Ladder-style binary options contracts differ from various other trade types in that they are actually not binary in nature. Ladder trades are comprised of several different target prices which need to be reached, and these targets are laid out in a pattern that resembles (you guessed it), a ladder. Payouts are broken up and divided as well. Like the targets, these are pre-determined. Whenever this type of trade is placed, the trader is essentially opening several trades, with each forecasting the same direction of price movement. Similar to the most basic trade type, Call is used to forecast climbing prices, while Put is used to forecast falling prices.
Are there any advantages to using this type of trade? Wouldn’t such as contract be too complicated to be safely executed by a novice trader? In general, ladder trades do not offer noteworthy advantages over standard trade types. However, they do offer some advantage in the sense that they can provide frequent profits when used with various effective strategies. These strategies may not be what you expect, however, as methods which rely upon standard chart patterns may not be the best selection for trading ladder options.
From the perspective of the beginner-level trader, chart pattern methods may seem vulnerable to failure and fraught with risk at times. Chart pattern strategies work best when the trader is able to locate ad correctly identify specific patters. On paper, doing this can seem an easy task. However, within an actual trading environment, the task can be quite challenging. Ladder trading eliminates many of the complexities associated with using such strategies and provides a more straightforward goal for identifying asset price movement.
Each ladder option consists of a number of different trades. Each of these are linked to a set return and a set expiry time. This means that it is possible to hit some, but not all targets, thus collecting some, but not 100% of the potential profit. Of course the goal is to have the asset price reach each target so that the full return is credited to your account when the positions have closed. On the flip side, if the price hits one or more targets, you may be able to at least break even or have any resulting losses reduced.
Call or Put will be decided based upon the nature of the market at the time – bullish or bearish. Some brokers offer only Call ladder options, while others offer both Call and Put. Obviously, if Put is not offered, you will only be seeking out assets which have rising prices. Note that when even one target is reached, some type of return is guaranteed. As other targets are reached, the return amount climbs. The question that many have is – how do I go about setting optimal targets to ensure the largest overall return? The answer is simple – use a pivot point calculator. This tool will quickly and easily pinpoint suitable targets.
Before using the calculator though, it is important to first establish the market bias for the day. There are a number of tools which can be used to do this. One of the simplest methods is to simply have a look at the market-moving events of the day. Any reliable financial news website will be reporting on the top stories of the day, thus pointing out assets that are likely to be trending. What about expiry times? Longer is usually better, so if you’ve analyzed a one-hour chart, consider setting your expiry time to 24-hours. This should allow the asset price to reach as many targets as possible.
Practice is most definitely recommended when familiarizing yourself with ladder-style options. If possible, execute a few of these trades within a demo environment to see what the results are. While there are some clear benefits to using this type if instrument, the risks can be high should the asset price move completely against you. Use of this basic binary options strategy will help you to make the best possible selections for each contract.
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