Adding an Option Trade: Scaling in Strategy

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Video Transcription:

Hello traders. Welcome to the Pro Trading Course and the ninth module professional binary options trading. In this case we are going to teach you how to add to your current position, okay? And the reason you want to add or you want to learn how to add or to stay in on a trade with binary options it’s because it’s hard to find good moves when you’re trading binary options. And when you find that move you want to profit even more than just one position in it. So let’s go to the charts right now and this is the US dollar/Canadian dollar 50 minute chart. And in order for us to scale in we have to trade on the higher time frame. For example, if you’re trading on the one hour chart and you find an entry on the one hour chart, you’re going to scale in on the 50 minute chart.

Adding an Option Trade-Scaling in Strategy

The reason is that well, the move on the one hour chart is going to be strong but the add on or the add in or the scaling in needs to be on a lower time frame because you need a better entry than the one hour chart would give you because the move has already began. So let’s assume and by no means is this an entry strategy. This is a scaling in strategy so the entry that we’re going to be taking here is hypothetical. Even though it’s a good setup it’s hypothetical. We are going to look at this zone of support. You can see that price tested this area a lot before breaking down and right here we’re going to look at this price action, alright? At this double top that formed on the one hour chart. So I’m going to zoom in and I’m going to look at the double top and I am going to draw a line at the neck line, alright?

Right here. You know what, I’m going to use a trend line. And this is our entry for the one hour trade and we’re going to choose to trade an end of the expiration, okay. If you want to be adding in on your trades you need to trade the longer term expirations because if you are trading for example a 3X or a 4X expiration, meaning that if you’re trading the 1 hour chart or the 50 minute chart and you choose to trade a 4X expiration that would mean that you are going to be trading an hourly chart. And 4 candles is just not enough for you to be adding in on a trade. So basically we are already in a trade with an end of day expiration option. And what happens here is that I’m going to show you where the option is going to expire and it’s going to expire around these levels, okay.

Adding an Option Trade-Scaling in Strategy1

Now I’m going to use a horizontal line…I’m sorry, a vertical line to show you exactly where this option is going to expire. And right here is where this option is going to expire and right here is where we are going to take the trade when this huge candle, this bearish engulfing candle breaks with the neck line, okay. Now we have and end of day expiration option that is moving in our favor and because we’re trading end of the expirations, the move is going to be larger and it’s going to have deeper retracement and only on those deeper retracement is where we want to be adding in on our trade. So we’re going to go to the 50 minute chart because we are looking at the hourly, alright.

Adding an Option Trade-Scaling in Strategy2

And we are going to look at levels, alright. Or zones that price might retest as a resistance in this case because we’re moving down. Remember that price tests these areas of support and then when it breaks it tests them as resistance and these are the zones that we want to be adding in, alright. So we have one right here. This is the entire zone that price might retest as resistance. The reason is that we have right here two rejections, then we have a test on the neck line and then you can see that we have churn here. We have indecision candles meaning that it can be that sellers from this point are taking profit or real buyers are coming in. It really doesn’t matter, what matters is what happens with price action and the reaction price has to these levels or to these as our buyers or sellers. And right here you can see that we’re having decision before breaking to the downside.

So this is where we are going to look to add in. And because we are adding in, we’re going to use a 4X rule. Meaning that if we are trading the 50 minute expiration for an add-on we are going to trade an hourly expiration, alright. And we are not going…well we are going to use price action for those add-ons but we are also going to be using a stochastic oscillator. And the reason that we want to use a stochastic oscillator is because we don’t want to just blindly add on at a level. We need that deep retracement and for price to be over but at these levels. Remember that when we are trading to the downside price is going to get over sold, then when we retrace to the up side we are going to get over when the price is over but that is where we are going to be adding in on our trade.

Adding an Option Trade-Scaling in Strategy3

So we have our stochastic oscillator with a 533 setting and we are looking at price action right here. We’re already short with the put option we bought around, well when price broke with these levels, okay. Now I’m going to change the color on my rectangle to give you the zone where we are going to be adding and the reason is that I’m going to use the light pink for the long-term option and the blue for the short-term option. And right here is where we want to be adding, okay. You can see that price broke to the downside, retrace to the zone where we encounter buyers before breaking down. And we have an overbought stochastic oscillator.

When the stochastic oscillator gives us the trigger, meaning that the fast stochastic crosses…I’m sorry the slow stochastic crosses below the fast stochastic, we are going to buy another put option with a one hour expiration. Why? Because we are trading the 50 minute…we are trading from the 50 minute chart, alright. And adding to an hourly to…I’m sorry. And adding to an end of day expiration option or the end of day expiration put option. So basically we are going to be adding right here. And as you can see we added or we bought that put option right at the top of the retracement and one, two, three, four candles later, this option expires in the morning.

Adding an Option Trade-Scaling in Strategy4

And it really doesn’t matter that price came all the way down here. Remember that we don’t have targets when trading binary options. What is important is get the best field price or the best entry price for us to be able to profit. Because, imagine that if we had waited for this candle to close, alright? This huge bearish engulfing candle. Then our add-on would have not made the money. If you count the candles, one, two, three, four candles this bullish candle takes us out of the money because it closes above our entry zone of the put option. And by using the stochastic oscillator, the levels and the perfect entry we were able to add and profit twice from a very strong move to the downside where we already had a longer term expiration option.

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