Potential Apex OTM Binary Trade System Using Deviation Levels

#1

So, I was done trading today and was looking back on some charts and noticed a possible trading strategy.

This involves looking at the APEX pattern and using the deviation levels. Here are two screenshots to show what I am talking about:

screenshot 1 “http://bit.ly/18PlmHy”

screenshot 2 http://bit.ly/1bFSO4i

So, the idea is to look for an APEX forming near a deviation level and target the next higher deviation level for a green APEX and the next lower deviation level for a red APEX, by buying/selling an OTM binary at the higher/lower binary.

Looking at the second screenshot, I checked the the price of the 15540 binary (closest to the +.5 Dev level) when the E formed. I could have bought it for $14.50. Had I placed the trade, I would have looked to get out at 2X risk amount ($29).

As I looked back, this seemed like a decent strategy, as it is a relatively low risk trade (small amount of money required for the trade, APEX pattern in your favor).

You could also probably do the same with an APEX reversal and target the next deviation level.

Maybe someone else has ideas on fine tuning this for all of us to use.

Happy trading, Brad

#2

This has potential. The only challenge will be having the time to be right as it may take 10 minutes or several hours to move the .5 dev level. But you do have the momentum of the apex entry in your favor. You just need to ensure you have the time to expiration also in your favor.

The benefit on this trade is a 1:1 risk/reward and no stop loss - the drawback is time decay - but a profit of $15 should be pretty easy if it moves in your favor.

Keep testing it bring it up in the room etc… we can check it out see what works best. But I like where your heading :slight_smile:

Darrell

#3

Just to show the possible results:

Today’s trade “http://bit.ly/17iyKgy”

I simulated (was in a live trade didn’t want to shift to demo) taking the trade when at the 3 tick breakout of E at 0950. I would have bought the 15570 (above .5 dev) strike binary with a 1615 expiry. The price was $24.50. At 1044 I would have got out of the trade for $48.75.

I went back to see what the price of the 15590 (above .7 dev) strike binary with the same expiry and exit would be. I would have been able to get in at $18.25, and exit at $40.25.

Thoughts on the trade:

  1. The APEX formed almost 30 points above the settlement price (1.5 strike width). That was already half of a .5 dev move for the day (60 points). While the trade worked out, there should be a way to tighten the entry.

  2. Is it better to take a longer out expiry, regardless of entry, to give you time to be right? Doesn’t the price move faster on the shorter time expiry, and slower on longer out expiries?

  3. Maybe it would have been better to try and take the trade when the first failed E showed up (blue box). Is there a statistic of failed E’s signaling a reversal ( I admit I haven’t watched the Phantom E reversal vid yet). If I had entered there, the risk would have been $20 for the 15570 strike and $14.75 for the 15590 strike.

  4. I simulated exiting at the bar after the A at 1044, since it had already passed the .5 dev level, and the following bar closed lower. That’s not exactly a rule based system for trading. I would think that you get out when the underlying hits the dev level you are targeting for ($43-57), or stay in if a continuing APEX forms in your favor.

  5. If I had looked been looking at it earlier and gotten into the trade around 0815 (the red APEX targeting the -.5 dev level), that trade would have lost. Maybe a rule should be that if there is a failed E (blue box) that is against your trade exit your trade…

Still a work in progress, but looks quite promising.

#4

  1. 30 points on the dow is like 3 pts on the ES its not that big - you can make the bars smaller that would be the only way to tighten it

  2. More time when OTM is good as you have more time to be right - but you will pay some for that additional time - no matter what expiration time you choose if the underlying hits your strike you could get out at about 50 (ie my 43/57 rule). Price will move faster on a shorter expiration but no matter how short or long it will be at 50 when at the strike and won’t go above that till beyond it so it does not matter if its slower as you are targeting the $50 exit. The problem is if the binary is OTM and you don’t hit that strike its value will decay faster on a shorter term expiry.

  3. I don’t really track old E’s I only track valid entries - if it was a BMX reversal then you would have had a long there but it was not but others did have BMX reversals today - when i trade indices i trade or at least watch all 4 and the broad market index at the same time

  4. Note you also had a velocity alert - if doing OTM often i just target the 1:1 you could try to use the trailing stops ie PE, X, Velocity, Deviations etc… but OTM time is working against you till your ITM - once you are ITM you have to be ready to hop out if it goes back OTM… Keep it simple is probably best.

