In my opinion, I believe trading ITM strikes are too much of a risk and doesn’t even come close to reward. I’ll give you an example, I randomly sold strikes at 10 starting at 8am everyday for the last 5 trading days on the EURUSD. The expiry was for 3pm. So that means I spent $90 to make $10. I know that’s a terrible r:r but I did it to prove a point. Ok so you would think that would give me a huge edge and almost free money since there’s basically a 90% chance I’ll be correct right? Wrong… 3 out of 5 days were actually profitable. This means there is no statistical edge in trading deep ITM contracts because you can still lose. So winning 3 out 5 times won’t work if your spending $90 to make $10. But if you would have flipped it around and did DEEP OTM strikes, spending $10 to make $90, you would actually be net profitable while taking a smaller risk. Dong ITM trades means you would have to win A LOT more on your trades and unless your a really experienced trader, you may find that hard to do. For guys like me that don’t want to have to deal with the pressure of winning the majority of my trades, I think the best way to go is to do OTM contracts. As humans we focus more on winning than actually making money in the long run. The truth is, risking more than what your actual profit is puts the odds against you even more. Also increases the stress level because now you have to monitor the trade to make sure it doesn’t go too far against you so you can close it early. Either way, the loss will still be greater than your profit 9 times out of 10. As a trader and a human, I think you should take advantage of trading OTM contracts. Yes you will lose more of your trades, but the idea is to win more profit on the winning trades and protect your capital. You should be able to lose 2 or 3 times in a row, then win only 1 time to be back at break even or better. Makes trading a lot easier and less stressful. And thanks to Nadex, they don’t make it impossible to win on OTM stikes. During the day the strikes aren’t that far apart. My suggestion is to look for strikes that offer at least 1:2 risk to reward and just set your take profit orders. Remember you don’t have to be right by the expiry, as long as price hits your take profit any time leading up to the expiry. Just a theory of mine.
Why I Think Trading ITM WILL Fail..or will they
I think you’re theory is quite flawed. Mostly on the basis of you starting by saying you “randomly sold strikes”. Anytime you enter the market there should be reason behind it. I think you should watch some of Darrell videos. I’m pretty sure most people wouldn’t try to do premium collection on a daily expiry, wouldn’t hold that position to expiry, or even sell at $10.
Did you read anything else?lol If you read carefully, I mentioned I purposely traded randomly. I know you should always have a reason for placing a trade. My point was to prove that even if you placed trades DEEP ITM, you can still lose. So why not just focus on OTM with reason. I believe you will last longer if you trade OTM vs ITM. just my opinion. Also I think DM has a lot of good stuff, just doesn’t suit my style of trading. I rely on price more than indicators. Think it’s better for me…
You can still lose no matter what. Just buying random contracts does not prove anything. ITM binaries are good becuase of the time decay factor and that you can still be profitable even if they move against you. How about trying your random contracts again in the last 15 minutes of expiration.
Brandon - 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. There are many of us here that remember trading the original APEX system with ITM binaries and made money at it…
Remember that the price of a binary (and hence it’s “moneyness” (In the money, at the money or out of the money)) is correct only for that specific time. If/when the underlying moves, then the price of the binary reflects that move. Then factoring in the time element (over 7 hours in your example) compounds the problem. With that amount of time and the little amount of premium ($10) is almost a sure winner 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.
Happy trading!!! Brad
Brandon I think we understand when you say there is no advantage in taking ITM binaries vs. OTM binaries but you have to factor in the random trading. If you were to trade randomly, your theory would make sense. But no one here trades randomly or at least I hope they don’t. There is a big difference between someone trading this theory randomly vs sound reasoning. If you used this theory to trade with some reasoning behind your trades I guarantee you will get different results. Also, Testing this theory for only 5 days will not give you accurate results. Darrell has always said that you should test something for at least 3 months.
