The Guppy Binary Options System Explained

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Simple strategy for binary options “Guppy”

Famous trader Daryl Guppy invented the system of multiple moving averages. This system helps to quite clearly characterize market sentiment. The strategy was named after his name, although most traders think that it is named after the guppy aquarium fish, which are famous for their bright colors and unpretentiousness.

The Guppy System is a long-term simple strategy for binary options that will help you to correctly bet on the direction of the market trend and provide an excellent indication of its change. In principle, this simple binary strategy is well suited for all timeframes, but I use it on a timeframe of five minutes (with the intention of betting 30–60 minutes ahead).
How to set up a simple Guppy binary options strategy?

I just want to warn you that it’s really a bit of a chore to set up this excellent strategy for technical analysis: you will need to impose 13 moving averages (MA) on the chart with different periods and colors, but the effectiveness of this system has been checked by me personally in practice. By the way, now you can use the live schedule right on my blog.

Moving average is the most powerful binary indicator on the stock market. All decisions on purchases or sales are made on the basis of the average price. It is only important to learn how to work with it. I have already described in detail the principles of trading on MA in my article “The Art of Figure Skating: MASHKA (Moving Average) — trading by moving averages”.

In working with the simplest Guppy strategy, I use two groups of moving averages (MA):

The first group is fast — green moving averages. It consists of MA with a period of 3, 5, 8, 10, 12, 15, when applying which I use the green color. This group shows the behavior of short-term traders;
The second group is slow — red moving averages. It consists of MA with a period of 30, 35, 40, 45, 50, 55, when applying which I use the red color. This group shows the behavior of long-term traders.

The last moving average to be set has a period of 200 and is brown. It will show us the global trend — MA with a period of 200 is very important, later I will explain why.

To overlay the moving average on the chart, open the indicators tab and select the moving average in the pop-up window

simple binary options trading strategy

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To change this parameter, click on the gear icon to the right of the name of the binary indicator and enter the study period in the string length.

So, we gradually add to the chart 13 moving averages (MA) of different colors, after which, for clarity, I advise you to postpone the schedule. It turns out such a beautiful picture:

the simplest strategy for binary options

Using a popular Guppy trading strategy is extremely simple — any novice trader will figure it out. When the trend changes, the first group of moving averages (green) will quickly react and cross group 2 (red) from the bottom up or from the top down. If the trend changes, the group of red medium will also start turning green and this will be a great moment to make a bet.

As a signal for binary options on call, there will be a situation in which all the green lines will be above the red ones, the red ones will begin to turn upwards, and the brown line will remain on the bottom.

The signal to buy a put option is when all the green lines are under the red ones, the red ones start turning down and the brown line remains on top.

most simple and profitable binary options strategies
Rules for working with a simple profitable binary options strategy “Guppy”

Avoid trading against the direction of MA with a period of 200;
The best entry signals are formed when both groups of moving averages are lined up in the same direction;
The sharper the intersection of the red lines with green we see, the stronger the signal for binary options can be expected.
The extension of the distance between the moving averages indicates the strength of the trend, while the narrowing indicates its attenuation.

From the advantages of this simple strategy for binary options it can be noted:

Almost perfect smoothing of market fluctuations;
Visibility and simplicity in determining the strength of the trend.

Of the minuses. This strongest trending binary strategy is not the best option for short-term trading, which is why I use a timeframe of 5 minutes to make decisions about the appropriateness of rates for 30 and 60 minutes

Binary Put Option Explained

The binary options trader buys a basic binary put option if he is bearish on the underlying in the very near term. This basic binary put option is also known as the common “High-Low” binary put option.

By purchasing a basic binary put option, the trader is simply speculating that the price of the underlying asset will be lower than the current market price when the option expires, typically within next few minutes or several hours.

It is entirely up to the trader how much he wishes to invest with each purchase of the binary put option. The minimum and maximum he can invest in each put option varies across brokerages.

Moneyness

If the price of the underlying is below the strike price of the binary put option, the option expires in the money and the trader stands to receive a payout. Otherwise, the option expires out of the money and he loses his initial investment.

In the rare event where the price of the underlying asset is exactly the same as the strike price, the option expires at-the-money and the trader will simply get back his original investment.

Limited Profit

If the binary put option expires in the money, the trader receives a profit which is equal to the payout% multiplied by the initial investment.

Limited Risk

If the option expires out of the money, the trader loses his initial investment. This is also the maximum he can lose in this trade.

