Binary Trading

Profitable strategies for binary betting

John Piper

• Publisher: Harriman House
• Year: 2011
• Print ISBN: 9781905641710
• eBook ISBN: 9780857191403
• Edition: 1
• Topic: Business
• Subtopic: Investments & Securities
• Index: Business

Over the last few years, the world of betting has changed dramatically thanks to the convergence of betting on sporting events and the trading of financial markets. A new type of betting has emerged which has become the fastest growing area of betting today - binary bets. John Piper's 'Binary Betting' is the definitive guide to getting started with binary betting. Now he has written a second book for more experienced traders that takes binary betting to a new level. 'Binary Trading' assumes that you already know the basics and will show you in detail how and why: - you need never use a stop again - you can get the market totally wrong and still make money - you can look forward to news items and trade them with impunity Whatever your current trading strategy, you should consider how binaries could fit into your trading plan and make you money. This detailed and comprehensive book from an experienced trader will tell you just that whilst giving an inside look at the exciting world of binary bets.

Part I – Essentials

1.A Day in the Life of a FTSE Binaries Trader

The FTSE on 26 November 2007

It’s a tough life for us traders

Getting up early to review the charts before FTSE opens can be simply too much bother for some traders but I consider it essential. As I do this I make notes and here are today’s:

Date: Monday 26 November 2007

Location: Naithonburi Beach Resort, Phuket

FTSE’s prior close: 6262.1

200 day MA: c.6420

Major Trendlines: c.6000 – 6500

Notes: FTSE has bounced well off Thursday’s (22nd November) low at 6026.9 – see chart below – and it looks like it is time for a pullback (possible five-wave form developing) so I plan to go short today. The big question at this time is whether this rally is going to build a head of steam into the Christmas period. Elliott Wave patterns suggest two main alternatives. Either a feeble wave 4 rally which could stagger into Christmas, or new impulsive action which would give the bulls some real festive cheer. Either way I expect more upside but FTSE may well want to re-test 6026.9 first – it is this re-test that sets the scene for the trade today.

Right, it is now time for breakfast on the beach. Damn hot it is to – I said it was tough! I have around six hours until FTSE opens and the fun begins, I have to try not to be too miserable in this island paradise up to that point.

As this is titled “a day in the life” I suppose I ought to mention the sunbathing, wave jumping, and lunch...

Actually I will mention lunch.

I ordered king prawns and they were around 12” long! Pretty impressive prawns. And freshly barbequed. It doesn’t hurt that they cost around £6 – I would have paid ten times that in the UK, although no restaurant in the UK can compete with a Thai beach for ambience.

Anyway at 2:50pm (7:50am in the frozen wastes) I was back “on station” at my PC expecting an early rally and looking to sell as I think it is time for a pullback.

Market opens

The early action supported my view with a failed break above 6300 (meaning FTSE poked its head above 6300 and promptly fell back) and at this point I bought the following bets:

1. FTSE to end down >50 points – bought at 14
2. FTSE cash low to be <-100 – bought at 8.9

Both of these bets should prosper if we see a decent fall, even if FTSE does not go all the way.

I did consider the bet FTSE to end down but it was priced at around 40 and this did not offer such good odds. To put this in trading terms the risk/reward was not to my liking.

Here is a chart of the action including the sell signals on the day itself. I have also marked the possible five-waves up on this chart. The five-wave pattern is a technique from the Elliott Wave Theory and I will be discussing and explaining this thoughout the book.

Chart 1.1: FTSE 100 Index, 24-26 Nov 2007

A quick note on binary betting

For those of you unfamiliar with the delights of binary trading I ought to make a number of important points.

Unlike with spread betting I am not worried if I do not catch the high – I cannot get stopped out of most binary bets, even if I wanted to. The fact a market may go 30 or 40 points against me is not of major concern as long as it goes the right way eventually.

If I buy a bet at 40 my maximum profit is 60 (100 – 40) as a binary bet can only move between zero and 100. That is a reward of only 1.5 times my risk (60 divided by 40 = 1.5 = 150%). But consider this ratio on my other two bets. Buying at 11.4 gives me a potential reward of 88.6 (100 – 11.4) and a ratio of almost 8:1. Buying at 8.9 is even better giving a potential reward of 91.1 (100 – 8.9) and a ratio in excess of 10:1.

Consider this in the context of risking a total of £100 on each bet:

• Buying at 11.4 allows £9 per point (11.4 x £9 = £102.60). My maximum potential reward is then £797.40 (88.6 x £9= £797.40). In percentage terms that is a return of 777%!
• Buying at 8.9 allows £11 per point (8.9 x £11 = £97.90). My maximum potential reward is then £1002.10 (91.1 x £11= £1002.10). In percentage terms that is a return of 1023%!

You will notice that risk/reward is significantly better if we risk less in the first place and the lesson is that it pays to get in cheap (or sell high when we sell to open).

Back to the market…

Around 9am FTSE rallied again to a new high at 6307 and fell back again. But the fall was not rapid and FTSE then saw a brief move back above 6300 – this was not too encouraging for the bear case!

But this brief move to new highs is the sort of action that can stop out traders who are using spread bets to place trades and is one very solid reason why I much prefer binary bets.

For the next few hours not a great deal happened as FTSE bounced between 6310 and 6270 – in fact it looked as if we might be seeing some sort of correction before we went higher. However the failed break above 6300 remained a solid sell signal and this was still in place so I kept the faith.

While this was a happening I was fairly busy working on a new DVD series and preparing some trading examples for that series and a major seminar I was giving shortly. I find it so much easier to do this creative work when I am away from my UK office – free of many distractions. I also think my frequent visits to the beach help – there is nothing quite as inspirational as waves gently lapping a tropical shore.

The sunset was stunning as well!

FTSE starts to move

It was after midday (7pm in Phuket) that FTSE started to move. By this point I was fully positioned and prefer to leave my trades to their own devices at this point. My girlfriend was after a book of Thai fauna and flora and I had been dispatched to find it along with some solid gold earrings – hope those trades help fund them!

All through my trading career I have always tended to take profits too early – not much too early but still leaving plenty on the table. I know many traders have this problem and many never get beyond the phase where their trading results are merely a long stream of small wins and small losses.

On entries and exits

Partly this is a result of an age-old problem facing traders who choose to spread bet or trade futures – the problem of mastering two very different skills. In fact I would say they were opposing skills:

• cutting losses is active and disciplined,
• running profits is relaxed and passive.
• Yet traders must learn to do them both concurrently. Not surprisingly, many fail.

This is one of the principle reasons I now use binary bets fairly exclusively. You do not need to cut losses, it is all in the price if you trade carefully, and you are free to concentrate on running those all-important profits.

This is particularly true if you trade at low prices. If you buy a binary at 10 the downs...

Table of contents

• Cover
• Publishing Details
• Biography
• Preface
• Part I – Essentials
• Part II – Strategies
• Part III – You and Your System
• Appendices