Brandon, I get that you are not promoting “random” trades. But even if you are following a system, yes I totally agree with you. Those type of DITM are not overall worth it without taking the proper stops. Nowhere , anywhere on the Apex website or any video, training , at all do we ever or have we ever promoted this type of trading of system. So nobody here is promoting this type of trading for binaries at all, anywhere on the Apex site. Yes, we DO trade DITM binaries. But we never buy for $90 and hold till expiration to make $10. I toally agree with you on this, one lossing trade wipes out 10 wins. We always promote to get out before the dark zone. When we trade DITM binaries we are usually dong $75-$80. We are exiting once the price reaches approx $95, or exiting if the binary goes against us and hits the strike and is worth approx $50. So if buying at $75, you get out at $95 for a $20 profit. If it goes down o $50 you exit at a stop loss of $25. So you are risking $25, to make $20, which is close to a 1/1 risk reward. Trading DITM binaries with a good system can have a higher win rate. So if you have a high win rate and can keep close to a 1/1 then trading ITM binaries can be potentially very profitable. But the WHOLE KEY to ITM binaries is exiting at aprox $95, and making sure you always always always follow the rules and e disciplined enough to get out if it hits the strike. Where people go wrong with ITM binaries is not getting out if it goes against them and holding on to it , hoping it will come back, then they end p losing $75-$80 in one hit and it takes multiple wins to make it up. That is the KEY to ITM
I myself am confused to the point of this post as the prices are not what we teach at all for ITM. ie 90/10 etc… so this opinion post seems a bit baseless as we teach actually to not do that. Also we state to factor in the distance of the strike from the market and time not random picks but look at strikes in relation to where the market is and the distance and the time till expiration. Also using risk management to cap risk is a huge part on ITM strikes. There is lot left out of this argument making it a bit baseless.
I almost didn’t even read past your title. Trading ITM will only fail if you are not smart and focused in your strike selection and not focused on managing your losses. The lion share of my binary profits has been from trading Binaries that are ITM and risk about $75 to $80. I have about an 84% win ratio but I make sure to manage my losses and keep them to a max loss of about $35. I do that by watching the charts and the trade or using the stop trigger. with almost a 1:1 risk to reward and an 84% win ratio, you do the math. This is certainly not a failing strategy. You may prefer to trade OTM trades and not like ITM, but that does not mean that trading ITM will fail. Myself and several other traders prove that every day. ITM trades as Darrell says give your higher probability of profit and allow the market to go flat, go against you a little or go in your favor. That is 3 ways to make money versus trading an OTM strike where you have to be right about market direction. Basically I don’t agree with your view and your logic is flawed, in my opinion. Trading ITM will not fail and can be very successful with the right discipline and strategy.
So instead of placing 5 random trades, and ****ing away that money, why not back test? You literally have thousands of days of data at your disposal. All you have to do is look at the daily range of the US session, and see how many closed within the $90 itm range.
Or you could make it even easier and google some stats on the average daily range of various sessions (autochartist is good). I can promise you, once you get into a 3 or 4 figure sample size, you'll realize that the people at Nadex are not idiots or liars. The world will make sense again, and your dream of becoming a millionaire by randomly placing $10 otm trades will die a quick and painless death.
Cheers
[quote=superherobyday]So instead of placing 5 random trades, and ****ing away that money, why not back test? You literally have thousands of days of data at your disposal. All you have to do is look at the daily range of the US session, and see how many closed within the $90 itm range. Or you could make it even easier and google some stats on the average daily range of various sessions (autochartist is good). I can promise you, once you get into a 3 or 4 figure sample size, you’ll realize that the people at Nadex are not idiots or liars. The world will make sense again, and your dream of becoming a millionaire by randomly placing $10 otm trades will die a quick and painless death.
Cheers[/quote]
I STAND CORRECTED
I’ve spent the morning comparing expected movements/average ranges/ etc of various pairs to the strike prices of various binaries on Nadex. It seems DRAMATICALLY in the favor of OTM options. For instance, at the moment I’m looking at GBP/JPY. Here are the stats for the next 3 hours (12pm-3pm). (stats are from autochartist).
