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Forex binary options can be useful in cases of breakouts, including false ones. Here’s a possible way to utilize them, with a recent example on EUR/USD.

I’ve already shown how to use binary options as an alternative to the traditional stop loss. In this case, I’m showing how to use them in the direction of the trend, and the best way is using an example:

EUR/USD began a rally after the Non-Farm Payrolls, about 10 days ago. It broke above 1.2460 and continued rallying. The next significant resistance line was seen at 1.2672, which was the peak in 6 weeks.

The pair gradually approached this line. The Euro didn’t have too many reasons of its own to rise, and it was merely enjoying the dollar’s weakness.

Nevertheless, it eventually climbed above 1.2672 and even reached 1.2722. This 50 pip break technically looks very convincing, but the fundamentals showed that a rise to higher levels wasn’t fully justified. Two attempts to assure the break failed.

Binary Options

A regular forex long position would have probably hit the stop loss, as the pair fell back and closed the week much lower. And here’s where binary options can be used. A trader that would see the breakout, could place a CALL option on EUR/USD. This means that he would make about 70% on his investment if the pair closed higher within one hour.

This tighter 1 hour frame is what makes the difference. In this limited time, the pair indeed continued higher. It didn’t make a long term rally, but this doesn’t matter in case one uses binary options.

Such cases of false breakouts that last a few hours are very common. It happens often in GBP/USD and in USD/JPY, and also others, and these options can be a great tool for taking advantage of these cases. With real breakouts, options can be utilized with other tools as well. With false ones, this seems the best option.

Do you want to learn more on binary options?  Head to BO Crunch for the latest binary options setups  for forex, oil and gold.