End of Day Binary Options Trading Strategy

InvestingOnline.com 22/03/2018, 02:51

Did you know? Statistically (and on average), low frequency traders such as ‘end-of-day’ traders return more money over the long term than high frequency traders (such as ‘intra-day’ traders).

What is end-of-day trading?

End-of-day trading, also known as position trading, occurs when a trader (binary options trader included), identifies a high probability trade set-up on an end-of-day price chart and places a buy (call) or sell (put) position the next trading day.

As opposed to intra-day trading whereby traders place trades in a higher frequency (ie: more often throughout the day), an end-of-day trader places trades less frequently and uses end of day trading data to generate trading signals.

End-of-day trading signals are generated off the daily price bar, after the trading day has closed. Intra-day monitoring of the price bars is not required.

So who’s end-of-day?

The ‘end-of-the-day’ officially refers to 1700hrs New York time. That is, a daily candle will always close and open with the New York trading session close/open.
For local markets however, the end-of-day candle will close and open in line with the local exchange trading session times.

Why trade end-of-day strategies?

End-of-day trading strategies are very popular amongst part-time traders due to the work/life balance the strategy and setup affords. Many end-of-day traders manage full time jobs and this type of strategy is considered less arduous and demanding, allowing traders to fit their trading activities around a normal work schedule.

End-of-day setups, because of their higher timeframes, are often considered stronger and more reliable reducing trading ‘noise’ seen on shorter timeframes. Plus trading and data feed costs are smaller (where applicable).

For end-of-day traders, time constraints is not an added pressure for decision making, which is – when using 1 minute price bars for example – often counterproductive.

End-of-day strategy: Inside Day Bollinger Band Turn Trade

When trading Bollinger Bands as a strategy, prices approaching the upper Bollinger Band are considered high while prices nearing the lower Bollinger Band are considered low. Traders often buy and sell when price breaks these key indicator level, however, strong trends will often ‘ride’ out the breach of the upper (or lower) Band rendering the trade a loss.

Because Bollinger Band indicator strategy states that when price makes new highs in an uptrend and new lows in a downtrend, price will bounce (and break) the upper (or lower) Band, to generate a high-probability setup, binary options traders must filter the trading signals generated by Bollinger Bands by adding a confirmation function: an Inside Day.

That is, traders should place a buy (call) or sell (put) trade only when the price candle following the one that breaks through the upper (or lower) Bollinger Band does not make a new high or low. By doing this, traders are increasing the probability that prices have hit extreme levels and a reversal is imminent. Further, as an end-of-day trader, the longer the timeframe, the more significant the reversal will be.

Because binary options traders are not concerned with how much an asset moves in price, only the direction, it is important to confirm the Bollinger Band reversal points with the Inside Day. By using the Inside Day candle, which represents a contraction of volatility, if in an uptrend – volatility slows and price fails to make new highs (the Inside Day), traders recognise that price strength is weakening and a reversal is probable. When combined with Bollinger Bands which are used to signal reversal points, traders will look to sell at the break of the upper Bollinger Band followed by and Inside Day or buy at the break of the lower Bollinger Band followed by an Inside Day.

Binary Options Trading Signals

Call Trade: Buy when price breaks through the lower Bollinger Band and is immediately followed by an Inside Day bar. Place the call trade at the high of the inside bar.

Put Trade: Sell when price breaks through the upper Bollinger Band and is immediately followed by an Inside Day bar. Place the put trade at the low of the inside bar.