Unlike most binary options strategies, a ladder strategy will involve the execution of multiple trades, rather than just a single trade. Ladder trading is known as such because this form of trading is similar to climbing an actual ladder up or down, except in this instance the up or down refers to trading along with asset price movement. The following strategy is basic, yet quite effective, making it an excellent choice for beginner level traders.
Although this strategy is simple enough for those who are new to binary options, the ability to identify a price trend is necessary. In a basic price chart, a trend will be shown as a price line that is steadily moving upward or downward for a period of time, with minimal pullbacks in the opposing direction. A short-term expiry will be selected for a short-term trend, while a longer expiry can be chosen for a more established and lengthy trend. For those just starting out, the ability to determine just how long a trend may last can be a tough task. Therefore, shorter expiry times tend to be the better selection.
The strategy itself is simple. Locate any underlying asset which has a trending price, then enter into several trades as the price climbs or falls. Each trade will use the same selection – Put or Call. Call will be the selection for an upward trend, while Put will be the selection for a downward trend. Ladder trading is typically done in batches of three trades, all using the same analysis. Once the three trades are completed, fresh analysis will be needed in order to determine whether or not the trend will continue on.
The fastest way to spot a trend is to read current market news and reports. These can quickly point out assets which are increasing or decreasing in value. Economic reports and earnings reports can pinpoint key earnings opportunities in advance, as both are likely to shake up the price of any related asset. Any detailed economic calendar will provide the dates and times for the release of this type of information.
Ideally, all three trades will finish in the money and yield a profit. However, all is not lost if two of the three are winners. Two or even three losses are a possibility if the direction or price movement completely reverses. Even so, such an outcome is not likely if the trend has been correctly identified and analyzed. If multiple losses are occurring on a regular basis, a problem exists in the analysis process and this should be corrected before attempting new ladder trades. The use of a more advanced price chart can help, but most broker-supplied price charts will provide enough information.
Many binary options platforms now provide a Ladder instrument, which can make it quite easy to execute this type of trade. However, this strategy can also be used by simply entering into three different trades manually, one right after the other. Ladder trading can carry more risk, as more than one investment is at stake. On the flip side, this style of trading can also provide substantial rewards for any trader who can correctly spot a price trend and take prompt action.