The purpose of this digital options strategy is to help you anticipate the direction of asset price movement and in doing so have a large number of your trades be profitable. This strategy is centered around the belief that markets have a tendency to correct themselves following movements in a single direction. This suggests that if the asset price has moved higher within the previous time period, it is more inclined to drop during the next.
While this sounds great in theory, keep in mind that there will be times in which this price action does not play out, such as when a price trend is taking place. However, when market conditions are stable and the price movements are small, prices should be moving up and down non-stop. These conditions will present you with virtually unlimited opportunities to use this price correction strategy.
The short-term nature of digital options work well with this strategy. Within the digital options platform, you’ll see a current price chart for each asset and this can be customized via the selection of a time frame that suits your needs. For a 15-minute expiry trade, most traders will want to view the one-hour chart, but feel free to check out longer time periods so as to have an overall view of the price movement for the day.
The strategy itself is quite simple – if the current price of the asset exceeds the entry/opening price, you’d trade a Put option based on a prediction that the price will decrease. If the current price is below the entry price, you’d trade a Call option based upon the prediction of an increase. The best time frame for expiry with this strategy is going to be 15-minutes. When conditions are right, the price should more likely than not try to normalize, shifting into an in the money position where you can profit from the trade.
On a final note, remain mindful of the possibility that certain types of market news can change price direction. Be sure to do a quick check of recent reports to make sure that no data releases are going to interfere with price movement. This strategy is perfectly fine for digital options traders of all skill levels, just be sure to use it during calmer market conditions instead of under extremely volatile conditions.