  5. If you did the short trade - you would also have been risking about $15 to $25 is my guess… So by the time you got a “stop loss” it would be worth like $5.00 and really no reason to exit as it could totally reverse back which it did as it went down at hit about 15433 the -5 dev so you would have been profitable on both. The benefit of OTM binaries is you don’t need a stop loss. So both would have worked out :slight_smile:

Looking good - keep it up !

[quote=dca78_00]Just to show the possible results:

Today’s trade “http://bit.ly/17iyKgy”

I simulated (was in a live trade didn’t want to shift to demo) taking the trade when at the 3 tick breakout of E at 0950. I would have bought the 15570 (above .5 dev) strike binary with a 1615 expiry. The price was $24.50. At 1044 I would have got out of the trade for $48.75.

I went back to see what the price of the 15590 (above .7 dev) strike binary with the same expiry and exit would be. I would have been able to get in at $18.25, and exit at $40.25.

Thoughts on the trade:

  1. The APEX formed almost 30 points above the settlement price (1.5 strike width). That was already half of a .5 dev move for the day (60 points). While the trade worked out, there should be a way to tighten the entry.

  2. Is it better to take a longer out expiry, regardless of entry, to give you time to be right? Doesn’t the price move faster on the shorter time expiry, and slower on longer out expiries?

  3. Maybe it would have been better to try and take the trade when the first failed E showed up (blue box). Is there a statistic of failed E’s signaling a reversal ( I admit I haven’t watched the Phantom E reversal vid yet). If I had entered there, the risk would have been $20 for the 15570 strike and $14.75 for the 15590 strike.

  4. I simulated exiting at the bar after the A at 1044, since it had already passed the .5 dev level, and the following bar closed lower. That’s not exactly a rule based system for trading. I would think that you get out when the underlying hits the dev level you are targeting for ($43-57), or stay in if a continuing APEX forms in your favor.

  5. If I had looked been looking at it earlier and gotten into the trade around 0815 (the red APEX targeting the -.5 dev level), that trade would have lost. Maybe a rule should be that if there is a failed E (blue box) that is against your trade exit your trade…

Still a work in progress, but looks quite promising.[/quote]

#5

Thanks for the second look… On the points above:

  1. I wasn’t worried about it being that far away I was just thinking that if we were trying to come up with hard and fast rules, the underlying should probably be within half of a strike width of settlement… If you decide to go farther out, then that would be style…

2)I have had time work out in my favor a number of times on NADEX, that I am always biased towards farther out expiry anyway…

  1. On the failed E, I was just wondering is it a precursor to a reversal…there were 7 failed E,s on YM today:

0900 - were in a red APEX, had a failed E, then flipped to a green APEX 1135 - were in a green APEX, had a failed E, went to another failed E, then flipped to a red APEX 1230 - were in a red APEX, had a previous failed E, had another failed E, then flipped to red APEX 1429 - were in a red APEX, had a failed E, went to another failed E, then flipped to a green APEX 1439 - were in a red APEX, had a previous failed E, had another failed E, then flipped to green APEX 1505 - were in a green APEX, had a failed E, flipped to a red APEX 1557 - were in a red APEX, had a failed E, then flipped to a green APEX

I know it is only one day and one instrument, but that seems to be a pattern…

  1. I think targeting 1:1 is a good way to go, I was just looking at other ways to get out if you are in profit…I.e. say you are only at 50% profit and you see an opposite APEX, you might want to get out with some profit rather than a loss…

  2. I had to run some errands and missed the end of the trading day…funny how that one had completely turned around!!!

I was going to load some market replay this weekend and run some tests… the only problem after watching a weeks worth of data in a couple of hours, the real market moves soooo slow!!!

