Many binary options brokers offer what is called a ladder. The ladder is basically one trade, but with several different price targets, typically with a different timeframe linked to each one. Your broker may or may not let you choose the expiries and strike prices of each rung of the ladder, and there is typically a payout for each rung of the ladder if you are correct in your predictions. Some brokers require you to be right on each rung, and then give you a huge payout, while others will take a smaller payout, divvying up some of it over the course of each rung. A simple ladder strategy is explained for you below with the hopes of teaching you to maximize the usefulness of the strategy in your own trading day.
Application with the Ladder
The simplest ladder strategy consists of a few parts. First, you look at the asset in question and get a general feel for how it is moving. Next, you look at several different price goals that the asset can realistically achieve in the future, setting a timeframe for each one of those goals.
Ladders are more about behavior than they are direction. For example, if you predict a retracement for your second rung will occur after a sizable gain on your first rung, you can take this into account on the ladder when you are creating it. The trend doesn’t necessarily need to be a straight line slanted upward (or downward). Most brokers will let you choose the direction, so be sure to take this into account as you create your ladders.
The easiest way to be successful with a ladder trade is to pick your last rung first. The final rung of the ladder typically pays the most, and is therefore the most important one to attain. The first rung of the ladder tends to pay the least amount, and it should be your final concern. To predict what these should be, start by looking at a chart of the asset you have in mind for trading. Using pivot points and Fibonacci sequencing, you can get an idea of where the price levels have been. Pay special attention to levels of support and resistance and the strength that they have shown. If these are unpredictable, it’s probably best to stay away from the trade. When they are strong, be sure to take them into account as the asset may see some oscillation as the trading day moves forward. The problem with weak support and resistance is that it can make deciding upon a final price very difficult, and that severely impacts your earning potential.
Ladder options are not offered at all brokers, so if you plan on using this, make sure that your broker offers these before you create an account.
Drawbacks of the Ladder
Even the most straightforward ladder trade requires you to be an advanced trader. Thinking that far into the future, on the same asset, and then applying that to a rigid set of requirements laid out by the broker is tough. Doing it with accuracy is even tougher. Many traders are attracted to ladders because of the high returns that they offer, but the reality is that those high returns are advertised to attract traders with a high likelihood of failure. Don’t fall for this trick, and don’t start trading ladders until you have a high level of certainty in your own skills, and in the asset that is being offered.
If a broker offers all or nothing ladder trades, do not use them. These have huge payouts, but they are almost impossible to be profitable with, and are not worth it as a result.
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