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Considerations for the High/Low Trade
The High/Low trade contract in binary options is the classical binary options contract which is based on direction. The contract is known by various names, depending on which platform the trader is using. It could therefore be known as the Above/Below, Call/Put, Rise/Fall or Up/Down binary option.
In this trade, the trader aims to profit from the trade by correctly predicting whether the price of the asset on expiry (i.e. the expiry value) is higher or lower than the market price (price on trade entry).
This trade is not as easy as it looks. This is because several factors come into play in deciding a profitable trade outcome. If the trade was only based on direction, then it would be easy for any average Joe to make money from a calculated guess. Apart from direction, the trader has to be conscious of one important factor: all binary options trades expire. So even if the trader gets the direction correct but the timing of the expiration is off even by one second, the trade will end up a loser.
So any strategy used in trading the High/Low trade must be able to detect the possible direction as well as the length of time that the move will last, which is what the trader then uses to select a suitable expiry time.
Perhaps a third factor that may be considered is the variant of the trade available on the platform. Why are trade variants important? A variant of the High/Low trade may have a different format or different setting from the classical versions seen on most European style platforms. For instance, some parameters may change. An example of such variable parameters is the price used as entry price. Some variants of this contract may allow the trader to set an arbitrary price as the entry price. Some may allow the trader to either set the expiry time or provide a greater range of expiry times.
An Approach to a High/Low Trade
The High/Low trade is found on all binary options platforms. It is a function of direction and timing. For direction, the trader can use chart patterns, candlesticks, price action or indicators. The approach to be introduced today is that of the use of chart patterns and indicators combined.
For timing, the trader is best left with the use of the time charts to make an intelligent guess, as no trader can predict with accuracy how long a move will last. The candlestick is a function of price action over the time frame of the chart. So you would want a situation where the price action has taken off in the preferred direction, and for enough time to be given to the trade to enable it end up in profit territory. Some trades such as the 60 seconds trade, already have preset expiry times so any trade analysis is done around this time frame.
Using chart patterns and indicators for direction
There are several chart patterns in the market, but for binary options, it is better to use chart patterns that are simple to interpret and use, and indicators which point to very clear signal confirmations.
One of the biggest mistakes of novice traders who discover chart trading is their over zealousness to use many indicators. Sometimes to a degree where the screen and, most importantly the price action, are completely cluttered by indicator lines, arrows, dots, channels, etc. This makes the trading experience unnecessarily over-complicated where it doesn’t have to be.
The most successful traders only use moving averages, support and resistance lines, volumes and often confirm trends with fundamental analysis and higher time frames. Remember that lower time frame is dependent on a higher time frame and not vice versa. If you’re trading 15m charts you should confirm your entries on a 30m or 1h charts.
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Trade expiration settings
All binary options expire, so timing is important. Timing here refers to the choice of the expiration time which fits the proposed length of time the trade is expected to perform according to expectations.
If you are using a white-label platform such as those from 24 option or Ubinary, you will be presented with a list of expiry times, the most common being 15 minutes, 30 minutes, 45 minutes and one hour. You will also get end of day expiration. If you are using a broker like Binary.com, you have a choice of choosing your own expiry time.
The key question here is: what expiry times that conforms to the trader’s expectations can be used by the trader from the default settings on the trading platform?
The key is in knowing the time frame on which the analysis was conducted. If for example, the trader is interested in using a one hour expiry time as provided by the broker, the will probably have to use a 15-minute or 30-minute chart for the trade analysis and then allow about 3-4 candlesticks for the price action to move into profit territory. 3-4 candles on a 15-minute chart is equivalent to an expiry time of 45 – 60 minutes.
The process is a bit easier when using a platform that allows you to customize your expiry times. You will be able to set the expiration as you like, depending on the time frame used for analysis.
If you are using a breakout pattern, you have to understand that after price breaks out of the restraining trend line, there is a tendency for it to want to go back to where it came from. Therefore, you must allow for this brief pullback before executing the eventual trade.
How to place a High/Low trade
Published on October 6, 2020
Placing a trade
How do you place a simple high/low trade? Here, we present a short video, which shows how to trade a normal High/Low binary option.
What is a High/Low option? The High/Low option can also be referred to as the Above/Below or Up/Down option. It is a simple choice of whether the current asset value will be higher, or lower, at the point the options expires.
The High/Low is the simplest binary option, and the one used most often. There are however, subtle differences in broker trading platforms, and we will point some of those out here too.