Brad

#6

1 & 2 understood

  1. Old E and failed E are different - Failed met entry requirements - Old E did not meet entry requirements - they paint the same Today was a wild day with USD GDP, CAD GDP, FOMC etc… not your average day

You would not know it was an old E - until it broke the P level so keep this in mind on the entry - but it is an interesting idea would have to really see it over a period of 20 days to see if it worked well if it did that would be a pretty sweet setup

  1. agreed

  2. FOMC anything can happen

lol market replay does spoil you

#7

Darrell - I didn’t get a chance to look through a backtest of this this weekend. One of the things that i have a question with is what kind of data should I collect on a spreadsheet to make it useful for you and others? I was going to take screenshots and number each trade, and then put the info on a spreadsheet, but i want to make sure I collect the right data that is useful…

I thought the following may be helpful: Date of trade Entry time APEX color Entry price Entry deviation level (closest to entry) Entry deviation price Difference between entry price and deviation level price Difference in Instrument strikes (10 ticks on YM would be .5 strike) Target deviation level Target deviation price Target deviation level reached in trade Closest (highest/lowest) price to target strike Difference in Instrument strikes from price to target dev level How long trade took to reach target (within one hour, within 4 hours, by EOD)

Thanks, Brad

#8

Add in buy/sell

Looks like a lot of work but very thorough - i am definitely looking forward to your results.

#9

Darrell - I did a couple of weeks of testing on this possible strategy on the Wall ST 30.

It looked promising, but…

I looked at all APEX entries (separated out the 1st reversal APEX entry to see if there was an edge).

There were 82 total trades, with 17 wins and 65 losses (20.7%)

There were 29 regular APEX trades, with 4 wins and 21 losses (16%)

There were 70 reversal APEX trades, with 13 wins and 57 losses (22.8%)

Methodology:

  • Took all trades from 0800 - 1600 Eastern
  • Used a 3 tick breakout of E
  • When the 3 tick breakout occurred, looked at closest deviation as a reference, then targeted the next dev level with an OTM binary (generally around $22)
  • If the entry price was over 1/2 the distance between deviation levels, went with the closer deviation level as entry dev level
  • The target deviation was always one level out (i.e. if entry was settlement, then the target deviation was 0.5)
  • Trade was considered a profitable trade if the underlying price hit (or passed through) target deviation level (closing trade for $43-57)

Findings:

  • There is no correlation between closeness to settlement and profitability There were 37 trades that started at/or near settlement, with 7 that were profitable (18.9%) There were 45 trades that started other than settlement, with 10 being profitable (22.2%)

  • There is no real correlation between closeness to the entry dev price and profitability ( some trades started within a few ticks of the entry and lost, some started almost at the extreme of rolling to the next dev level and won)

  • There is an edge in the morning. There were 42 trades between 0800-1200, and 40 trades from 1200-1600. During the morning session (0800-1200) there were 14 winners (33.3%). During the afternoon session there were 4 wins out of 40 trades ( 7.5%)

Misc:

  • I did not go back and look at when news events occurred and what effect that had on profitability ( I would guess that since most major reports are in the morning, that is why there is the 33.3% vs, 7.5% in morning and afternoon trade profitability

  • I only looked at Wall St 30, not sure if other markets would have better results

So, I don’t think this is a viable strategy. I will say that testing with APEX really helps one understand how it works.

I added the screenshots below (minus the last day that I forgot to save).

I will send the spreadsheet to you in a trouble ticket so you can add it to the post.

Do you think that it would be worthwhile to test it longer range? I just felt that with a 1:2 risk reward if it didn’t get above 30% there wasn’t a reason to go on…

Wish it had worked out better… Brad

YM1 “http://www.screencast.com/users/dca78_00/folders/Jing/media/e0bdece2-8d35-42cc-9e90-b03130dd4f5e”

YM2 “http://www.screencast.com/users/dca78_00/folders/Jing/media/99462e1f-5539-4590-8b0f-eb909d6608e0”

YM3 “http://www.screencast.com/users/dca78_00/folders/Jing/media/1f121c51-a9b3-490d-8dd9-68926bbf6750”

YM4 “http://www.screencast.com/users/dca78_00/folders/Jing/media/365541ec-005e-4019-8902-e42b7d4ef977”

YM5 “http://www.screencast.com/users/dca78_00/folders/Jing/media/6b5bf9a9-706a-4dee-81e9-97fc80bfa3cd”

YM6 “http://www.screencast.com/users/dca78_00/folders/Jing/media/6c045ddb-e25e-4f24-9d18-07b03a229665”

YM7 “http://www.screencast.com/users/dca78_00/folders/Jing/media/13eaf659-f3d0-4d81-9d30-bb1881365514”

YM8 “http://www.screencast.com/users/dca78_00/folders/Jing/media/2816c2ac-1767-4e29-bc6d-96ae98af2c51”

