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Home Rating strategies «Rock-solid levels» strategy for options trading

«Rock-solid levels» strategy for options trading

Strategy characteristics

Risk
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Profit
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Suitable options: classic binary options, One-Touch and Below, Ran Choose a broker
Expiry time: 30 days

Have you ever heard the professional brokers slang expression "the quotes approached the psychological level"? These are the levels being hit by the instrument's price like the concrete wall and repeatedly tested and failed to break through again and again. Our strategy of binary options trading is adapted to such bouncing from psychological levels trading. That means trading from levels that the price quotes cannot just break through and are bouncing off them like rubber balls and rally in the opposite direction.

Why do prices have that reaction at those levels? That is because the traders’ crowd sees that price quotes approached this historical psychological level and everyone evaluate the forces of bulls and bears of the market, and as soon as it is clear that the breakdown does not occur they all together rush to the market to sell the retracement since it is the best case to make profit.

TRADING RULES

To trade this trading system we need the MT4 platform, the one available for download here. Besides, to trade the system you will need the following set of indicators and system template as well as to learn how to install them to the MT4 terminal which can be read about in this article.

After you have installed indicators and templates to the terminal the quotes chart is going to look like this.


You can see the following indicators on the chart:
  • BKG 10SMA Alert – an arrow-type indicator showing the change in 10 SMA moving average direction;
  • SUP_DEM v.2 – an indicator showing «rock-solid levels» of support and resistance. When colored horizontal block is solid burgundy – this is an unconfirmed level of support. When just the frame of the block is burgundy, then this is the confirmed level that has been tested several times by the price and was not broken through. We are going to trade the rebound from the uncolored block. The same applies to the resistance levels that have colored or non-colored green blocks.
  • diverse period EMAs - show the general direction of the super-trend as well as local changes of its movement direction (has an informational role).
Options trading strategy gives signals to buy when:
  • quotes chart price «hits» the non-colored burgundy level created by SUP_DEM v.2 and indicates the bounce off of its limits;
  • BKG 10SMA Alert – showed the blue color up arrow, which confirms the fact that quotes change their movement direction.
When the daily candle on which the specified signals occurred closes, we buy by making a Call-option trade.


Options trading strategy gives signals to sell when:
  • quotes chart price «hits» the non-colored burgundy level created by SUP_DEM v.2 and indicates the bounce off of its limits;
  • BKG 10SMA Alert – showed the red color down arrow, which confirms the fact that quotes change their movement direction.
When the daily candle on which the specified signals occurred closes, we sell by making a Put-option trade.


You may trade with a more aggressive procedure the rebound from the not yet confirmed levels that are still painted in burgundy and green colors as shown in the screenshot below.


In this case, you will need to wait for the arrow of the indicator BKG 10SMA Alert go up, which confirms the retrace from the level of resistance. At the same time, the wider a level the more valuable it is. Such levels as these


do not state to be «rock-solid levels». These are just temporary local points of possible resistance. Narrow and minor levels are ignored.

APPROPRIATE OPTIONS

One-Touch, Below and Range options are appropriate for trading this system.

That is, for the One-Touch, Below options we bet on touching / covering of the given strike level to which the asset price will "bounce" after rebounding from the "rock-solid" level.

When trading Range option, given that this indicator is for breakdown levels above and below the price of the asset, we enter buying with betting on the fact that the price after bouncing from the "rock-solid" level will break through the strike range border and consolidate above it at expiration.

EXPIRATION TIMES

We need to select the expiration times of not less than 30 days for our trading.

PROFITABILITY

In the given system, we trade the most profitable options with the payout reaching 500% -600%. Knowing this, let's "count the chickens before they are hatched" and count the profits we would be able to make when trading this system in the long run.

As mentioned earlier, trading is conducted for a bounce off of the "rock-solid" historical psychological levels, which are not broken through from the first time. In practice, on the "real market", this strategy proved 4 profitable trades for 1 unprofitable. What does this mean? This means that for 2000 USD of income we will have only 100 USD of loss. Do you like these statistics? That is not surprising! And this is a real fact confirmed by system testing and by real trading.

MONEY MANAGEMENT

What size of the trade should be set when trading? Let us take 5% of the total deposit, because, who knows what have market makers prepared. Indeed, there are situations when a series of losing trades done with any of the most profitable systems reaches 4-5 repeats. The fact is that we need to be ready for anything in advance and do not overload our own deposit.



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