Trade EURUSD Using Nadex Binary Options – Example
MrTopStep | Apr 24, 2018 08:26AM ET
Although this intraday chart in EURUSD is in a technically defined downtrend, there’s a symmetrical target derived from a harmonic pattern, called ABCD, at 1.2212 that has a potential of finding buyers for a bounce into resistance.
A counter trend trade opportunity has an initial target of 1.2246, then 1.2270 and 1.2319. The ideal minimum retracement target for this particular harmonic pattern is 1.2362 so the initial targets are considered scaling points, areas to tighten stops and protect a profitable trade or exit the trade. Once price holds above that ideal minimum retracement target, the probability strongly increases for upside continuation.
Trend traders, again, remember this is an intraday perspective regarding the trend, can either wait for a bounce into those upside targets or a breakdown of 1.2212 for a short opportunity. The furthest target to the downside is 1.994 and the scaling points are 1.2158, 1.2123 and 1.2046. There is emphasis at the 1.2123 because it is what is called a double PRZ. This double PRZ (Potential Reversal Zone aka the completion target for a harmonic pattern) is a stronger support test because two separate harmonic patterns meet at this region. It both offers a target as well as an important support test so we would definitely take some profits there if I’m in a profitable trade.
Let’s apply this view using binary options . We will use the weekly binary options. These expire on December 26 at 3PM EST.
As stated above, there is very good support at the 1.2123 level and as it happens there is a weekly binary option with a settlement price of 1.2125
With the spot price currently being 1.2180 the market in this option at this writing (December 23, at 12 PM EST) is 67 bid, 70 offered and we buy it at 70, on the surface thereby risking $70 to make $30.
However, keep in mind that this is a counter-trend trade and that trend is still lower. Therefore, as a hedge, we will look at the weekly binary with a downside potential price of 1.994.
There is a binary option with a settlement price of 1.1975. The market in this option is 97 bid, 99 offered and we’ll sell it at 97.
What then is our position on expiration this Friday?
Any settlement price above 1.2180 makes the position $27 as both options settle at 100.
Any settlement price below 1.1975 the same $27 as both options settle at zero.
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However, the risk in the position is any settlement price between 1.1975 and 1.2180 will cost the position $73 as our long binary settles at zero and our short binary option settles at 100.
We believe this risk/reward ratio to be acceptable as we see continued volatility in the EUR/USD this week even considering the Christmas holiday on Thursday.
by Kathy Garber
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