YM9 “http://www.screencast.com/users/dca78_00/folders/Jing/media/e17f76c2-17f2-4d35-8692-3980824e16c7”

YM10 “http://www.screencast.com/users/dca78_00/folders/Jing/media/3ace2a75-2c0c-4d79-9818-ab6bf8c050cd”

YM11 “http://www.screencast.com/users/dca78_00/folders/Jing/media/7c74a83d-2fb2-4e58-8dcf-82a58596af3d”

#10

Very Cool - great job on digging in (you can see why i have not been a fan of OTM Binaires)

A few things…

What price are you buying/selling the binary for? ie buying for 25 - selling for 75 - have you been watching what the binaries cost throughout the day to compare the cost based on the distance? (ie if later in the day they could cost $5.00 etc…)

also sometimes a deviation is .7 which is much closer when getting in on a say .5 or .1 - so is 1/2 a deviation the minimum or?

If it is in the middle of a deviation do you still take the E - if so what do you target - closest deviation?

The reason I ask is you mentioned taking E’s near a deviation level but seemed to “deviate” from this rule taking every single E so this sort of “broke the stats” - so what E’s where you taking at the deviation - bar touched the deviation - before the E or within so many ticks of the deviation?? What was the filter as that was original plan. A ton of losses would have been eliminated had you stuck with this rule.

It makes sense the probability would be higher earlier in the day as it is more volatile and as you have more time for the market to move to be profitable (also why later trades would lose - less time to move to be profitable)

Did not filter out BMX’s this would have eliminated a lot of losing trades

Did not exit on BMX reversal - would have lessened losses

Did not take BMX reversal trades could have ? added to profits

What if you changed e bar breakout to 4 ticks like we use on oil how many loosers would that have filtered out

Took every E - even if the other E had not yet made it - this only further increase risk (and hurt probabilities) (scaling in adding on to position over and over again before the last one hit the deviation)

I believe some you are counting as losses that most likely would not have been (ie it got within say 3-8 ticks of the deviation you probably wuld have got the 43/57 fill (this is one of the reasons i use 43/57 it does not have to hit the exact price)

You did test this during the summer before labor day when the market is notorious bfor being choppy (just a seasonal thing to consider)

Going back and look at news would be wise to see if that impacted it - easy to do should not take long

Check out stats if you considered the above…

NOW Other consideration - FLIP IT ON ITS HEAD

If something is so bad that is only profits 7% of the time - then do the EXACT opposite - ie sell the ITM binary (exit if it hits it - versus buying the OTM binary and exit if hit)

Sometimes the counterintuitive things it the best thing after all

#11

I realized after I submitted it that I strayed from the original. Trying to juggle real life and trading… I will go back and look at it again this weekend with the recommendations above…

I actually did flip another strategy that was a loser and it turned it into a winner. Funny how we don’t necessarily think about that… I think we are preconditioned to just throwing away things that don’t work.

Thanks, Brad

#12

Sweet looking forward to updated stats on flipping & on modified back to original plan to see stats

#13

Darrell - since cutting it back to the original strategy will produce less trades, how should I get a larger sample size to make it statistically significant?

Should I test other instruments, using those that have 20 tick strikes?

Thanks, Brad

#14

Or even 10 ticks - ie fx also fx has a lot of extra dailies

Or just grab the sample size then over a few weeks grab some more.

#15

Okay - I finally finished working on a month of data on YM (Wall St 30).

I tried to tighten up the rules closer to what I initially was looking at, while also adding specific rules for entry. So, with that in mind:

  1. the entry should follow the same 3 tick breakout of E bar as the regular APEX rules
  2. in order to be valid, the entry should be within 25% of the strike width from the deviation level (in YM case +/-5 ticks)
  3. the entry should only be taken if it is around .5 deviation levels (Settlement, +/- .5, +/- 1.0, +/- 1.5, etc) ((using +/- .7 deviation was too close)

Here are the three types of trades that I was looking at:

  1. I looked at buying/selling an ITM daily (4:15 expiration) binary from the entry deviation level when there was a valid entry from above rules. Binary was held to expiration. (Trade A in spreadsheet)

  2. I looked at buying/selling an OTM daily (4:15 expiration) binary when there was a valid entry from above rules, and targeted the next higher/lower deviation level as a take profit level. So, if the entry was a long entry at settlement, then I would buy an OTM binary near the .5 deviation level and look to get out when the underlying reached the .5 deviation level. (Trade B in spreadsheet)

