Wednesday, June 24, 2015

Thinking About Binary Options

The current rule set may be read here.

Regular readers will know that I'm new to binary options, and that day trading has not been my preferred method.

As I use the Nadex binary options platform to help earn money during the idle hours of low volatility between earnings seasons, I have no rules and am in the process of drafting them.

Here is the rough working set of rules that I'm using at this point, including lessons learned from my second trade on Wednesday, which was loss-making. These will change over time, and I'll post those changes on Private Trader.

Note that I say nothing about which contracts I trade: Daily, weekly or intra-day. I remain agnostic on the issue, although I have up to now traded the daily contracts exclusively.

Operational rules:
  1. Use Elliott wave analysis for the framing.
  2. Use Joe Ross hooks for the trading signal.
  3. When the two methods conflict, the Elliott wave analysis prevails.
  4. Go short when an uptrend produces with a bar closing with a lower high.
  5. Go long when a downtrend produces with a bar closing with a higher low.
  6. Upon entry aim for a debit of $40 to $60 per contract.
  7. Exit when the credit is within $5 of maximum profit.
  8. Exit when Elliott wave analysis shows that the reason for entry is no longer valid.

Trade Selection:

A completed primary trend on the SPX (Nadex:US500) is defined by the peak of wave 5 at $2,129.87 on June 22, 2015, ending a five-day uptrend of five waves of the same degree that began from $2,027.49 on June 15, 2015. The primary trend will be redefined from time to time to meet my trading requirements.

Within the waves that are the top-level components of the primary trend, these rules apply:

  1. Trade only waves that are in the direction of the primary trend (i.e., no counter-trend flips), giving preference to those that are in the top two sub-levels within the waves making up the primary trend.
  2. All waves at the top level within the primary trend may be traded.
  3. Trade only 3rd and C waves within the sub-levels of the waves making up the primary trend.

In other words, the primary trend is a movement at the {+1} level. The waves making up the primary trend are at the base level, such as wave 1 or wave 3 or wave A. The top two sub-levels within the waves making up the primary trend are wave 3 {-1} and wave C {-1}, and wave 3 {-2} and wave C {-2}.

This chart from late June 2015 shows the levels.

Click on chart to enlarge.
S&P 500 on Wednesday, June 24, after the closing bell, 10 days 1-hour bar
-- Tim Bovee, Portland, Oregon, June 24, 2015


My trading rules can be read here.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, InvestopediaStockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

The website of Joe Ross, who defined the Joe Ross Hook, may be found here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at s ss'ss

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