Contents:The main idea is to choose one side of the market and keep buying options in the same direction until the trend is still in play. This active period is called a trading cycle in binary options.
What is Position trading?
Position trader use a combination of technical indicators to identify strong trends and determine retracement periods. This approach allows smoothing unnecessary noise of the market, and point to certain conditions when it’s time to stop the trading cycle. The main aim is to increase the effectiveness of the trading method, as it directly influences the overall profit at the end of the day.
Here is the list of position indicators:
- Exponential Moving Average with the 55-bars period (EMA200);
- Exponential Moving Average with the 21-bars period (EMA50);
- Stochastic RSI oscillator with the 13-bars period.
How to use Position Trading?
The best performance of the trading method is achieved when the markets are hot, and the trading volume is reaching its daily maximum.The best performance of the Positional Trading is achieved when the markets are hot, and the trading volume is reaching its daily maximum. But when markets have lower liquidity and trading volume, asset prices are hovering around the same level without going anywhere.
Position trading can refer to either speculating on price or investing. Investing is the most common form of position trading.
How to catch a strong trend?
Technical analysis is the most effective tool for analysing market conditions. Position traders have developed a combination of indicators to monitor the market’s activity and identify strong trends before they start. Furthermore, position indicators can also signal an end of the trading cycle.
Settings and periods
Traders can try to modify the period of exponential moving averages and Stochastic RSI oscillator. The only difference is in the frequency of trading cycles, and binary options traders should get this parameter in accordance with personal position trading strategies, financial goals and risk appetite. It’s also important to keep a golden middle as too many entries might lead to false signals, as well as too slow periods of position indicators could not give enough trading signals to gain on price action. Nevertheless, all of the experiments have to be made on a demo account before using the settings in real-money conditions.
Signals and patterns
The nature of technical indicators is in the difference of periods. When it comes to moving averages, the key signal comes together with a crossover of EMAs with different periods as it points to the change in market conditions. Stochastic RSI is an oscillator with two lines, in contrast to traditional oscillators. It measures oversold and overbought levels, while the crossover of its lines also matters. The most essential event of the Stochastic RSI’s performance happens when both lines are getting off oversold (to buy call options) and overbought (to start buying put options) levels.
What underlying assets are suitable for positional trading?
Binary options position trading is applicable to any underlying asset. The only factor to remember is that assets might have different volatility, thus, the frequency of changing the direction of the trading cycle might differ.
Best timeframes for positional trading in binary options
Positional trading works well on any timeframe. However, binary options traders should avoid too long periods such as the weeks and months as they would not get benefits from long-term positioning. At the same time, ultra-short timeframes like 1- or 5-minutes charts have too many false signals due to the volatility. Therefore, best timeframes for position trading strategies are 1-day, 4-hours, 1-hour, 30-minutes and 15-minutes expiration times. One of the tricks to maximize profits when catching a strong trend is to shift the expiration time from larger to a shorter timeframe. For example, if a trader had found a signal to start buying call options on the daily chart, the trading cycle could be worked out on the 4-hourly chart.
If you like this strategy, you might also be interested in this Bollinger Bands Options Strategy
Conditions and trading rules in position trading
Below is the sequence of steps for profitable position trading in binary options.
Conditions to buy call options
- Stochastic RSI charts a crossover below 20, getting off the oversold territory;
- When the price breaks above EMA55, start buying call options;
- If the asset price breached the recent swing low, stop buying call options;
- When the price continues the upside swing, continue the trading cycle until Stochastic RSI crossover occurs above the 80 level, signalling a reversal of the trend.
Conditions to buy put options
- Two lines of Stochastic RSI cross each other above 80, coming out of the overbought zone;
- After the price breaks below EMA55, start buying put options;
- If the rate breached the recent swing high, stop buying put options;
- When the price continues the downside action, continue the trading cycle until Stochastic RSI crossover happens below the 20 level, signalling a reversal of the trend.
Although position trading was designed for trading Forex initially, binary options trader managed to adopt the method for their type of trading. One of the most powerful strengths of the strategy is that it gives a chance to increase profits dramatically when a strong trend was caught. The combination of technical indicators is simple, trading rules and conditions are easy to understand and simple to use. The trading algorithm has a high performance of 74/82% of profitable deals if all of the conditions are met and rules are executed carefully.