Here is a step by Step guide to opening a High/Low trade:
- Identify an asset to trade
- Select a trade size, and an expiry time
- Pick the direction the price will move
Placing a trade is no more complex than that. These steps remain the same regardless of the trading platform.
The video will run through a trade, and show four platforms;
- Ayrex – Ayrex operate Call and Put buttons, but highlight on the price chart, which direction the asset price will need to move in order for the trade to win.
- Binary.com – Often the choice of advanced traders, the Binary.com platform is the most unique among it’s peers. The video highlights the differences.
- 24Option – A TechFinancials platform, 24 Option is a large brand. The trading platform is very clear, but again, the video will highlight how High/Low trades are made.
- StockPair – This platform has a different look and feel, but the standard buttons remain, and the layout is familiar.
High / Low expiry times
The video shows a “1 minute” expiry, but High/Low trades can range from under a minute, up to a year. Some brokers will also allow trader to choose their own specific expiry time. The process works in exactly the same way, regardless of the trade size, or the expiry.
How to profit from High / Low trades
Binary options do demand a clear strategy. So traders will want to have a strike price in mind (the opening price) where they want to enter a trade, and then a clear idea of where the price will go, and over what time frame.
Given the above, some traders will advocate trading news events. This strategy will require certain features of your broker however – for example, you will want flexible expiry times. Ideally, traders will be able to choose their own. This is really the only way to have confidence trading of news events of announcements. Without this flexibility, you may see an asset price move in the direction you expected, only for it to move back before the expiry because you were not able to have the trade end exactly when you needed.
Another method is to develop a strategy based on technical analysis. Here, a trader might decide that the current price trend will hold, or that certain support or resistance levels will cause a drop or rise in price. These types of strategy have a better long term chance of success (See our section on charts for more information).
Technical analysis is generally what drives signals too. These are trading advice alerts, often sold by providers. Before traders new to binary options start using signals, it is normally better to get a good understanding of trading on their own. This ensures signal services can be judged properly – but hopefully a trader will gain enough confidence to take responsibility for their own trading.
Example High/Low trade
You expect the Oil price to rise, and select ‘High’. The current price is $50.08 a barrel, and your broker pays 90% for winning trades. You select a trade size of £20.
- At expiry, the price of oil is $50.30. You win. Your return is £38 (Your £20, plus 90%)
- At expiry, the price of oil is $49.84. You lose, the entire £20 is lost.
Where can I try High / Low trading?
All of the brokers on our comparison table offer High / Low trades. The best starting point however, might be a demo account. Here, traders can learn the ropes without risking any real money. Some demo accounts are time restricted. Others, such as IQ Option, allow traders to to move freely between demo and ‘real’ accounts. This is very helpful for those who might look to develop a new strategy. Any new system can be trialled on the demo account, and perfected, before switching back to real money.
Daily High Low Forex Trading Strategy
The daily high low Forex trading strategy is based on a simple concept: if price breaks yesterday’s high or low, it will most likely continue in that direction of breakout.
That is the common belief but the truth is, it depends.
If you are trading a breakout of a candlestick that is larger than many that came before it, you may actually be taking a trade but get caught in the mean reverting tendency of the market.
This is a basic breakout strategy and I’ve seen a few variations of it throughout the years. It all boils down to one thing:
“An object in motion tends to stay in motion until acted upon by an unbalanced force.”
You can’t argue with the first law of motion but the second part is vital: an unbalanced force.
If you are entering a trade after an out sized momentum move in price, an unbalanced force of buyers or sellers (depending on the position) will either take profits or contrarian trade, and force the market to revert.
With that disclosure, do you think there is an edge in this type of trading? You should do your testing but it is possible there is a slight edge – very slight – it buying a high or selling a low depending on how far advanced the trend is.
High Low Breakout Strategy Explained
So how do you trade this then? Well here’s how and the basic entry is quite simple:
What you do is place 2 pending stop orders (buy stop or sell stop) to catch whichever direction the breakout happens.
Currency Pairs: Preferably the majors.
Time Frames: I would use this on higher time frame charts – four hour charts and above. I would prefer the daily.
Indicators: None required but you can download this daily high low Forex indicator if you want: Yesterday High & Low v2.0
More Breakout Trading Strategies
Breakout Rules Expanded
- When yesterday’s daily candlestick closes, place two pending orders on both sides 2 pips away : one sell stop pending order to catch the breakout downward and one buy stop pending order to catch the breakout upwards.
- Place your stop loss halfway distance of that closed daily candlestick.
