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Home Rating strategies The strategy of Catch the trend

The strategy of Catch the trend

Strategy characteristics

Risk
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Profit
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Suitable options: classical binary options Choose a broker
Expiry time: 6 hours

The number of traders in the market of binary options is increasing day by day. Someone comes to the financial markets for the first time; someone goes to trade binary options from Forex or stock markets. Often this is because the binary options trading is easier and takes less time to analyze the market of the trade.

Traders from other financial markets do not come just like that but with their time-tested and market-tested trading strategies. Of course, they have to rebuild them a little bit because the markets are still different and the trading principles are also different. But professionals do not get used to this, in trade you have to revise your sales program and edit it. But in the end, you have a completely working trading system. We want to introduce you today one of such a processed trading strategy for binary options. So, let us introduce a strategy called "Catch the trend."

TRADING RULES

As you've probably guessed, the strategy appeared on the binary options market from the Forex market. It would be logical to assume that this strategy was profitable there, otherwise why would you upgrade in advance losing strategy for another financial instrument? Despite the apparent complexity of the original strategy and a large number of conditions and factors required for opening of the transaction, after testing the strategy on the history of one year it became clear that it generates at least 75% of profitable signals. For this reason alone it is worth considering it carefully.

A working tool here is the currency pair GBP / USD, the timeframe for the analysis is 1 hour. You can use other financial instruments, but then they will have to be tested and you need to pick up your settings. The main indicators used in the strategy is an exponential moving average with a period of 120, indicator SD MA with the established period of 80, as well as the MACD with the settings of average 12, 26 and 9, and a separator of periods.

If the first and the last indicators are both standard and are included in the Meta Trader 4 terminal by default, in the MACD indicator the settings we are interested in are set by default. But with the indicator SD MA the situation is a bit more complicated, since it is not part of the default terminal indicators. You will have to find it on the Internet and set up in the terminal manually. They are present in free access, so it will not be difficult to download them. Let’s say a couple of words about the process of installation of this indicator in the terminal.

Once you've downloaded the indicator that will be in the form SD_MA with extension mq4, it must be placed in a folder with the name of the trading terminal MT4. The entire path to the file will look like MT4 / MQL / Indicators. You must then restart the terminal, i.e., turn off and restart it.

Let’s say a few more words about the indicator SD MA which belongs to the category of trend. That is, its main quality is to show the trader what kind of trend there is in the graph - ascending or descending. If the trend is up, the line of the indicator turns blue, if the downward – it is red. The third color of the indicator is yellow, it has this color in those periods when there is no clearly defined trend in the market.

Once everything is identified and plotted, it will look as follows.


As we can see, green denotes 120 EMA. SD MA is colored red, yellow and blue, depending on the kind of trend. Now let’s proceed directly to the signal generated by this trading strategy.

Thus, a signal to make a purchase or sale of binary option is the intersection of the price EMA and SD MA, without the dependence on their location relatively to each other. This is the first but not the only condition. The second condition is to confirm the signal by the indicator SD MA - that is, it should show a downward trend if the breakthrough of the two lines was from the top down, it is to be red or show an upward trend if the price broke through from the bottom to the top, then it is blue in color. The third and final signal is the position of the MACD indicator in the positive or negative zone if the trend is rising or falling respectively. Furthermore, it should be above or below its signal line. A bit confusing, but now at the visual example, it will be clearer.


As you can see, all three conditions were formed, then it's time to open the option Call. Open the option immediately after the closing of an hour candle which crosses two indicator lines. The option lifetime is until the end of the day, that is, until 0.00 GMT. In future, you should open the deal at 0.00 on trend every day with the expiration of a day. Such transactions should be made up to the moment when the day closes at a price below the SD MA or it does not recolor. Then go to the market and wait for a new signal. On our chart we could make a profit for 5 days until the option would bring a loss and we would be out of the market.

There is another version of using this strategy. Its conditions are exactly the same, but the expiry time of the options is not 24 hours, but 12 hours. That is, every day you enter into not one, but two deals. In our case, due to this chart the ratio of profitable and unprofitable trades is 7 to 3 until the signal to leave the market appears. So, how to use this system, you should decide yourself.

Let’s consider the variant with Put option too.


When you open a position on this situation, the trader could make three daily options profitable and only one would be closed at a loss. By the way, if you look closely at the chart, you can see that after two days the signal in the opposite direction to the Call Option was generated and the trader could have done it to cover the losses and continue to earn more. It was more profitable to work with 12-hour options here.

The conclusion on the strategy

The strategy is certainly interesting and with the right approach is able to make a profit. The strongest risk in strategies which are designed to catch the rollbacks or changes in the trend is that if the correction is small, the risk of catching the big "moose" is high. However, the settings of this strategy allow you virtually to exclude losses. Rather stringent conditions of entry in the transaction will increase the amount of guaranteed profitable trades.

SUITABLE OPTIONS

For trading on the system you need to take the usual classical binary options where the distance in points which the price will pass after the deal is of no importance. For these options an important condition is only that the price closed at least 1 point better than it was the price of entry.

DATE of EXPIRATION

The strategy does not take a lot of time to analyze and is easy to handle. For higher-risk traders 12-hour options for this strategy are more suitable, and for more conservative traders daily options are quite enough.

PROFITABILITY

This method of trading is not a record in profitable trades. However, this approach provides a stable constant average profit, as the number of profitable transactions dominates in the ratio 3 to 1.

MONEY MANAGEMENT

Do not forget about the risks incurred by the exchange trading, and do not rely on your luck. So, at each transaction apply from 2% to 5% of the size of the deposit. Your deposit is 1000USD? Then the size of the transactions should be not more than 20-50 USD.



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