How to trade Ladder binary options - advanced lesson

What is the Ladder option?

Binary Options Ladder is the variation of the well-known option One touch. If you remember, One touch options have only one strike level. If during the expiry time the price reaches this level, the option is in the money. Ladder options, instead of one strike level, usually offer five strike levels. Thus, the trader can choose the strike level that he or she thinks the price can reach during the expiry time. So, One touch options give the trader one strike level and a payout of 200% so the trader can agree or not. Ladder gives five levels above/below next to each other, and the payout depends on the distance of the strike price to the current price. Thus, the trader has an opportunity to earn extra profits because of his or her knowledge and analytical skills. However, as known, we have a greater risk with a higher gain.

Advantages of Ladder options:

• The possibility to achieve several times greater profit because of the high volatility of the market
• The possibility to make long-term deals and make long-term forecast
• The ability to ignore short-term market fluctuations and rollbacks
• The ability to manage the risk
• The ability to use the most popular and easily forecasted assets

How do the Ladder options work?

It should be noted that binary options brokers offer a limited number of assets for Ladder options. As a rule, four to six currency pairs are the most popular among traders.

When you select the Ladder option, you receive the asset price chart with five target strike levels.

The picture shows that the current price of the pair GBP/USD is 1.56861. The broker offers five target levels above/below. If we expect that during the expiry time the rate of the British pound against the dollar will rise, then we consider only the target levels above.

The first strike price is at the level of 1.56740, below the current price of 1.56861. Its payout is only 14.44%. We predict that the price will rise more, so the probability that the price will reach 1.56740 is maximum. So, the risk is smallest, but the smallest risk offers the smallest payout.

The second strike price is 1.56834, near the current price of1.56861. In this case, the payout is 49.85%. We expect that the pair GBP/USD will continue to grow during the expiry time of the option, but then there is a risk of falling back. Accordingly, we have a higher risk than in the first case and, therefore, our profit will be higher.

The third strike price is 1.56928, which is above the current price of 1.56861. We expect the growth of the pair GBP/USD, but we have the risk of rollback and the possibility that the price will grow but won’t reach the necessary level during the expiry time. Accordingly, the risk is three times higher than in the first case, and hence, the payout is 179.05%.

The fourth and fifth levels give the highest rates, 416.33% and 1006.06%,but the probability that the price will reach the highest level is minimal. This is possible if the market volatility increases significantly, for example, during the release of an important report, with unexpected results.

If we expect the decline of the pair GBP/USD during expiry time of the option, we should consider only levels below. Since the chart of the pair GBP/USD has an upward trend, the probability that the price will be lower than the highest level, 1.57116, is maximum, so the risk is minimal, as is the payout. If we consider that during expiry time the price can rollback (the probability is minimal but possible), our profits will be maximal: 250.07%.

Once we determine the trend, the target level, and set the size of the investment, we purchase an option above/below.

When and how to trade Ladder options

You can trade Ladder options at any time, regardless of the session and the market volatility. The only thing that you should consider is the trend and strategies to trade binary options Ladder.

When trading Ladder options, you should have a good and simple price chart that will help you determine the current situation in the market. To understand the probability of achieving any strike price, it is necessary to draw support and resistance lines on the chart.

The chart above shows that the support line for the pair GBP/USD is near 1.5631 and the resistance line is at 1.5717. The broker gives us targets 1.5702 and 1.5711. The current price is 1.5674. That is, even the highest strike price, 1.5711, is below resistance level. This means that the price doesn’t have to overcome the resistance level. As we know, the price overcomes the support or resistance level as the result of important news or reports. Accordingly, the probability that the price can reach the highest strike price during the expiry time, one hour, is maximal, so we can buy option CALL.

It is worth noticing if strike prices are higher than support and resistance levels; it is necessary to use news trading strategies. If, during the expiry time, news that could help the price to break the support/resistance level is expected, the probability that the option will be profitable is very high.

Also, the binary options trading strategy Fibonacci levels is actively used. These levels help determine when the price can change its direction or continue it. Thus, we can determine what level to choose, and it is possible to obtain greater profits.

Conclusion

Binary Options Ladder is the most profitable, but at the same time the most risky, form of options. We can confidently say that the Ladder options are not for beginners. They require knowledge of fundamental and technical analysis. Ladder is selected by traders who trade one asset for a long time and know all its features. Traders prefer the Ladder, in some cases, to significantly increase profits. It’s better for beginners to trade One touch options.