Binary Options Trading and Market Timing

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Trading Bots Are Your Friends

So when you are binary options trading, do you think about who else is trading in the market and what they might be trying to accomplish? Have you done your homework about the major securities you trade and what makes up the supply and demand curves for those assets?

Who Is Making the Market for Stocks?
If you haven’t noticed the news oh for the last say… two decades the amount of programmed trading is widely hailed (and blamed) for the movements in the stock market. On good days it seems the algorithms say “Up, Up, Up” while on bad days the exchanges have to pull the plug before the bathtub is completely drained of capital. Why does this matter to the average trader? Simple. Programs like these are what economists like to refer to as “sources of advances in worker productivity.” What?!?! Hear me out. When Wall Street makes more trades, brokerages make more money, right? Well how do you think you can make more trades (on both sides of the market) without adding people (traders/trading desks) to make trades? Ya think a computer program can effectively make a market? Is a computer program (or series of programs) cheaper than a trader or a whole assembly of traders? Oh yeah it is. Hence Wall Street firms have lots of programs. They still have traders and trading desks to be sure, and they still have customer service… but nothing runs the day to day grind of market order matching like a computer wonk can.

Why Does It Matter A Computer Is Making the Market for High Volume Stocks and Indexes?
In a word: predictability. One of the goals of any stock trading programmer is to model patterns in the market and design trading programs to improve the market timing of the automated trading desk. Establish trading patterns and then design programs to take advantage of those trading patterns in a way that reduces or eliminates risk and still provide hefty returns. So why does it matter to the average trader? Because market timing is what the day trader is all about. Determine where the action is going to be and get there first. The small trader is insignificant in the grand scheme of things when it comes to billions of shares traded every day…. insignificant that is… to the computers executing trades all day, but not insignificant to the individual day trader trying to make a buck.

What’s This Got to Do with Binary Options Trading?
Ahhh, the million dollar question. It turns out (as you should expect) that I read… ALOT. I read just about everything I can about finance, economics (and economies), market statistics and market players. I read something recently the other day by an author I read fairly regularly and it involved an apparent program algorithm he had discovered in watching the futures market (see it here). Now this guy I’m talking about is a trader. I trade a few trades a year for big stakes. This guy trades like he owns the market. The pattern he discovered involves a derivative of a high volume security which small fish like us can access another way via binary options trading.

This Isn’t About Getting Your Own Market Timing Program – It’s About Doing Homework and Profiting from It

Now I’m not going to sit here and spout off a list of trading programs that are out there that you can buy blah blah blah… I’m not talking about that. I’m talking about making a habit of doing your homework on every security you can think of, one at a time, all the while trying to find the algorithm (if any) and then working your binary options trading magic, hedge and double like we’ve established on here. When you can combine high probability of advanced knowledge of a two-direction (both buy and sell sides) trading pattern and combine that with a binary options hedge trade you widen the “goldilocks zone” I talk about in building the hedge and double position. In the previously mentioned pattern, this would involve establishing an end of day expiration binary option put in the morning and an opposite end of day binary option call in the afternoon.

Does this mean I’m telling you to run out and start making these trades. NO. I’m telling you that the author of that article DID HIS HOMEWORK and is making his own trades based on his efforts. On the other hand there is no reason that you can’t do your own research looking for similar trading patterns and exploiting them. If you’re comfortable with his research then there is no reason you can’t trade his pattern – but do your homework. Binary options trading is not forgiving when things go wrong… so do everything you can to make sure they go right for you.

Happy trading
Steve

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2 Responses to Binary Options Trading and Market Timing

  1. Ralph on April 9, 2010 at 7:12 pm

    Do you teach people on how to trade binary options

  2. Steve on April 16, 2010 at 10:35 am

    No, however I do share my own personally devised strategies for trading on here selectively. What’s most important to consider is how I think about trading.. not necessarily the specific trades or examples. I’ve done a lot of reading on investing and investments, and have traded for all of my adult life.
    I’ve been appalled at the trading shenanigans we’ve seen repeatedly over basically my trading lifetime and I try to blog about how trading can still work for the little guy if you pick your spots. I try to show people how I pick mine.

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