Managing profits when trading binary options is just as important as managing risk. Here is an example from this morning’s trade using the USDJPY binary option.
Managing Profits When Trading Binary Options
The USDJPY forex pair was in an established downtrend. When trading into a trend, the easiest entry is on retracements, especially when the retracement has hidden divergence using the TradersHelpDesk Stochastics indicator. Of course, the retracement generally is back to the ATR stop that is built-in to the Trend ATR indicator. This morning the setup played out perfectly on the USDJPY 15 – minute chart. As you can see from the chart below, price has retraced back to the ATR, the Stochastics is overbought and has hidden divergence because price is making lower highs while the Stochastics is making either equal or higher highs.
The risk per contract was $32.50 (for the 123.36 strike). Anticipation at this moment was a retest of the low at 112.24, which is also where trend divergence had been detected earlier.
Price initially moves against the position and manages to flip the ATR. However, it is simply mathematical noise because price does not continue up. Instead, it begins to go down in direction of the trade. Once it gets to the blue ATR (blue plus sign), it tries to break it, going down to 112.29 and then hesitates. This is just enough to fill my profit target at $15 resulting in a profit of $52.50.
The price at expiration was 112.377. In other words, the market was trying to give profits but if I were greedy and tried to take the maximum payout, $100, then I would have lost the profits I had and the risk amounts ($85). By managing profits when trading binary options, I was able to “bank” what the market was offering versus trying to “eat the whole pie”.
The Out of the Money binary options provide an ideal environment for using low risk high reward opportunities. Since each binary has a maximum payout of $100, the trader has more reward (typically around $70 after the risk) than risk on the table.
To read more about the TradersHelpDesk indicators or, if you are new to trading binary options and need more information on managing profits when trading binary options, consider one of Gail’s new books on trading binary options.