to record the results.
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9.
The Next Stage
Having read through this eBook you should download the free
Workbook and bonus eBooks to get you started. Click here or on the
image below to get these bonuses.
If you prefer you can copy the following link into your browser:
http://www.binaryoptions4x4.com/frbowbkjk.
These bonus eBooks are completely free and there is absolutely no
commitment on your part.
This free eBook contains a lot of information that I hope will be useful
to anyone starting out trading Binary Options and to traders who
have experience but who wish to improve their results. However,
while it outlines the background to a trading strategy and provides
quite detailed guidance on some of the most specific aspects of a
plan, it does not cover everything. In particular, more is required on
how you would go about developing a plan and more on the set-ups
that are required in a full trading strategy.
How to Trade Binary Options Profitably
BinaryOptions4x4.com
49
This is covered in much greater detail in Steven Harcourt’s book
entitled The Definite Guide to Trading Binary Options. It sets out in
16 chapters across more than 200 pages, plus an additional chapter
containing free downloads to get you started and save you money,
the requirements of a full trading strategy. Find out more at
www.binaryoptions4x4.com/definitive-guide.
The Definitive Guide covers how to form expectations and control risk
and shows you how to go about analysing markets. It also provides
details on about a dozen set-ups to guide your trading and detailed
information on how to work through the decision process. It also
looks at what successful traders do and how you might replicate their
success. And it provides you with all the software, information and
materials you need to implement the strategy.
As a special Thank You for reading this eBook I’m offering $5 off the
price for anyone purchasing directly from the BinaryOptions4x4.com
site. To avail of this special discount simply enter the following code
in the appropriate box at the checkout:
By following the strategy that is laid out in the eBook you have the
opportunity to save yourself from losing your trading funds and to
put yourself among the minority of traders who are successful in the
long run.
The strategy is based on the 4x4BOSS software. You have seen the
importance of trading according to a logical and well defined plan.
You will only do so if you follow set processes and guides and
undertake analysis that is consistent with that plan. Furthermore, I
How to Trade Binary Options Profitably
BinaryOptions4x4.com
50
have shown and stressed the importance of managing information if
you are to trade in this manner.
Anyone who has previously analysed markets will know the problems
that can arise in trying to interpret and record the results of their
analysis. You can learn how to undertake the analysis but you need a
system to manage the information you generate. Numerous
different systems to do so can be envisaged but I’ve yet to see one
that does so in such a logical and cohesive way as the 4x4 BOSS. You
could develop your own but having the BOSS to guide you will save
you a lot of time and effort doing so. And that’s not to mention the
losses you will suffer if you trade while developing the system.
The 4x4BOSS software is provided free with The Definitive Guide to
Trading Binary Options eBook. This software is used to manage
information and find trades in line with the 4x4 Strategy. This is the
core of your system, but requires only that you learn the system and
know how to put numbers into a spreadsheet.
When you buy the eBook you will be able to download the 4x4BOSS
software. You will also get access to bonus eBooks and aids to guide
your trading decisions. These include a Glossary of terms used in
Binary Options, a Checklist for identifying setups, and a Decision Path
to guide you to make consistent decisions.
It’s a very comprehensive package with everything you need to get
you started. Unlike so many trading packages, all you need to get
going is included to that there are no further up-sells, no mandatory
add-ons and no recurring payments.
How to Trade Binary Options Profitably
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The is also a special discount for having downloaded this eBook. Just
insert the code below when purchasing to claim a $5 discount on the
price.
I think you’ll agree that’s not a bad return for downloading this free
eBook!
I think you’ll agree that’s not a bad return for downloading this
eBook! If you have a friend or colleague who is interested, or if
someone has passed this eBook on to you, then you can still use this
code to get your discount.
That’s it. Thanks again and I’ll leave you with one thought:
Life has never been All or Nothing – it’s All and Nothing. Forget the
binaries.
~ Jeanette Winterspoon
Perhaps she has a point. But I suspect she doesn’t know a lot about
Binary Options and how they can be traded profitably.
I hope you now see how this can be done with more clarity. I want to
wish you the best of luck with your trading and I hope you are
convinced that the 4x4 strategy will assist you as you embark on or
continue your trading journey.
All the very best, Joe
p.s. Don’t forget to download the free Workbook and bonus eBooks.
Get them here.
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