A Fibonacci Strategy for Trading Binary Options

The following is a description of a Fibonacci strategy that can be used in trading the Touch/No Touch binary options. It is a long term strategy that if traded on the binary options platform of Betonmarkets, can produce a huge payout.

The description of this strategy is an example of how to use the Fibonacci retracement tool to identify possible points at which the price of the asset could retrace to, and use these points as a basis of setting price targets for the Touch/No Touch trade. The reason why it is preferred to use the Betonmarkets platform for this strategy is as follows:

a)    The Betonmarkets platform allows the trader to choose his own expiry. Being able to choose your own expiry time affords you some flexibility to play around with.

b)    The payout structure on Betonmarkets is such that the most improbable of trades will cost the trader very little and pay out more. This strategy is played out on a daily chart where the trade outcome is not very obvious. For such trades, Betonmarkets easily price those bets in such a way that the trader can easily aim for a payout of 100% of even more.

Let us now give a description of the strategy.

Trading the Touch/No Touch with the Fibonacci Retracement Tool

For the Fibonacci strategy, we will use the daily chart for our analysis. The concept behind this strategy is to identify areas to which the price of the asset will retrace to after a particularly strong trend. The only way to get the trend of the asset is to watch its price behaviour over a length of time, and this can only be done using the daily charts.

www.investopedia.com/terms/f/fibonacciretracement.asp ), the trader gets five possible spots where he can set a TOUCH option trade. How is the Fibonacci retracement tool used?

a)    The first step is to trace the retracement points. In an uptrend, this is done by tracing from the lowest point that the price has made on the chart (swing low) to the highest point that the price has made on the chart (swing high).

b)    In a downtrend, the Fibonacci is traced from the highest point on the chart (swing high) to the lowest point that the price action has made on the chart (swing low). When this has been done by the trader, the five levels of Fibonacci retracement will appear as follows: 23.6%, 38.2%, 50%, 61.8% and 100%.

Once the trace with the Fibonacci tool has been made, the next question is: how does a trader know where the Fibonacci retracement will end and the price continue its prior move?

Personal research has shown the Stochastics oscillator is a useful tool in this regard. By crossing at oversold levels in a downward retracement, a trader can pinpoint at which Fibonacci retracement level the retracement of the asset will come to an end, and the move in the previous trend resumes. Similarly, in an upward retracement, the Fibonacci crossing at an overbought level will show the trader where the asset will end its retracement in order to resume the downtrend. The snapshot below demonstrates these points:

Using a Fibonacci Strategy to Trade Binaries

From this information, it is obvious that the following retracement levels can be used as price targets for the Touch trade:

a)    The 23.6% retracement level will always be breached by a retracing price, so it should be used as a Touch trade strike price. The expiry for this trade should not be less than 7 days since the analysis is done on a daily chart.

b)    For a second trade, use the 38.2% retracement line as a strike price. More often than not, this level will be breached or will at least form the area where the retracement will end, confirmed by the cross of the Stochastics indicator.

c)     After the cross of the Stochastics indicator, the trader can set a third trade. If the cross occurred at the 50% Fibonacci line, use the 38.2% Fibonacci line as a price target for a 3 rd Touch trade. If the cross happened at the 61.8% Fibonacci line, use the 50% Fibo line as the price target.

d)    If the cross occurred at the 61/8% Fibonacci line, then there is an opportunity for a 4 th Touch trade at the 38.2% Fibo line after using the 50% line as price target for a 3 rd trade.

For the No Touch trade, wait until the Stochastics oscillator has crossed at a Fibonacci level before setting a NO TOUCH price target. If the cross is at an oversold region, use a price target below that Fibo level for the trade. If the cross was at an overbought region, use a price target above that Fibo level for the trade.

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