Full Review the Dusty Old Strategy for Binary Options
Do you have a folder on your PC full of strategies you came across over the years? I know I have, and thank God I don’t need to have them printed on paper, otherwise I would have to rent a storage unit and even worse… cut down an entire forest. So… from my vast collection of wannabe Holy Grail I bring you a dusty, old Forex strategy that I tried to adjust for Binary Options.
How to Use the Dusty Old Strategy
The strategy is quite simple because it uses only two indicators, no need to buy a magnifying glass in order to see the candles on your chart. The first indicator that you will plot on the chart is XPMA with setting 50 (if you’re not familiar with it just check the Getsuga Tensho Strategy and you’ll find a short but straight to the point explanation). We will use this indicator to show us the trend and trade only in the direction of the trend suggested. Basically if XPMA is blue we will look only for Call entries and if it’s red we’ll search only for Put entries. If you haven’t clicked on the link above, maybe it’s time for me to tell you that this indicator was programmed with the colors inverted (something that for me is very confusing) so I recommend when you attach the indicator on you chart, to go to “Colors” tab and switch them. The second indicator is the Retracement Finder (you’ll find the full review of the RF here) with setting 8 and two levels set on it at 200 and -200. The purpose of these levels is to show us if a move was strong enough and had momentum, we don’t want to trade every move up and down of the market.
Now that we have our indicators in place and we are looking at a 5 min chart, let’s make it simple and explain a Call entry: when XPMA is blue, telling you there’s an uptrend, you wait for RF to surpass the 200 level or in other words to tell you that a strong move in the direction of the prevailing trend has occurred. This is the point when you start paying attention and patiently wait for a retracement which will be signaled by RF with a move below 0. When the retracement is over RF will move again above 0, this is when you pull the trigger and place a Call.
Considering the old saying a picture’s worth a thousand words, here is a graphical explanation:
Vice versa rules apply for Put entries:
At the beginning of the review I told you that this is actually a Forex strategy, with pretty good results I might add, but when it comes to Binary Options the rules of the “game” change. When applied in Forex this strategy works because it has a good R:R ratio but in BO we cannot profit from this so I tried to apply new rules in order to filter some of the bad signals:
- Take only the first two signals in every new trend, as you know by now it’s very rare to see long lasting trends especially on a 5 min time frame which is full of market noise;
- Trade only in London and NY trading sessions, they are the most volatile and you need the market to be highly active otherwise the market will stall, enter a consolidation period or just range and you’ll need luck to close your trade ITM;
- Avoid zombie assets, look for trending markets that have solid daily movement. You might want to check out the Volatility tool review, it can help you determine which currencies are highly active;
- Although we look for signals on a very short time frame, I recommend that you choose a longer expiry time, something like 4H seems more suited. Give your trade some time to develop, from what I’ve seen price likes to stall a bit before moving in the desired direction.
Why does this Dusty Old Strategy Suck?
As with any trend following strategy, it sucks BIG TIME when the market doesn’t trend and makes jerky moves or stalls making you think you lost your internet connection. You need hyperactive markets and lately almost all major pairs have ridiculously low daily average movement somewhere around 60 pips and sometimes they travel this distance only on news releases after which they get exhausted and simply die. Meaningless to say that you’ll get burned in this type of scenario.
Why this Dusty Old Strategy doesn’t Suck?
I like it because it’s easy to implement, it has only two indicators that leave no room for error or second guessing. Another plus that I found is that it keeps you out from false reversals, the 200/-200 levels do a pretty good job; if RF does not surpass those levels it means that the move does not have the strength to continue.
Wrapping it up
Like any strategy it has pros and cons, but hey… you have to acknowledge that there’s no Holy Grail but there are some strategies with good potential, they just need some readjustments to fit your trading style. The few adjustments added to this strategy seem to bring some positive effects, but what do I know… I’m prone to subjectivity. Can’t put my finger on it but I still believe it needs something extra, maybe a new indicator or even some changes to the existing settings. Feel free to go wild on this one on our forum discussion and remember that the only thing you have to leave unchanged is the basic principle behind the strategy: trend – pullback – continuation.