Current Price of GBP/JPY: 180.43 Average Pip/Hour Movement: 35-37 PER HOUR (up to 45 per hour) Expected Range for 3 hour period: 180.93-181.68 (74 pip window) Current Strikes on Nadex 181.00 (43 pips away) $10sell/$95 Buy 181.20 (23 pips away) $25sell/$80 Buy 181.80 (37 pips away) $10 Buy/$95 sell
In other words, Nadex is advertising an 80% probability that the pair will not move a ‘distance’ that is even less than the average, and a 95% percent probability that it will not move an amount that is just a skosh above average.
Seems…skewed.
Everything I’ve looked at this morning presents a similar case. And really, if you draw lines of the $95 ITM strikes on any pair, on any time frame, they just look silly. They look like they should be the $60 ITM strikes. Same for the extreme OTMs. Instead of the $10 OTM lines looking like lottery tickets, they look very reachable. What am I missing?
You’re teasing… Are you doing directional trading with your ITM contracts and your 84% and taking based off reversals and the apex entry method? I’ve been doing iron butterflies the past week and have i think around a 60-65%, i set a stop limit on my strikes so i get around a 1:1 so i’ve been a little profitable. I want to improve my win ratio the more i trade this. I make sure no news, i look at expected range and volume. Around 85 and 15 price.
Something does seem off would need to see some screenshots to help you figure out if there is an edge or simply a misunderstanding.
also 10 sell buy 95 is not a bid/offer same on 25 80 10 95 etc… maybe its just the way your wording it
Either way a screenshot lets me see what you see so I can help you see what you may not be seeing.
[quote=darrell] Either way a screenshot lets me see what you see so I can help you see what you may not be seeing.[/quote]
Here are some screen shots. This is a bad example because it’s late in the day, but it still seems to show a significant bias for OTM binaries. Here EUR/USD is at 1.0980, and 20 minutes from expiry. The projected movement (average movement) for the next 15 minutes is 4 pips. A strike that is 6 pips away is priced at $91 for an ITM, and $18 for an OTM.
In other words, Nadex is putting the odds at roughly 10:1 for an ITM, and roughly 1:6 for an OTM, for a strike that is entirely within the pair’s capacity to reach. You can see on the 15m chart just how easy it looks for price to get there.
NADEX SCREENSHOT:
AUTOCHARTIST SCREENSHOT:
MT4 SCREENSHOT:
What am I missing here? All I can surmise is that Nadex is pricing in the following two facts: A) It is easier to predict where price will NOT go, and therefore costs more for an ITM. B) That even if price touches 1.0986, it is still much more likely to close below it ITM.
1st Understand that Nadex is not putting any odds anywhere. Nadex is an exchange they are there to fill transactions of buyers and sellers.
They are NOT trading against you. This is like saying the CBOE is pricing options against you or the CME is pricing futures against you. Exchanges don’'t set prices they simply fill orders.
Market makers and other traders place the orders and make the markets bid and offers.
Binaries are a delta of a call option (thats the simplest formula i can give you to explain it). Gamma will move the price quickly the closer you get to expiration as the delta/binary has to finish at 100 or 0.
You are forgetting a buy must expire > a strike - a sell must expire < or = so yes a 18 buy means the market has to move another tick to be probability so the odds are lower of success on an OTM buy - than on selling an ITM at the same strike as it does not have to move can move down or move right up to the strike and still be profitable.
Last Price is 1.9081 on your chart 1.0982 contract is trading at 39.50 for a buy - i see nothing wrong or wrong with this.
A projected move is well just that a projection…
Also 6 pips can mean 3 up or 3 down. as your screen shows that would be 3 above or below the current market price.
Pricing of 39.50 says basically there is a 39.5% probability it will move up to be > GREATER THAN 2 ticks here as it has to move higher than strike to finish ITM (since your ranges show 3 up thats pretty spot on if it where to move up as it could stay flat or move down)
On the sell side 1.078 sell at 56 means there is a 44% probaility it will expire itm by moving down 1 tick 44% one tick 50% no tick - that seems pretty spot on
Note the 91 price is for the OTM that means a 9 % probability it will move down basically 11 ticks (with your ranges saying the expectations are just 3 up or down - meaning a 68% distribution of movement high to low 6 ticks) then a 9% probabilty it will down 11 ticks is spot on
The Bid offer would put the offer at 100 so there is no buy offer for an ITM at the 1.0970 strike
The 18 buy that it will move up 6 ticks (has to move up above the strike) means an 18 % probability - again your stats say 3 up or 3 down - so 6 up would make an 18% probabity of moving up 6 ticks is in line (just like 11 ticks on the sell side was 9%)
There is a bid on the 1.0990 strike of 9.50 so a 90.5% probability it will expire AT or below 1.0986 which again falls in line with the expected move
To get more spot on on probability you need to look at the Average of the bid/offer (mid price) as bid offer can skew this number some but it does help when considering ie a buy (has to move above) vs sell (at or below).
