Using Nadex Binary Options to Trade Gold.
Gold is at an interesting juncture, harmonically speaking, according to an intraday STRenko 20 bar chart. A bearish pattern, called Shark completed at the 1179 region. The ideal retracement targets are half way back and 100% back. At this juncture, price has surpassed the half way back, but here’s the thing, should price be able to hold above 1149, this implies a retest of 1154.7 from below and above there increases the probability of returning to upside targets.
Bullish 5-0’s are of course ideal if the 50% mark is a bounce point, however, GRZ’s (Golden Ratio Zones aka the region between 38.2% and 61.8% Fibonacci’s) are also a factor. So now that price has fallen below our 50% mark to test the bottom of the GRZ or 61.8% fib, now this unfolds an interesting scenario because the 5-0 can still play out as long as price first holds above 1149 and more important above 1154.7 OR if price holds below 1149, it pretty much takes out the 5-0 scenario and focuses on continuation of retracing the bearish pattern , and remember the next ideal retracement target is the 100% mark which is at 1130.4.
Directional trades are long biased with risk below 1149 or increased upside probability with a hold back above 1154.7, if so then the targets are 1160, 1166.7 and 1179. Anything above there is gravy with the extreme target, and unlikely occurrence in one trading day, at 1223.5.
Directional short biased trade opportunity is either at a rejection of 1154.7 or better yet a hold back below 1149.
Let’s translate this analysis into a trading strategy using Nadex listed binary options. For our purposes we will use the weekly options which expire on November 14 at 1:30 PM EST.
With gold trading at this moment at 1151 we seem to be holding our key level of 1149. However, if this breaks then the bullish scenario is negated and we could see 1130.
So, let’s look at the binary option with a settlement price of 1152.5. The market in this binary option is 33 bid, 35 offered. We purchase this option at 35, meaning that we risk $35 to make $65.
At the same time, however, we will hedge that trade by selling the binary option with a settlement price of 1142.50 at 65, thereby risking $35 to make $65. This gives us the following scenario:
Any close on Friday at 1:30 above 1152.5 makes the position $20 as both options settle at 100.
Any close below 1142.50 makes the position the same $20 as both options expire worthless.
The risk his comment is here a close between 1142.50 and 1152.50 costs the position $70 as the long binary option settles at zero and the short at 100.
Therefore, this is a trade based on volatility in the gold market during this week. It is a prely trading position that bears watching.