Binary Put Option Example

A binary options brokerage is offering 85% payout for the binary put option on EUR/USD which is currently trading at $1.30.

After tracking the price movement of EUR/USD for the past hour, the binary option trader believes that the price will drop over the next 5 minutes and decides to invest $100 to purchase a binary call option on EUR/USD expiring in the next 5 minutes.

If EUR/USD goes down to $1.29 five minutes later, the investment pays off and the traders earns a profit of 85% of his initial investment, which is $85.

However, if the price of EUR/USD rises to say $1.31 instead, the trader will have lost his initial investment of $100.

Note that it does not matter whether the price of EUR/USD flash crashed below $1.00 or skyrocketed up to $1.40, both the profit and loss will be fixed at $85 and $100 respectively.

Binary Call Option

If the binary options trader is bullish on the underlying price, he or she can buy a binary call option instead.

See Also

Continue Reading.

What are the Main Types of Binary Options?

Learn how the One-Touch, No-Touch and Range/Boundary binary options differ from the common high-low viety and how to trade them. [Read on. ]

What Assets can be Traded using Binary Options?

Many of the most popular financial instruments such as currency pairs, equities and commodities are available to trade using binary options. . [Read on. ]

Binary Options: Trading or Gambling?

Is binary option a legitimate financial instrument or just another form of gambling. [Read on. ]

Binary Options & Trading Robots: A Perfect Match?

Unlike humans, robots have no emotion and do not need to rest, so they can make a lot more trades than humanly possible, combined with perfect consistency. [Read on. ]

Is Binary Options Trading a Scam?

Learn how you can get scammed when trading binary options if you are not careful. [Read on. ]

How to Select a Binary Options Broker?

With so many scam brokers out there, before you learn how to trade, one must know how to separate the wheat from the chaff and find a trustworthy binary options brokerage. [Read on. ]

Binary Options: Calculating Breakeven Win-Rate for a Given Payout

How often does my trades need to be successful in order to be consistently profitable in the long run when trading binary options. [Read on. ]

What You Need To Know About Binary Options Outside the U.S

What Do You Need To Know About Binary Options Outside the U.S?

Binary options let traders profit from price fluctuations in multiple global markets, but it’s important to understand the risks and rewards of these controversial and often-misunderstood financial instruments. Binary options bear little resemblance to traditional options, featuring different payouts, fees, and risks, as well as a unique liquidity structure and investment process.

Binary options traded outside the U.S. are also structured differently than those available on U.S. exchanges. They offer a viable alternative when speculating or hedging but only if the trader fully understands the two potential and opposing outcomes.

The Financial Industry Regulatory Authority (FINRA) summed up regulator skepticism about these exotic instruments, advising investors “to be particularly wary of non-U.S. companies that offer binary options trading platforms. These include trading applications with names that often imply an easy path to riches.” 

Key Takeaways

  • Binary options have a clear expiration date, time, and strike price.
  • Traders profit from price fluctuations in multiple global markets using binary options, though those traded outside the U.S. are structured differently than those available on U.S. exchanges.
  • Non-U.S. binary options typically have a fixed payout and risk, and are offered by individual brokers rather than directly on an exchange.
  • While typical high-low binary options are the most common type of binary option, international brokers typically offer several other types of binaries as well.

Binary options outside the U.S. are an alternative for speculating or hedging but come with advantages and disadvantages. The positives include a known risk and reward, no commissions, innumerable strike prices, and expiry dates. Negatives include non-ownership of the traded asset, little regulatory oversight, and a winning payout that is usually less than the loss on losing trades.

Understanding Binary Options Outside the U.S

What Are Binary Options?

Binary options are deceptively simple to understand, making them a popular choice for low-skilled traders. The most commonly traded instrument is a high-low or fixed-return option that provides access to stocks, indices, commodities, and foreign exchange.

These options have a clearly stated expiration date, time, and strike price. If a trader wagers correctly on the market’s direction and price at the time of expiration, they are paid a fixed return regardless of how much the instrument has moved since the transaction, while an incorrect wager loses the original investment.

The binary options trader buys a call when bullish on a stock, index, commodity, or currency pair, or a put on those instruments when bearish. For a call to make money, the market must trade above the strike price at the expiration time. For a put to make money, the market must trade below the strike price at the expiration time.

The broker discloses the strike price, expiration date, payout, and risk when the trade is first established. For most high-low binary options traded outside the U.S., the strike price is the current price or rate of the underlying financial product. Therefore, the trader is wagering whether the price on the expiration date will be higher or lower than the current price.

