Greetings.
Even if you are a novice trader, you have probably already come across the term “scalping”. This style of trading has been around for a long time, and it is not new to the stock, foreign exchange and other markets.
But the evolution of online trading platforms and the emergence of more or less effective electronic advisors have made scalping more popular than ever. Therefore, just take my word for it: it definitely won’t hurt you to find out what scalping strategies exist for binary options and how they work.
Why many brokers don't like scalpers
You may have noticed that some brokers severely cut profits from scalping or directly prohibit clients from using scalping strategies for binary options. Why do they do this? There are many thoughts on this subject, but I noticed a direct connection between the type of execution of accounts provided by the broker and loyalty to spalling.
For example, you will never find a TOP 10 STP/ECN broker that prohibits clients from using scalping strategies. These No Dealing Desk brokers simply place their clients' trades on the open market, "matching" them with real liquidity providers.
Their profit is spreads or commissions from traders. Any broker that claims to operate using a No Dealing Desk model but limits scalping is misleading its clients. STP/ECN brokers profit from trading volume. They, on the contrary, welcome scalpers and strategies with open arms.
Brokers that work with a delay or draw the price themselves often prevent traders from using scalping strategies. It is beneficial for them that the client’s money remains in the accounts and is not bitten off piece by piece by scalpers.
Recommendations
Traders are often tempted to add their own chips to ready-made tactics. And often they turn out to be very successful, but extremely individual; always remember that in the science of trading there are no generally accepted facts regarding successful strategies. Some traders, even very successful ones, are capable of criticism of this or that tactic. But it often happens that their assessment is based on personal feelings, and not on profitability indicators. For some, on the contrary, personal comfort is important, for which they are willing to pay a few percent of the profit.
Pros and cons of binary scalping
Advantages of scalping strategies for binary options:
- Quick results. In scalping, the duration of a transaction does not exceed several minutes, but more often it ranges from several seconds to a minute.
- Minimum stress. We simply don't have time to worry about the outcome of a trade or draw false conclusions from comparing a bunch of indicators. Everything happens quickly and simply - automatically.
- Regular income. If you are a good scalper, you always have dozens and hundreds of potentially profitable trading signals in front of you.
- Lots of trading opportunities. A strong trend or a flat - there will always be signals if there is even the slightest ripple. Scalping is practiced in any market conditions.
- Simple trading strategies. With scalping, you don't have to spend days, weeks or months searching for the right strategy. To open a position, all you need is a candlestick chart and one or two indicators for comparison. That's all the strategies.
Disadvantages of scalping:
- Exhausting. We need to make dozens of trades a day to make significant profits. To do this, you will have to not only sit at the computer a lot, but also constantly be at the peak of concentration. It will be exhausting both physically and mentally. Really hard labor. If you're not used to this, you definitely won't like it.
- Low profit per trade. Since the trade closes within a few pips, the profit per trade is very small. You need a tight series of successful trades, with a ratio of at least 7 out of 10.
- Experience required. Scalping and strategies are intended for experienced traders. Newbies, don't be offended. If you don’t really understand technical analysis and market psychology, you’ll fly away in the moment.
Purchase contract put
Above is an example of an acquisition operation for a decrease.
So, the exponential moving average, displayed on the chart, must cross the body of the candle. As a final result, the stripe should be located above the body of the new candle.
The RSI curve should be located below level 50. Ideally, there will be a crossing of the lower oversold zone.
The final check is the situation with the stochastic. Its bands should be in the overbought zone and also moving down. The picture should look as if the lines are trying to leave this range.
It is these three conditions that provide the investor with a clear signal to enter into a deal to buy a put option. Remember that expiration is set to 5 minutes.
Main types of scalping strategies
More on strategies below.
Systems for glass scalping
The essence of scalping by order book is to catch the impulse within a certain price range. The order book is formed on price charts and fixed on support/resistance lines. Simply put, we look at the chart, look for levels, find the range of price movement and enter a trade in time after a reversal or just before a rebound.
Trend scalping
Scalping and trend are inseparable things. The essence of trend scalping is to catch small price jumps and make a profit by simply going with the flow.
Impulse scalping
You probably already know what impulse trading is. The same principle works here - find an external factor (for example, news from the economic calendar) that will create a powerful price impulse.
For example, to buy a binary option, a trader must monitor the behavior of the underlying asset. You can also “catch” impulses on a candlestick chart.
How to enter a trade?
The most important part of entering a trade is determining the current market trend. All three EMAs should have the same bullish or bearish trend. A slope of 30 to 60 degrees is sufficient. But it's much better if all three trend at 45 degrees. This slope indicates a strong trend. The next step involves waiting for the market to show a pullback to the 50 or 100 period EMA. As stated earlier, the price should go below the 50 period, but make sure that it does not go below the 100 EMA. It may go below 150. As soon as the price moves beyond one of the moving averages, we will need confirmation. The entry should occur when the price returns in the direction of the current trend, just after the 50-period EMA.
Basic indicators for scalping trading
More about them later.
