Knocking Price Strategy
The short term options – is one of the most popular strategies among traders because it allows to make profits easily and quickly. However, many beginners make a mistake, believing that within such short time frames the trading can be done solely on intuition and without any strategy. In fact, the strategy here is very essential, although it does not have to be too complicated.
It is best to apply the strategy via Verum Option platform, since it has the trade options for 60 seconds (from 30 to 300 seconds), more than 200 trading assets, and the possibility to start trading with only $5.
Rules of Strategy:
1) Select the short-term options with a time expiry as 1 minute
2) Open up any minute chart of volatile and liquid asset (for example, the currency pairs of EUR / USD, GBP / USD and TD).
3) Wait for the forming of more-less prolonged period of smooth price movement in either direction. It is desirable that there no important economic news was released at this time.
4) We find the candlestick that knocks the price sharply up or down.
5) After knocking the price up we open the DOWN option, and after knocking the price down, we open the UP, accordingly.
Explanation of strategy
Why do you need to trade with short-term options ? It is because the market equilibrium under normal conditions restores quite quickly, literally within 1-5 minutes. Therefore, you need to have some time to make money during this time.
Why to choose liquid assets ? Because these market-based instruments often consist of parity situation where the number of buyers and sellers about the same. This is what allows the periods of smooth and not abrupt movements on a chart.
What is the knock-out of prices, and why is it happening? The knocking out is a sharp deviation of the price up or down, a jump, which clearly goes beyond the border of the price channel (you can even see them visually without specific indicators). It happens because at some point the number of buyers and sellers varies. When the number of buyers sharply increases, the price is knocked up, and after a sudden increase in the number of sellers, the price, respectively, is being knocked down.
The knocking of the price can happen, for example, after the release of vital statistics, or when the market accepts someone with a very large bet. But if there was a price jump for the fundamental reason, then there is a high probability that the trend will actually be reversed. But in the event of a huge bet, the price is likely to be back on track, and this is why we need to trade on this strategy. That is why it is highly advisable not to trade during important macroeconomic news releases.
Why do you need to open an option in the direction opposite to the knocking price ? Everything is very simple. For example, if the price goes up, then the market traders become more active, as they will now be able to sell the asset on the market at higher numbers. When number of sellers is growing , the price falls again, because it is more profitable to open a deal to sell.
On the chart below you can see the fluctuations of one of the most liquid assets – the currency pair of EUR/USD. As you can see, on this minute chart, where even the slightest movement of the price marked.
If we mentally place the support and resistance lines, we can delineate the boundaries of the price channel within which the price moves smoothly. In this case, these are up-linking channels.
Here you can clearly see two moments of knocking the price down (two long red candles), after which the price immediately or gradually returned to rising.
Thus, if we were after such a knock would open the UP option (in the direction of the previous trend and against the knocked prices), we could make a profit even for 1 minute.
As you can see, the strategy is quite simple, and it can used even by a novice. The main thing is to abide by the rules and strategies of money management, not risking beyond measure, and then you can expect excellent profits!