Posts Tagged ‘bollinger bands strategy’

Fence Trading Strategy for Binary Options

Thursday, January 2nd, 2014

Thursday, January 2nd, 2014 by Michael Freeman

The Fence Trading Strategy, also known as ‘Double Profit’, allows traders to increase the ITM payout and minimize the potential OTM loss. The ideal situation for Fence Trading is when the asset’s price bounces up and down within a reasonable price range allowing us to enter into two opposite trades and as close as possible to the highest and lowest prices on the asset’s chart. By creating a wide enough range, we can increase the probability to win both trades and get double the ITM payout, hence the term ‘Double Profit’.

At the highest price level within the ‘Fence’ we enter a PUT prediction while at the lowest price level we enter a CALL prediction and our goal is to ensure that the asset’s closing/expiry price is between the price levels of the upper and lower trades.

Fence Trading Strategy Example

Let’s say that the price of Asset A is currently $25, yielding a %75 ITM return and a %0 OTM return. We decide to invest $100 predicting a price increase upon expiry which is set at 60 minutes. 20 minutes later the price of asset A  reaches $30, based on the neutral trend we assume that the price will close below $30 and we invest another $100, predicting a price decrease. At this point we entered a Call and a Put predictions creating a “Fence” between $25 and $30.  If the final asset’s price(expiry) falls between the the lowest and highest price levels, we will get the highest return on the investment formulated in the first example below.

Asset A expiry =$25-$30 ($100+$75)+($100+$75).

Initial Investment = $200, Ending Balance = $350, Profit = $150.00


Asset A expiry > $30 ($100+$75)+($100-$100).

Initial Investment = $200, Ending Balance = $175, Loss = -$25.00


Asset A expiry < $25 ($100-$100)+($100+$75).

Initial Investment = $200, Ending Balance = $175, Loss = -$25.00

The obvious conclusion is that with the Fence Trading Strategy we can significantly reduce the loss on OTM trades while doubling the potential profit! The profit on winning trades is 6 times higher than the potential loss ($150 vs -$25) which means that even if we lose a few consecutive trades we will still take back more profit over a volume of trades. This is definitely a winning binary options strategy!




Fence Trading and Bollinger Bands®

Now that we understand the great potential behind Fence Trading, it’s important to learn how we can properly identify a neutral trend while spotting the ‘right amount’ of price volatility to indicate a safe entry point so we can safely utilize this binary options strategy. The Bollinger Bands are used as a technical analysis indicator allowing us to measure the current price volatility for any underlying asset. The volatility bands are positioned above/below the moving average line, forming a range that is constantly adjusted depending on the market volatility, making it an ‘ideal indicator’ for Fence Trading. The visual representation of the Bollinger Bands is used to predict the ideal ‘lowest and highest’ entry points and confirm the presence of a neutral trend for the current time period displayed on the asset’s chart.

The Bollinger Bands are available Free on Meta Trader 4 and FreeStockCharts.

Fence Trading combined with Bollinger Bands make up a very solid strategy. It’s also suggested that you set the expiry for one hour, giving yourself enough ‘response time’ to enter the 2nd trade. Remember that binary options involves high-risk, therefore any strategy that attempts to minimize the potential loss will ultimately minimize the risk and allow you generate more profit! Before you ‘jump in the water’ head first with $100 trades.. make sure to put the Fence Trading Strategy to the test with lower trade amounts or on a demo account. For brokers offering low trades amounts and a demo account visit the Recommended Binary Options Brokers reviews.