- Take profit target, average the last 3 days range and use that as your profit targets. For example, if day 1 daily candle range (high-low)was 100 pips, day two had 150 pips and day 3 had 90 pips, then the average of these three days would be 113 pips. So 113 pips should be set as your take profit target.
Make sure that the Forex pair you are trading is actually in a trending environment or is showing some type of directional bias.
Advantage Of This Breakout Strategy
- Set and forget type of Forex trading system where you only need to check once a day and see how your trade is progressing.
- Good for beginners because its easy to use and understand.
- Stops you from over trading because seriously. Why? Because if you take 10 trades in a day using smaller time frames, you are most likely to suffer a lot of losses compared to taking only one trade based on the daily candlestick.
Why Would You Not Trade This Way
- Large stop loss distances so use position sizing to minimize your risk.
- All Forex trading strategies as usual have limitations and this system is no exception so expect trading losses because sometimes the market will activate one pending order and next thing you know, price is going to opposite direction heading for your stop loss!
As always, ensure you test any strategy before you put on risk.
The Daily Range Day Trading Strategy
The Daily Range Day Trading Strategy captures a large chunk of the average daily movement in a stock or currency pair. It is recommended for use with volatile stocks, although the method can be applied to nearly any actively traded stock or forex pair. The Consistent High Volatility Stock Screener article reveals how to run a scan for volatile stocks, and the StockFetcher results will show you the average intraday range of the stocks found. That’s the stat we need: how much a stock typically moves between its daily highs and lows. This day trading strategy can be used on its own or in combination with other indicators or strategies.
Use a 1-minute or tick chart for this strategy.
If you are a forex day trader, use the Forex Daily Stats page to get all sorts of daily stats on the forex pairs of your choice. You can also find a list good day trading stocks on the Day Trading Stock Picks page, which is updated weekly.
With this strategy, I watch for a volatile stock to make a swing high or low in the first 15 mins of the day. Often a swing high or low made early in the day is important, and the high or low made in that initial 15 minutes gives us a baseline for the rest of the day. We then watch to see which level (either the high or low made in the first 15 minutes or so) is potentially going to be the high or low for the rest of the day. We do this by watching for a lower high or higher low in the stock as trading progresses.
For example, assume the price initially declines. The first few minutes see the price drop, then there is brief rebound, but then the price keeps falling. The price rebounds again, but this doesn’t make a new low. It then moves above the swing high of the rebound and back above the open.
Once a pattern like this occurs, we can make an assumption that the low (or high) is in place for the day. That doesn’t mean we will right all the time, and we don’t have to be. As we will learn later on, our gains with this strategy are typically bigger than our losses, so even winning 50% or even 40% of our trades can result in a profit.
We are also armed with our statistic which tells us what the average daily range (high – low) is. Once we’ve established a low (or high) is likely in place, we take a position with a profit target that attempts to capture the rest of the daily range.
Here is a simplified example. A $10 stock has a 10% daily range. Each day this % range is converted into dollars based on the opening price, so today the price range is expected to be $1.00 (10% of the $10 open price). In the morning the stock drops to $9.75. Bounces up $9.90 then falls back to $9.80 and then moves higher again. We assume the low is now in place at $9.75. We buy, and place a target at the far end of the average daily move.
The average move is $1, or 10% of $10. We’ve already moved $0.25 (the open at $10 down to $9.75, which we assume is the low) so our target is around $10.75. Since our low is already in place we must assume all action will now be above the low and on the upside. In this case, our profit target is our assumed low plus the daily average range: $9.75 + $1.00 = $10.75. We will talk about fine-tuning targets, to make them more accurate, a little later on.
The open price is important. For this reason, a move back through the open price can be used as an entry point. In the example above the stock made a low at $9.75, then bounced, and then fell back again to $9.80. Once the stock moves back up through the open price (in this case $10) enter a buy (or long) position. A stop loss can be placed below the most recent low.
Trade signals should occur before 10:30 AM EST. If you don’t have a signal by then, you may have missed it, or the market is so dull that you don’t want to be trading this strategy anyway. Usually, trades will occur before 10 AM EST.
Another potential entry technique for this strategy is the Truncated Price Swing. That entry method may provide a better entry point and therefore a higher reward to risk ratio (discussed later) than waiting for the price to move back through the open. Also read Trend Trading: How to Spot Trading Opportunities for more ideas on how to enter trades.