  3. I looked at buying/selling an ITM daily (4:15 expiration) binary from the target deviation level when there was a valid entry from above rules. Binary was held to expiration. (Trade C in spreadsheet) ((This was flipping it on its head like you suggested)) :cool:

Here is what I found:

  • there were 32 total trades that met the criteria
  • Trade A stats = 18 wins out of 32 trades (56.25%)
  • Trade B stats = 4 wins out of 32 trades (12.5%)
  • Trade C stats = 32 wins out of 32 trades (100%)
  • there were only 2 entries (trades 20 and 21) that might have had news impact, all three trades on both entries were winners (interestingly that was 50% of the trade B wins) I used a +/- 1 hour window around a significant news event
  • there were 6 entries that were APEX reversal trades (not taking them as per regular APEX rules had little effect on trades A and C, reduced trade B by 60%) (Trade A: 15/26 = 57.7%, trade B: 1/26 = 3.85%, trade C: 26/26 = 100%)
  • there were 13 entries in the morning and 19 in the afternoon

To figure out the profitability, I used the following: Trade A: the most risk I saw was $60 for one of the trades, most would have been filled for less. But, I used the $60 as risk and $40 as profit to suggest worst case) So, total risk would have been -$840 (60x14), total profit would have been $720 (40x18) Trade B: the price of an OTM binary changes depending upon distance and time. As I looked at this portion, I saw that in the morning a half deviation is about $13-18, in the early afternoon, it is about $22-25. So, I used $25 as my risk, and since I was taking profit when the underlying hit the next deviation level, I used $25 as my profit. So, total risk would be -$700 (28x25), total profit would have been $100 (4x25) Trade C: this trade becomes a little more complicated, as you can’t really put the trade on when the entry signal is given. 19 of the trades moved significantly from the entry deviation to the target deviation level. There were 13 of the trades that didn’t have a significant move towards the target deviation level. I counted these as non-filled. Since when the entry occurs, the price is more expensive, ($85-97 risk) you could put in an order to buy/sell the binary at $75, with a $25 profit potential. So, that gave me a total risk of $0 (0x0), total profit would be $475 (19x25).

If you did trades A, B and C, your profitability would be -$245 (-840 + 720 -700 + 100 +475)

If you only did trades A and C, your profitability would be $355 (-840 + 720 + 475) (RECOMMENDED)

These, of course would be worst case as you would probably get filled a little better on some of them.

Conclusions: (1) The OTM binaries, while having high profit potential are ****ers bets. You really need to get almost 30-40% probability of success to approach anything like a sane risk/reward scenario. (2) The ITM trades end up becoming a wide condor, I guess, except you end up legging in to one side of the trade (the target dev). (3) You could probably improve the profitability by using BMX’s, and other style entries/exits, but it is fairly profitable if you do A and C using nothing but the rule entries. For example, on some of the C trades, the underlying actually crossed into the deviation zone and you could have bought for $60, with a $40 reward. Maybe do one contract at $75, another at $60 to catch those, since it is 100% profitable…

The questions for follow on are:

  1. in order to get statistically significant data set, should I use the same criteria on the other indices, or can I use any instrument? I want to make sure I am comparing apples to apples and not apples to oranges…
  2. how long (how many data points) would you consider statistically significant (100???)
  3. do you think that an OTM strategy of buying in the $18-22 range and selling at $30-35 would work? How to model that? (size move required, etc…)
  4. do you think the stats will change when the majority of traders come back after Labor Day?

I will send you the spreadsheet in a trouble ticket so you can add it to the thread, I don’t have that ability.

