Trading strategies for binary options are different. Some allow you to make money on expiration in a few seconds, while others require you to maintain an open position for up to several hours. Trading binary options on lower timeframes can be very profitable if you apply the relevant strategy, such as Envelope strategy. Yes, as you guessed, it is built on Envelopes indicator.
Let us remind you that Envelopes indicator is a simplified version of Bollinger Bands: a combination of three Moving Averages (MA). Two of them are deviated to the up and down sides from the price which creates a channel that envelopes the price. The channel represents the normal trading range of a security, while the two MAs function as the markers of the overbought/oversold levels while the middle Moving Average follows the trend.
And here is a reminder: trading turbo options is always associated with high risk so you should choose wisely and learn how to react to market noise.
In general, the strategy depends on your trading style and deposit. We recommend opting for 70% profitability of the contracts.
What do you need to trade the Envelope strategy?
The Envelopes indicator is a relatively simple in use trend indicator which can be applied on its own or paired with oscillators in a trading strategy. It can be used with any trading instrument and any timeframe, but it can also be applied with the standard settings for your convenience.
In particular, the Envelope indicator is very sensitive to price changes. Therefore, the indicator does not lag behind and always generates reliable signals. To improve your chances, you can combine it with another tool: you can use SMA as a filter for false signal.
We recommend trading on lower timeframes (3 minutes) with expiry at least 15 minutes.
So, you will need the following tools:
- Envelopes with parameters 20; 0.1.
- Moving Average with a period 6;
- Japanese candlestick chart with timeframe M3;
- High-volatility currency pairs.
Pocket Option broker offers traders all necessary tools. You can set up your chart and start direct trading. Once you click on it, the settings menu will pop up. Here it is possible to choose the period of the indicator, the deviation, the source (you may choose which value will be taken in the calculation – opening price, closing price, high, low etc.) and the type. The upper and lower levels are set in a way that the price keeps within the borders around 90% of the time. This means that the trader can change the deviation according to the volatility of the price. The higher the volatility, the bigger the deviation.
How to trade options with the Envelope strategy?
The main signal to buy a contract in the Envelope Advisor is a break of the boundaries of the price channel and return back to price.
Experienced traders also use a Moving Average with a period of 6 because it is extremely sensitive to market changes. Consequently, the trend line formed by the indicator will be easily broken by the price if it reverses. It is the signal to buy.
So, based on the above, the CALL contract should be purchased when the chart goes beyond the lower Envelope border, and the reverse candle breaks the SMA in the bottom-up direction.
In turn, the PUT option is bought when the chart breaks out of the upper limit of the Envelope, and the inverse candlestick breaks the SMA from top to bottom.
Recommended expiration time must be at least 15 minutes.
The Envelopes indicator might be a good alternative to simple Moving Averages and it can provide the trader with a ready-to-use technical analysis system on its own. It can also be well combined with other indicators. Test it first to see if envelopes fit into your trading strategy.