Daily Range Day Trading Strategy Example
Over the prior 30 days before this trade was taken, BBG averaged 7.11% intraday price moves. 7.11% of the $10.90 open price is $0.77. That is how far we can reasonably expect the price to move after the open on a typical day.
On May 5 it opened at $10.90. The stock moves higher, then drops, and then moves higher again. It reaches the same high as before. Before going short, I’d prefer a lower high, but a double top is okay as well. Since the price showed it can’t currently move higher, and has started to drop again through the open or pullback low, look to go short. A stop loss order is placed above the recent high, as represented by the red horizontal line near the upper left corner of the chart below.
Click to enlarge.
With a short entry point having triggered, we now assume the high of the day is in place, in this case at $11.02. If entering as the price moves below the open price at $10.89, our maximum risk is $0.13…plus a couple cent buffer, so $0.15. An alternate entry is just below the initial pullback low, in this case $10.83. Risk increases to $0.21, if placing the stop loss above the recent high. In some cases, there may be another swing high we can use if going short, or another swing low if going long, that provides us with an alternative stop loss location.
Subtract $0.77 from the $11.02 high to get a target price of $10.25. With our $10.89 entry point, our profit potential is $0.64, while only risking $0.15. Reward-to-risk ratios of 3:1 or higher are not uncommon with this strategy. In fact, if the reward-to-risk is much less than 3:1, don’t take the trade. Too much of the daily range has been eaten up (before the trade takes place) which leaves less room for it to move in our favor based on the stock’s usual tendencies. If the price is somewhat compressed in the morning, like a coiled spring, it’s possible to get some very big reward-to-risk ratios.
When trading with a reward-to-risk ratio of 3:1, 4:1, or more, even if winning only 30% of the time the strategy will be profitable.
In order for the trade signal to occur, we need to see at least three waves. The initial wave, a pullback, a move back to the prior high/low. Once this occurs we can begin looking for entry signals. While these initial waves are occurring, and when the price starts heading toward a possible entry point, there is time to quickly measure how far the price has already moved, and determine where the stop loss and target will go. This will also reveal the reward:risk, letting us know if the trade should even be taken.
If a signal occurs in the opposite direction, exit immediately and trade the new signal (or stick with your original trade, up to you). This occurred on May 4, the day prior. Our daily range is 7.1%. The price opens at $10.86 then rallies to $11. When it pulls back, it creates a higher low and then moves through the open price again (and also a consolidation breakout), triggering a long position.
That long position fails soon after, as the price creates a lower higher and then moves back to the daily open. Exit at the open (or when the price makes a lower low), and initiate a short trade one cent below the open. The first trade is a wash (down a cent or two). The second trade has a risk of about $0.15, and an expected profit of about $0.62 (4:1).
We now assume the high of the day is in place at $11. Subtract the daily range ($0.77) from this to get a target of $10.23. The price moves down toward the target but doesn’t reach it. How you handle this situation is up to you. You can use another method or your analysis skills to concoct an exit, or you can just exit at the end of the day. Targets can also be fine-tuned, discussed in a moment, so this situation occurs less often.
If you are an active trader, this method provides you with an idea of how far the price may run, but you may opt to take multiple trades along the way instead of just one.
I use multiple entry and analysis methods. This article provides a sampling of how we can use relative highs/lows and various entry methods to come up with trades. You can also come up with your own entry methods. Regardless of the entry method, or even if you don’t use this strategy, knowing how far the price typically moves in a day is still very useful information.
Daily Range Day Trading Strategy Fine-Tuning Targets
In the trade examples above, the daily range was added/subtracted to the assumed low or high. In this way, we are not only assuming a high or low is in place, but we are also assuming that the price movement today will be at least equal to the average. If the price moves less than the average, our target will not be hit. If the price moves more than average our target will be reached and we could have potentially extracted more profit.
My primary concern is getting out with a profit. I am not concerned with trying to squeeze every penny of profit out of a trade. Therefore, a simple way to produce more winning trades, and more targets hit, is to reduce the daily range we use. By reducing the daily range, this will move our profit target closer to our entry, increasing the chance it will get hit.
By moving the target closer, the short trade in the example above may have hit the target. We risked $0.15, so even using a $0.50 target, instead of $0.62, gives us a more than 3:1 reward to risk. $0.50 subtracted from the entry price of $10.85 gives a target of $10.36…and you would be out of the trade with a profit (went as low as $10.31). Whether you do this is a personal choice. By reducing the target you reduce the size of the winners, yet slightly improve the odds your target is reached. You will need to find a balance that works for you.
