By Darrell Martin
Swing trading, derived from the back and forth motion of a swing, is trading between two predefined price levels. Basically, you trade up one level, then down to the next, or the other way around depending on the direction of your trade.
You want to trade between those two predefined price levels.
To define the range or the price levels, you may use a variety of methods such as fundamentals, technical analysis, trend lines, support and resistance, seasonals or deviations.
Once you determine how you are going to define your range, then it is a pretty simple strategy.
- Select a Range or Price Target.
- Locate a Binary Strike near that Range or Target. Be sure to consider Risk/Reward when locating the Binary Strike.
- Confirm the Direction of your trade and enter the trade.
- Close the Trade when it nears Price Target.
- Reverse Trade. Open a trade in the opposite direction from the first trade.
- Close this Trade when it nears Price Target.
In looking at deviation levels for oil, you determine that oil is trending up. The lower target is based on yesterday’s closing price and the upper target is the +1 deviation level. For this example, let’s say the lower range or target is 41.85 and the upper range or target is 43.22.
You try to find a binary strike near the upper target range, in this example using the following daily binary option: Crude Oil >43.00 (2:30PM). In the morning, you buy an OTM binary somewhere between $10-20.
If the underlying market swings up, then you exit when it nears the upper price target level. Remember if the underlying moves to the strike level the binary pricing should be around 50 which is a $30-40 profit if you exit. The profit potential is even greater the farther above the underlying is to the strike.
At the point you feel the market is going to swing down, you can look for a binary strike near the lower target of 41.85. Let’s say you were able to find a binary strike and entered the trade at $80. Your taking advantage of the range bound trade using OTM binary options. Here selling the binary would have an initial cost of $20 and exiting near the lower bound target the binary pricing would be less than 50.
If the underlying market has adverse price movement , your risk is always limited to to the initial cost of the trade.
The benefits of using daily binaries for swing trading include:
- a long period of time to trade a selected trading range
- a large selection of strike prices
- volatility allows rapid change in value
- trade upper end of range, then reverse and trade lower end of range
- 100% defined risk on Nadex
- will not be stopped out on a market spike
- potentially better than 1:1 risk/reward ratio on Nadex- depending on the binary
The trick to swing trading is to exit the trade when the price target is hit. Don’t let your trade turn into a losing trade. And remember, you can exit at any time to protect your profits or cut your losses.
Note: exchange fees not included in calculations.