My Binary Trades on 8 October

The forex market was a little bit lighter on volume on Monday due to the Columbus Day bank holiday in the U.S., but there were still quality trade set-ups to be found on USD pairs.

I took two trades on the GBP/USD. The GBP had been under pressure since about 5AM EST and had been in a downtrend for nearly two hours before I took I put option on the brief retrace just above the 1.605 level. The premise of this trade was heavily based on the pinbar that was forming on the candle that I had gotten into the trade on. Pinbars are a well-known candlestick variety that help give traders an indication of where the market might go next. Candlesticks are taken to be bullish (i.e., price may be likely to go up) if the wick is more pronounced on the bottom-side of the candle, with a minimal body and minimal wick on the topside. This tends to demonstrate a rejection of a price level and may indicate that price may further proceed away from the rejected area. In the set-up for this particular trade, we had a bearish candlestick, characterized by a long top-side wick with a small body and no downside wick. This bearish signal, in addition to the overall downside trend, led me to believe that the GBP/USD was most likely to continue its trek south.

Note: Arrows are drawn in at the resistance levels to denote where my trade took place, with the tips of the arrows designating the point of entry.

However, notice that I didn’t take this put option on the close of the candle (confirmation of the pinbar). While the rejection of the higher price level was an important factor for my entry into the trade, I was actually waiting for price to see some type of consolidation just under the candle bodies of the 6:00 and 6:05 bars, which formed a minor support level. Of course, when support is breached, it often forms new resistance on the retrace back up to that level and that’s exactly what happened in this particular scenario. When I saw price consolidating around the 1.60525 level – 1.60537 according to where my trade was place on 24option.com – I took the put option at 6:53AM EST, seven minutes before expiry. Outside of the initial miniscule fluctuations that often occur after entering a trade, this one really never went against me. It dropped almost instantly and continued slightly downward on the next candle before it finished in the money (ITM) by about four pips, closing out just below 1.605.

My second trade on this pair occurred just over an hour-and-a-half later at 8:33AM EST. This was another trade in the overall direction of the ongoing trend. When I see a trend of this magnitude, with few price supports forming to suggest a reversal, I’ll usually stick with options in that general direction. At that point, I decided to enter another put option. In the previous half-hour, price was showing some sensitivity to the 1.603 price level. These five-minute candles were either closing/opening at around 1.603 or in the case of the candle before my entry, was wicked well below the level. Essentially another bearish pinbar had formed and our logic behind entering this binary trade was very similar to the first:

1. The overall trend was down
2. A bearish pinbar had just formed and
3. An area of previous consolidation was likely to act as a resistance level that might aid in helping the trade land ITM

I took the put option at 1.60302 at 8:33AM EST on a fifteen-minute expiry and it closed out four pips in our favor twelve minutes later.

When considering a trade, one of the most important things to consider is the overall trend. When the trend is in the general direction of where you want to take a trade, that only makes the trade that much stronger.