Here are the charts: 7-31 “http://www.screencast.com/users/dca78_00/folders/Jing/media/e7544d2c-f23e-43c5-83ef-56d3b270c5f4”

8-2 “http://www.screencast.com/users/dca78_00/folders/Jing/media/a5c6a6fd-7058-4373-b78b-2f68027cbc58”

8-7 “http://www.screencast.com/users/dca78_00/folders/Jing/media/759ea504-c2aa-4dea-813c-200bcd86d0c9”

8-9 “http://www.screencast.com/users/dca78_00/folders/Jing/media/8e83a68a-c639-4a51-bf5f-6ee2dfd8a939”

8-12 “http://www.screencast.com/users/dca78_00/folders/Jing/media/3f5df6e5-1b49-452c-835c-2dac2c73e456”

8-13 “http://www.screencast.com/users/dca78_00/folders/Jing/media/e8f68649-bbf3-40db-ab81-688f408db558”

8-15 “http://www.screencast.com/users/dca78_00/folders/Jing/media/9adcb4c4-3921-45a0-870e-1c7fd9030cd0”

8-19 “http://www.screencast.com/users/dca78_00/folders/Jing/media/1f344835-6022-44a0-8e89-500056140d61”

8-21 “http://www.screencast.com/users/dca78_00/folders/Jing/media/b5a9cd7e-406c-4ef4-b76c-fd2679f4283f”

8-22 “http://www.screencast.com/users/dca78_00/folders/Jing/media/21b16554-0ebd-4618-8e5f-d5228f042a01”

8-23 “http://www.screencast.com/users/dca78_00/folders/Jing/media/3d3a5b38-5cde-44b4-a4d3-d4cd8cf0a4a3”

8-26 “http://www.screencast.com/users/dca78_00/folders/Jing/media/4d67defd-6a0b-4256-bde7-ec42f608498d”

8-27 “http://www.screencast.com/users/dca78_00/folders/Jing/media/05a8da9d-e1c2-435f-a668-77da5f3cb7b9”

8-28 “http://www.screencast.com/users/dca78_00/folders/Jing/media/d114482b-099f-4577-81b9-959b5528cb59”

#16

Great work! It is a lot to go through and do and redo a system but you are really mastering this process!

You say you recommend A and C - why bother with A when it is only 50% profitable? Why not just C?

Great job on being so thorough. There is a lot here even for me to comprehend. Can you outline the strategy for C again?

Yes the seasonality can affect it but it will be interesting to see if it does keep tracking.

I would focus on just plan C

Then check out all four US indices then DAX FTSE international indices then expand to commodities then to forex the reason i save forex for last is there are so many daily expiration so there is a lot we can expand the strategy on from here

Here is the link to download the XLS: http://apexinvesting.com/wp-content/uploads/2013/09/YM-TEST.xlsx

I look forward to helping you continue developing this.

Let me know when you have outline done and posted we will take it from there and maybe get some others in on it to help speed up the testing process.

#17

Thanks for the reply and help. I would recommend that every one of your students try and figure out something like this because it really does help you understand the APEX pattern and binary pricing, among other things. My 2 cents…

The reason I added trade A was because the worst case would be a risk of $60, which gave you a negative profit (-$120). Many of the trades would have been filled for less risk (47-53) which would have made it profitable. I just have no real way of modeling binary prices over time, the only thing that I know for sure is that when the underlying is in the entry range, the most I have seen an ITM binary cost is $60. For example, on this small sample size if the average risk was $50, then it would have been profitable ($200). The break even risk is around $56.50 per trade. So, with a larger sample size, if the probability of success goes higher by even a couple of points, then the max risk that I saw of $60 would be profitable.

Granted, a larger sample size could just as easily make the probability less… But, since I have to plot the ranges and everything, it isn’t too much extra to see.

Okay, here is the reasoning on Trade C. It grew out of the flipping my original plan on its head. When there is a trade signal (green APEX, 3 tick breakout of E bar in 25% range of any half deviation), I SELL a daily expiration ITM binary near the next higher half deviation level (which is what I was originally targeting as an OTM buy). So, if the green APEX entry was near Settlement, I would SELL an ITM at the 0.5 dev level. If the trade signal was at the 0.5 level, the ITM would be near 1.0. So far, 100% of the time the underlying price will not expire at or above this level.

When there is a trade signal (red APEX, 3 tick breakout of E bar in 25% range of any half deviation) I BUY a daily expiration ITM binary near the next lower half deviation level. So, if the red APEX entry was near Settlement, I would BUY an ITM at the -0.5 dev level. If the trade signal was at the -0.5 level, then the ITM would be near -1.0.

I added a chart HERE “http://www.screencast.com/users/dca78_00/folders/Jing/media/db7a1887-ef24-4975-9d11-6f9b19a1ed1f” .