A more advanced option is to study the trajectory of volatility. This will help us assess whether we should use the daily range as it is, or if volatility is likely to be higher or lower than average today. On StockFetcher, you can see the history of daily volatility. Is it recently rising, dropping, or stable? Was there a one or two-day volatility spike which has abnormally skewed the average?
These simple questions can often help us determine whether we should use a smaller or larger target than the average daily range. If the daily range is expanding constantly, then you can feel comfortable using the daily range for your target, or even assuming the daily range will be bigger today and thus a larger target can be used. If there was a volatility spike a week ago, and volatility has been steadily declining since, the average is probably not that accurate, and volatility is likely to be lower today in alignment with the recent “more normal” days.
Averages will change slightly each day. This isn’t usually a huge deal, but pay attention to recent price action when using averages. A 30-day average may say a stock is moving 6% daily, but you can see from looking at the chart that the average is dropping. It used to be 8% and the last few days have only moved 3 or 4%. Averages lag real changes, so stay on top of it, and if it looks like the average you are using is no longer accurate, then avoid using this method on that stock. Don’t force a method just because you want to trade it. Only use the method if you are using a daily range average that seems solid for the current conditions.
There is no perfect solution or magic formula. This is why we only take trades with a favorable reward:risk. The more the strategy is practiced, the better each trader will get at fine-tuning their targets…and entry and stop loss techniques.
The example below shows a trade in ROKU. The average daily range on Feb. 5 was 6.51% and the opening price was $39.97. That equates to an expected move of $2.60 after the open. For a more conservative estimate, we could assume that the price will move at least $2.10 (about 20% less than average), and place a target accordingly. Alternatively, we could simply use a reward:risk ratio fo 3:1, assuming the resulting target does not require the price to move more than $2.60.
Initially, the price moves up a bit but then drops. This is why we wait for at least three waves to unfold before taking a position. There is a brief rebound then a smaller drop. The price fails to make a lower low, and then breaks a consolidation to the upside and moves above the prior swing high and breaks back above the open. The move above the open or the prior swing high could be used as an entry, as both signaled the price could be heading higher and that the stock had put in its morning low.
A long trade is taken at $39.97/98, and a stop loss goes below the recent low at $39.50. A stop loss could also be placed below the slightly higher low, at $39.60. Let’s use the $39.98 entry and $39.50 stop loss. The risk is $0.48. If we place a target at 3:1, our target goes at 3 X $0.48 + 39.98 = $41.42. To reach our target the price will have only had to move $1.92…well below our conservative estimate of $2.10 and our average of $2.60.
The target is one potential exit method. Another exit method is the trailing stop loss. This is when the stop loss moves to lock in profit as the price moves favorably. Trailing stop losses are discussed in Consistent Ways to Take Profits.
Daily Range Day Trading Strategy Considerations
There are subjective elements to this strategy and multiple ways to trade it. This is the basic idea, but you need to more precisely define how you will trade it.
We are using an average of the daily range, which means any given day could be very different from the average. Some days will move more than the average, and other days will move less. A few very volatile days, which aren’t typical, can skew the average, making you think it is bigger than it actually is. Utilize the tactics in the Fine-Tuning Targets section to aid in target placement.
It is possible this strategy could be used to make one big trade a day. If used more for informational purposes, once the initial trade signal occurs, mark the expected daily range on your chart and take multiple trades within that area.
Your stock selection process for this strategy—and how that stock aligns with the average daily range statistic you use—is just as important as how the strategy is implemented.
Being able to actually implement this strategy will take a lot of practice. These trades occur in fast market conditions, and you always have to be ready for what you will do next.
Make sure the stock can handle the position size you’re trading by viewing a Level II. We need to get in and out quickly, so trade stocks that typically have liquidity at each level to allow for this. Slippage will occur on some trades.
Keep risk on any single trade to 1% or less of the trading account balance.
Daily Range Day Trading Strategy – Final Word
This method has multiple applications, not just the basic strategy discussed here. It seems easy, but practice it first, implementing your own personal guidelines for how you will trade it. You are making a lot of calculations on the fly, and in those initial minutes when the price is moving like crazy it’s easy to make a mistake, or get turned around and forget what you are looking for. I prefer trading this strategy with volatile stocks. Practice in a demo account before trading with real capital.
A daily range average doesn’t tell you how much a stock will actually move today. Some days the stock will move less, and some days it will move more than the average. The average is only a guideline for establishing areas where the price, on average, is likely to move to.
By Cory Mitchell, CMT
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