Binary Options Outside the US

Foreign Versus U.S. Binary Options

Non-U.S. binary options typically have a fixed payout and risk and are offered by individual brokers rather than directly on an exchange. These brokers profit from the difference between what they pay out on winning trades and what they collect on losing trades. While there are exceptions, these instruments are supposed to be held until expiration in an “all-or-nothing” payout structure.

Foreign brokers are not legally allowed to solicit U.S. residents unless registered with a U.S. regulatory body such as the Securities and Exchange Commission (SEC) or Commodities Futures Trading Commission (CFTC).

The Chicago Board Options Exchange (CBOE) began listing binary options for U.S. residents in 2008.   The SEC regulates the CBOE, which offers investors increased protection compared to over-the-counter markets. Chicago-based Nadex also runs a binary options exchange for U.S. residents, subject to oversight by the CFTC.

These options can be traded at any time, with the rate fluctuating between one and 100, based on the current probability of the position finishing in or out of the money. There is full transparency at all times and the trader can take the profit or loss they see on their screen prior to expiration.

They can also enter as the rate fluctuates, taking advantage of varying risk-to-reward scenarios, or hold until expiration and close the position with the maximum gain or loss documented at the time of entry. Each trade requires a willing buyer and seller because U.S. binary options trade through an exchange, which makes money through a fee that matches counter-parties.

High-Low Binary Option Example

Your analysis indicates the Standard & Poor’s 500 index will rally for the rest of the trading day and you to buy an index call option. It’s currently trading at 1,800 so you’re wagering the index’s price at expiration will be above that number. Since binary options are available for many time frames—from minutes to months away—you choose an expiration time or date that supports your analysis.

You choose an option that expires in 30 minutes, paying out 70% plus your original stake if the S&P 500 is above 1,800 at that time or you lose the entire stake if the S&P 500 is below 1,800. Minimum and maximum investments vary from broker to broker.

Say you invest $100 in the call that expires in 30 minutes. The S&P 500 price at expiration determines whether you make or lose money. The price at expiration may be the last quoted price, or the (bid + ask)/2. Each binary options broker outlines their own expiration price rules.

In this case, assume the last quote on the S&P 500 before expiration was 1,802. Therefore, you make a $70 profit (or 70% of $100) and maintain your original $100 investment. If the price finished below 1,800, you would lose your original $100 investment.

If the price expires exactly on the strike price, it is common for the trader to receive her/his money back with no profit or loss, although brokers may have different rules. The profit and/or original investment is automatically added to the trader’s account when the position is closed.

Other Types of Binary Options

The example above is for a typical high-low binary option—the most common type of binary option—outside the U.S. International brokers will typically offer several other types of binaries as well.

These include “one-touch” options, where the traded instrument needs to touch the strike price just once before expiration to make money. There is a target above and below the current price, so traders can pick which target they believe will be hit before the expiration date/time.

Meanwhile, a “range” binary option allows traders to select a price range the asset will trade within until expiration. A payout is received if price stays within the range, while the investment is lost if it exits the range.

As competition in the binary options space heats up, brokers are offering additional products that boast 50% to 500% payouts. While product structures and requirements may change, the risk and reward is always known at the trade’s outset, allowing the trader to potentially make more on a position than they lose. Of course, an option offering a 500% payout will be structured in such a way that the probability of winning the payout is very low.

Unlike their U.S. counterparts, some foreign brokers allow traders to exit positions before expiration, but most do not. Exiting a trade before expiration typically results in a lower payout (specified by broker) or small loss, but the trader won’t lose their entire investment.

The Upside and Downside

Risk and reward are known in advance, offering a major advantage. There are only two outcomes: win a fixed amount or lose a fixed amount, and there are generally no commissions or fees. They’re simple to use and there’s only one decision to make: Is the underlying asset going up or down?

In addition, there are also no liquidity concerns because the trader doesn’t own the underlying asset and brokers can offer innumerable strike prices and expiration times/dates, which is an attractive feature. The trader can also access multiple asset classes anytime a market is open somewhere in the world.

On the downside, the reward is always less than the risk when playing high-low binary options. As a result, the trader must be right a high percentage of the time to cover inevitable losses.

While payout and risk fluctuate from broker to broker and instrument to instrument, one thing remains constant: losing trades cost the trader more than they can make on winning trades. Other types of binary options may provide payouts where the reward is potentially greater than the risk but the percentage of winning trades will be lower.

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