As far as the pricing goes, when the trade is triggered, the ITM binary is going to be expensive because it is nearly a half deviation away. So, it is probably in the $90+ risk. While, with the limited data I have it is 100% probability that it will not expire OTM, I was trying to get a better price. One of the things I have noticed is that the risk in a binary reaches about $70-80 when it is halfway between the half deviations (depending upon time of day). So, in the 32 trade data points, 19 of the trades made a significant move towards the ITM Trade C binary strike, where I could get a better price (lower risk). In the other 13 trades, they never made much of a move towards the ITM Trade C binary strike. So, when the trade is triggered, I could put in an order to buy the ITM at $75, or sell the ITM at $25. Since the risk would be higher, it would sit in the working orders until the underlying moves and the binary is priced accordingly. In some cases, the underlying actually hit in the ITM range, where the risk would be ($47-53), but it always (so far) has expired ITM. Conceivably, you could layer orders in at every $5 risk reduction when the signal is given ($95,90,85,80,75,70 risk, etc…

Now, the difficulty is what to do when the underlying reaches the Trade C ITM binary strike. There were 4 trades where the underlying actually reached the ITM range. If you had exited the trade (like you teach) we would have lowered our profit from $475 to about $375. Still, very acceptable. But, if over time, there are only a couple of trades that actually end OTM, it would be interesting to look and see what the results would be if we don’t exit and hold the binary until expiration.

I hope that explains it well enough. Do you have any way of sending me past deviation levels? I know NT only plots 30 days of them, but do you have historical databases of them? Do you think 6 months of testing would be enough to make sure that it is a viable system?

Thanks, Brad

#18

we have the data for them but we are working on an update on the indicator that will allow you to load more days - right now its limited due to data being pulled from server - but with the update it will only pull the updated data not the same data - so at this time its not availble though it will be in the future

lowering the profit to limit the risk is definitely worth it - as if you got a string of OTM expirations it would have serious reprcussions on the entire system

i doubt they would be at 90 unless closer to expiration ie earlier in the day coudl be much more or much less - always using 4:15’s right? definitely want to test .5 deviation (ie use the 1/2 deviation distance on the website deviations page) and check the binary pricing ie just take note 1x per half hour on any strike that is 1/2 a deviation away from current price - yes price could be adjusted but now recording this over a coupld days will give you a good pricing model of binaries half a deviation away depending on time of day-

you mentioned at least .25 , .25 and .5 can make a big difference on pricing

are you ignoring .7 devs? ie not doing .5 below and .5 above?

so on a green (long) APEX when triggered price 3 ticks above E is hit - you are selling half a deviation higher?

i noticed on system a you are buying ITM strikes very closer - even closer than the P - what if you did same as on C and bought ITM on the A plan but at a .5 deviation away

#19

So, today (8/5) had a couple of good set-ups on YM for the C trade (needs a new name). Of course, YM went flat around lunch and never moved.

The entries were shorts at Settlement, so I was looking to buy the -0.5 dev level.

Settlement was 14924.

-0.5 dev was 14850.

I looked at the 14840 binary strike (4:15 expiration).

The price of the binary was $92.25 when the trade was triggered at 11:40. That was the best price it ever showed, by 12:10, it had already increased to $96.25.

I tried the simulator on the binary scanner to see what price would be if the price moved down to 14887 ( -0.75) and it showed a price of $70.

When I looked at the back testing, I never really looked at how far the underlying had moved towards the binary strike. I only looked to see if it had triggered a trade and then moved away, and that it expired ITM for our purposes. I will go back and look at that…

If one were to ladder orders in when a trade is triggered, that might work better.

What I was thinking was this:

When a trade is triggered, we could place orders to buy at $90, $85, $80, $75, and $70. Our total risk is $400, but is we exit if the underlying hits the strike it drops to $150. Our profit potential on the trade (if all got filled) is $100.

You asked about the +/- 0.7 dev levels with this strategy, and I don’t see any reason why it shouldn’t work. I looked at it the other day when there was a trigger at 0.7 (14934), the price of selling the binary at 15020 (about 1.2 dev level) was $3.25. I can add that to the look back testing.

I think that last line in your above post is interesting. I had only looked in the one direction, with APEX color determining where to buy/sell. But, with volatile pairs the other side should probably work as well. I’ll look into it.

Hopefully, this weekend I can get the other US indices done to see how it hold up.

Cheers, Brad

#20

Looking good keep it up!