Binary options bring about to its traders a variety of different currency pairs to trade with as underlying assets. The following article discusses simple strategies to trade in the EUR/USD.
Why trade with this system
One of the biggest reasons why most people choose to trade with the EUR/USD as the underlying asset is because of the dominance of the Euro and the USD and also because it is the most traded currency pair in the forex market.
This gives an unspoken insurance that the currency pair would remain available for trading the entire day and continuously have enough liquidity enabling us to have good pricing over a decent margin of profits. This also ensures that as traders we do not have to but costly bets that bring in more risks than the chances of making profits.
If you are new to the trading system and starting up in the binary options market, then this is a safe way to give your trading a head start. The system as described below can be used to trade with the Rise/Fall mechanism of binary options. If it is not available with your broker then High/Low variety or the Touch/No touch system can also be used.
How to setup the system
Charts are one of the most important tools while trading. However, there are still some brokers who have not included this facility on their respective sites, thus making traders get the charts for themselves. Fortunately since the underlying asset here is a forex instrument so it can be easily availed by downloading the MT4 platform.
The strategy for implementation makes use of the following two types of indicators:
- Parabolic (having a default setting of 0.02, 0.2): a unique trend signal
- MACD (12,26,9): the strength of the signal is shown by this momentum indicator
The trade rules followed in this strategy are:
BEARISH SENTIMENT: For the EUR/USD to go bullish one has to wait for the parabolic SAR indicator to display the sell signal which appears on the price action of the chart. Moreover, when the MACD lines go from positive to negative, an indication of bearish sentiment rising is made.
BULLISH SENTIMENT: Here the parabolic indicator displays a buy signal and its stars appear below the price action. Also MACD lines go positive from negative.
Now the next step involves choosing the binary option trade. Let us suppose one chooses the Touch/No touch strategy. If a trader is bullish then he or she should select a strike price towards the upside while keeping in mind to identify all the key points where it might face any resistance. Contrary a NO touch option can also be selected selecting a strike price towards the downward trend.
There are four different types of trade options that one can benefit from:
- No Touch – The barrier in price lies near to resistance points.
- Touch – the price barrier lies between the nearest support levels and the market price.
- Touch – the price barrier lies between the nearest resistance and the market price of the underlying asset.
- No Touch – price below the nearest support.