High frequency trading is a fairly popular strategy, but many experts are in the opinion that it can’t be properly used when it comes to trading binary options. However, some traders proved the experts wrong and successfully implemented this strategy. Keep in mind that this is a very advanced strategy and in order to use it, you’ll need to have access to a quick and efficient trading algorithm that fully automates the trading process.
If you don’t have such a thing at your disposal, then we strongly advise you to stay away from this method. Still, we’ll tell you more about it, because theoretically it is absolutely correct, it is just too difficult to implement this strategy manually.
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The essence of high frequency trading is to quickly move in and out of several short term positions. By quick, we mean milliseconds – something that is humanly impossible. Of course, each one of these moves is based on thorough analysis and signal spotting, so your job becomes even harder. However, if you have the right tools at your disposal, you can do this.
The latest statistics show that nearly 50% of the exchange volume since 2009 has been generated by high frequency trading contracts. This may come as a surprising fact, but we assure you that it is completely true. The huge amount of high frequency trader has turned into a major problem for many providers who suffer from a liquidity problem due to this type of trading. For example, those of you who follow the stock market are probably familiar with the crisis that hit Knight Capital? According to Forbes Magazine, the crisis was caused by ‘computerized millisecond trading’. Sounds familiar, doesn’t it?
However, using this to trade binary options won’t so easy, because of couple of reasons. The main reason for this is the fact that only a small number of brokers offer the 60 second trading feature, and it is still not as good as you’d expect it to be. However, you can still make traders in short intervals of time and successfully implement a high frequency trading strategy.
If you plan to use such a strategy, then you must prepare yourself for everything. Apart from high frequency trading, you must have a foolproof entry and exit strategy that takes in account your financial parameters, the latest financial news, and of course your personal analysis of Bollinger Bands and Candlesticks. In addition, you strategy can be improved by becoming a regular visitor of the most reputable trading forums, and communicating with a large number of knowledgeable and experienced traders. The final addition to your success will be a bonus strategy that will allow you to amplify your winnings.
If you are keen on developing and implementing a high frequency trading strategy for binary options, then I think your best choice would be to use hammers and cups and handles. These signals are easy to spot, and automating the trading process won’t be so difficult. The image below shows Google’s daily trade volume. As you can see, there are two arrows – a red one that points to the hammer, and a blue one that shows the handle formation. Basically, the graph shows the entry point which is being identified by three general parameters:
1. The moving average line represents the upward swing
2. The handle shows the trading zone
3. The hammer is the entry point
This chart shows you all the things you need to do – wait for the hammer and enter the trade, wait until the handle meets the resistance line and exit the trade.
Of course, this is just one of the many patterns that you can use for high frequency trading, so don’t hesitate to tailor this strategy in order to achieve the results you desire.