Remember your looking at spot forex chart Spot forex is OTC based not exchange based (Nadex is an exchange traded derivative of spot forex) Most forex data feeds vary by up to a few ticks They use Bloomberg/Metastock
Bottom line it is easier to predict where price will not go as price does not have to go anywhere (this is what we use ranges for on boomerang p4 trades - Tim Lang does this constantly and has an outstanding record.
You will win more often but will lose more when you lose. So your probability must be higher
Risk is higher but probability is higher so it works out if managed correctly.
My wife on the other hand trades OTM trades all the time and makes a killing. She looses a lot but her profit to risk ratio well overcomes that. Though most traders could never do what she does. As she may have 14 losses in a row and just keeps going 3 wins in a row bam profitable and end of the day nice profits. If she stopped stats would break. Not to many people can deal with the high number of losses even though the profits are large.
The edge is in knowing how they are priced when to take the trade. What your odds are. Being consistent. And Managaing risk.
Here is some track record of tim doing ITM’s using simply the Expected ranges (which are specific to time of day day of week month of year). When the market exceeds 75% of the range he simply buys or sell an ITM as deep as he can get for 10 to 25 profit potential.
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It does not get any simpler than this
If the market hits 75% of expected range sell a deep ITM Contract
If the market hits 75% of the expected range down buy a deep ITM Contract
(the orange and black line down at the bottom)
You can do it again if it hits the Range to high from last close or range to low from last close (The range boxes)
This was the original boomerang and is still my favorite trade.
Notice we have very specific expected ranges fro that hour. We filter out News and other non-regular events and measure not just the range but the high to LOW of the expected range as you can see how important this is.
Its so simple its on the screen yes there is a fee but this is 1 day 1 instrument - 1 contract month more than covered
Some traders seem to think unless it super hard its not worth it. This is watching paint dry simple. If you have not checked it out you may want to…
$7.00 2 weeks… you should have paid for the monthly fee before the trial is up:
Become a free member here: http://apexinvesting.net/member/signup/index/c/3tGD4mFV?_ga=1.88992797.740009574.1429726199
Then get access to the 14 day $7.00 trial here http://apexinvesting.net/member/signup/index/c/D3PdVkpPk
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Thanks for the input fellow traders. I am new to Apex and trading binaries with Nadex. I have viewed several webinars and am demo trading. I will implement some of Mark’s and Ronin’s strategies above for ITM binary contracts, tweak to my own trading personality. Getting plenty of priceless education from the Apex site. Many thanks to Darrell and the A-Team at Apex.
Darrell you are the man. That is EXACTLY what I’ve been working on, and demoing this week. I’ve been searching to see if it had been done already, but couldn’t find anything. That is why I have been looking at expected ranges and ITM contracts.
In regards to my original post with the screenshots, I know that is an exhange not a casino, and so using the word “odds” is a bit of a misnomer, but like you said, the strikes are an accurate reflection of the probability of any given move.
Also, the expected move I was referring to when I said ‘6 pips’ was actually only half of the expected range, I was just focusing on the upward half since I was only looking at the strikes above current price. The actual expected range was more like 11 or 12 pips (6 up 6 down), meaning that a move of 6 pips up would have been a very realistic move, and yet Nadex had placed the OTM “odds” (strike) at 18% ($18), and the ITM at $91.
But like you said, it’s probably easier to gauge where price won’t go, and it’s more unlikely to actually close beyond a strike, even if it reaches it.
I’m excited to get into this boomerang business. Statistical trading is just the best.