Oscillators
The oscillator is one of the most attractive indicators for scalping. Oscillators are leading indicators, therefore they help to more accurately predict whether the price will rebound from the level or break through it and how it will end - a correction or further movement. The downside is that oscillators give false signals more often than other indicators.
Volatility indicators
The most famous and frequently used is, of course, Bollinger Bands. This is an indicator that measures two standard deviations above and below the 20-day average and plots lines representing these levels on a chart. Widening bands indicate increased market volatility, while narrowing bands indicate decreased volatility.
Why do you need to know about volatility? This indicator says a lot. For example, about which strategy is more effective at the moment - reversal or trend.
Indicators of breakdown of levels and fractals
The essence of scalping strategies for binary options at levels is to search for boundaries within which the price “jumps”, and to search for points from which the price will bounce. Many traders make the mistake of placing their orders directly at support and resistance levels. They forget that the boundaries of the price “envelope” are also constantly changing. Therefore, they need to be recalculated before each transaction.
When people hear the word fractal, they often think of complex mathematics. That's not what we're talking about here. Fractals are systems of repeating patterns that arise against the background of cyclical price movements.
Fractal indicators capture several bars or candles (usually 5 or more) to identify cyclicality, find a starting point and enter a trade with the lowest possible risk. Most trading platforms provide fractals as a standard trading indicator.
This means traders don't have to hunt for a pattern on a bare chart. Activate it and the arrow will draw the direction itself. That's the whole strategy.
Example
Let's use the following figure as an example:
The figure clearly shows how two indicator lines intersect and rush upward. The numbers “1” and “2” show the moments when you need to buy an option for one minute in order to get the long-awaited profit.
After the number “2” you can notice another similar signal, but in the opposite direction and is characteristic of selling an option.
The scalping strategy has shown itself to be excellent on binary options trading platforms. The fixed income of transactions, short expiration time and the absence of complex technical analysis became the reason for the popularity of this strategy.
Scalping on moving averages and their derivatives
I have been studying Forex and BO for 4 years. I tried many methods, strategies and many time frames. I finally became profitable using moving averages.
There are many ways to use strategies, both individually and as trading indicators. My favorite way is to use an EMA to track the current price and two SMAs to draw the boundaries of the price envelope. Approaching the breakout level is a potential signal for a trade. Checking through RSI and volumes (OBV). However, there are many other combinations.
Scalping 60 seconds
In its classic form, minute scalping involves opening a trading position for literally a few pips. In BO, the strategy has the same form, only here instead of pips there is a fixed contract time. The main idea is to open a large number of trades for short time periods.
Scalping 5 minutes
Trading on 5-minute timeframes is a lighter version of the previous strategy, which is the most popular among traders today.
Psychologists studied this issue and came to the conclusion that 5 minutes is the most comfortable time limit within which a person can work comfortably without overstraining the cognitive system. 5 minutes is too short to hunt for long trades, so most 5-minute strategies are based on the rebound.
Night scalping
For a novice trader, the concept of “night scalping” is most likely immediately associated with trading in the dark. Like the night shift at work. But in this case we are only talking about trading strategies during the Asian session. And this is from approximately 3 a.m. to 11 a.m. Moscow time (summer time) or from 4 a.m. to 12 noon winter time.
What is interesting about trading during the Asian session? Many of them. For example, low volatility, which makes trend trading very difficult and provides more opportunities when trading at levels. Why is this good? First of all, predictability. Yes, the potential earnings are less than in the European or American sessions, but there are also fewer risks and losses.
Purchasing a call contract
Let's begin to consider the algorithm for concluding transactions (screenshot with an operation to buy a call option).
So, the exponential moving average, displayed on the chart, must cross the body of the candle. The final result should be the stripe located below the body of the new candle.
The RSI curve should be located above the 50 level. Ideally, it will cross the upper overbought zone.
The final check is the situation with the stochastic. Its bands should be in the oversold zone and also moving upward. The picture should look as if the lines are trying to leave this range.
It is these three conditions that provide the investor with a clear signal to enter into a transaction to buy a call option. Remember that expiration is set to 5 minutes.
Trader reviews
I can’t help but cite the statement of one of the “fathers” of scalping, Paul Tudor Jones: “This cotton trade was almost the decisive factor for me. That's when I said, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?”
What he means here is that you need to trade more often while betting less, and he actually justified it as a concept.
He also owns another phrase that relates to scalping trading on news: “I do not risk a significant amount of money before key news, since this is gambling, not trading.”
Features of using oscillators
Investors who prefer short-term trading use stochastic and relative strength index. Operations are completed at the moment the value leaves the overbought and oversold territory, which is carried out at the moment the moving average crosses the indicator with a twenty or eighty band.
The main difficulty is that you need to carefully select the time interval and settings.
This type of indicator is used in 1 minute scalping strategies because this tool is able to capture small price changes. At the same time, do not forget about the disadvantages - the work of oscillators is not carried out in a trend movement, you need to wait for a sideways flat or value consolidation.
