By Darrell Martin
Trading just to be trading, does not result in profits and can be detrimental to your account. Some traders debated whether money could be made by trading In The Money (ITM) binary options.
Trader A had randomly tried trading binary EUR/USD strikes for five days selling for $10 at 8 AM for 3 PM expirations. He thought that by risking $90 to make $10 and giving the market all day to make a small downward move, he would have a 90 percent chance to be correct. His results: after five days, only three were profitable. He deduced that it would have been better to take advantage of trading Out of The Money contracts, which would have also been less stressful.
Trader B did not agree with Trader A telling him his theory was flawed. Traders should not be trading by randomly selling strikes. There needs to be a reason anytime you enter a trade.
Trader C said that buying or selling random contracts did not prove anything. He reminded Trader A that ITM binary contracts can still be profitable even if the market moves slightly against you. ITM binaries also increase in value as time decays. He suggested trading ITM binary contracts during the last 15 minutes before expiration for some Expiration Premium Collection trades.
A trader with more experience, Trader D, had some good advice for all traders. He said, “Buying/selling ITM binaries randomly will absolutely be a losing proposition. But buying/selling an ITM binary with a reasoned purpose backed up by provable stats, will be profitable. Remember that the price of a binary, and hence its moneyness, (In The Money, At The Money or Out of The Money) is correct only for that specific time. If/when the underlying market moves, then the price of the binary reflects that move. Then, factoring in the time element, over seven hours in your example, compounds the problem. With that amount of time and the little amount of premium ($10), it is almost certain that you will lose.
The point is that there is a reason for each type of contract. You are right to say that you have to match your personality with your trading style. It makes trading much more enjoyable when you aren’t fighting your personality. As long as you match the type of binary with the market personality, then you are fine.”
Trading expert,Trader E explained other points of trading. He said that when trading on Nadex, it is important to understand that Nadex is an exchange there to fill the transactions of buyers and sellers. The exchange is not trading against you. This would be like saying that the CBOE (Chicago Board Options Exchange) was pricing options against you or the CME (Chicago Mercantile Exchange) was pricing futures against you. Exchanges do not set prices. They simply fill orders. Market makers and other traders place the orders and make the market bids and offers.
All traders must realize the importance of following a system when placing their trades. Trader F, another expert trader, said that without a defined system for trading, one loss can easily wipe out 10 wins and nobody wants to do that type of trading!
Following the rules and being disciplined will help you reap the biggest rewards in trading. Using stop losses to protect your profits helps to maintain a 1:1 risk/reward ratio. Be disciplined enough to exit the trade if it hits your strike price. All of this can lead to a higher win rate making trading ITM binary options profitable.