Finding An Entry Point
The unique point of the binary options market is that success in a trade is not dependent on how many pips an asset has moved in the trader’s selected option. Only one pip is required to make all the difference.
In forex, a trader who buys a $10,000 value position in an asset and hopes to make $80 in the trade needs to make at least 80 pips to make that money. In binary options, a trader who buys a $100 position with an 80% payout only needs to make one pip in the correct direction to make $80. As remarkable as this is, this also puts greater responsibility on the trader to ensure that the entry point for any binary options trades which are based on the asset direction (such as Up/Down trades) are as precise as possible so that pips are not given up to the market, coming back to haunt the trader later on.
What Must the Trader Consider?
It is in reality, an impossible task to pick a precise entry point for a movement of an asset. At best, there are tools which can assist in locating these points.
There are other things to consider:
- Account size: A trader with a good account size running into several thousands of dollars can survive a few shocks here and there. An account which is just worth hundreds of dollars cannot survive any misplaced trades. Therefore, if you are like the majority of traders who do not have more than just a few hundreds of dollars in their trading accounts, you should carefully consider if a trade setup is still viable or is probably too far gone.
- Gain for Time: The trader must also analyze the setup to see if this is a trade which will be resolved one way or another in good time, or one which will likely tie down capital for a long time. This is important as a small account holder; you do not want to keep your precious capital tied up in unproductive trades for longer than necessary when your capital can be put to work in a trade with better prospects.
A Way to Set the Right Entry Points
Whatever system of selecting an entry point is chosen by the trader, it must be remembered that it is all about support and resistance. Price will bounce off a support and be rejected at a resistance area. This should serve as the primary basis for all trade entries in the binary options market. Sometimes, price action will break out above a resistance or below a support. Sometimes, the price action will attempt a pullback to the broken support/resistance trend lines, but will usually be bounced off those areas. This usually serves as a valid entry point for these trades.
The next logical question will be: what can be used to gauge support and resistance?
Daily Pivot Levels
You can use any of the daily pivot levels. Tracing pivot points can be achieved easily by using pivot point calculators to trace these points on a chart. You can see an example of how this is done below:
By using the pivot points, you can almost tell at what precise price level the asset will find support and where it will hit resistance.
Fibonacci retracement areas can also be used as support or resistance for trade entries. To do this, you trace from swing high to low in a downtrend, or swing low to high in an uptrend and when the levels appear, you get an idea of the areas where price can retrace to before continuing in the direction of the previous trend. This is a strategy which can make you tons of money if well played. See a demonstration of this below:
Let us take for example, a setup as is shown above. Ideally the trace is made when the asset price is still heading downwards. The Fibo levels show up and we look for an area where price will retrace upwards, and then resume the downtrend. This is seen at the 50% Fibonacci level, supported by the red color that our color-coded MACD indicator is showing. Due to the fact that a Fibo level shows a precise price level, this can be used to set a trade which delivers on the outcome while ensuring precise price entry.
On the trade platform, you can then make the trade call and choose an expiry time which will best suit your trade objectives. For this trade, a one hour chart was used. I would therefore allow enough time for the trade to achieve my objectives, which will be to be located at a price lower than entry price by trade expiration. This can be achieved in 2 or 3 candles, corresponding to 2 or 3 hours.