A binary option is an exotic trading platform that always results in two outcomes, i.e., all or nothing. In this trading type, no alternate settlement is possible. For your predictions, you either win an attractive payout, or you lose all the money. There is nothing in between.
To trade binary options, you get different assets, like commodities, forex, currencies, and stocks. You can select any of these assets and predict whether the asset will reach a certain price range at a certain time?
You can pick the right trading type to increase your chances of winning. For example, you can play it safe with the high/low options, but you must select the ladder option if you wish to earn a better payout.
But do you know what the ladder option is? Or what are different ladder option strategies you can use? Read this post to find the answer.
What is Ladder Binary Option?
The ladder option is one of the most profitable forms of binary options trading. Here broker sets a range of price at equal intervals just as rungs of a ladder. Now, for a trade to be successful, the given asset’s price must climb the steps before the trade expires.
If you choose this trading option, your broker will offer you three different price ranges with different payout and trading risk percentages. Sometimes, brokers let the trader set the expiry time. Other times, they do it themselves. However, the price limit is always set by brokers, and it cannot be changed.
After that, you can predict the asset price movement. If your prediction is close to the short time frame, you are likely to get a smaller payout. But if your speculation is around a larger time frame, you can expect a better and bigger payout.
The limits are not always three. It can either be five or two. You can trade the options both in the up and down direction, but it’s not possible all the time. The above and below options in the ladder option can also be called call and put.
The advantage of using this trading option is that you get to set the expiry time. But it’s a difficult trading type that can make you lose all of your invested amounts if your predictions are inaccurate.
Ladder Option example
Here’s a quick example that explains how the ladder option works.
Let’s assume that you want to trade gold when it’s trending at a price of $30. Your broker has set three price limits, i.e., $20, $35, and $50. Now, to start your trade, you first need to set an expiry time. Let’s say you have selected 2300hrs.
It is how your trade will look now.
- Gold to be above $20 (20% payout)
- Gold to be above $35 (35% payout)
- Gold to be above $50 (50% payout)
It means that if your trade closes above $20 before 2300hrs, you will win a 20% payout. Similarly, if it expires above $35 before the expiry time, you will get a 35% payout. And lastly, if the trade expires above $50, you will get a 50% payout.
For your speculations to be correct, you must rightly analyze the market, understand the asset’s price trend and historic data.
Why you should trade using Ladder?
Trading binary options using the ladder option is risky, but it increases your chances of winning a huge payout. However, if you are still not sure about this trading strategy, here are a few reasons that might convince you.
- The ladder option provides a better chance to win a huge payout during a volatile market.
- If there might be a large swing in the price movement of an asset, then using the ladder option makes sense because it has different price ranges. That means it can offer better profitability than other binary options types.
- Once you have understood the ladder option, you might not find it confusing at all.
- As compared to other options, the ladder option offers a better payout.
- Lastly, using the high/low option is possible with the ladder option.
If you want to limit the risk of ladder options trading, you can stick to in the money or at the money. But if you are certain of large price movement, you can choose out of the money option.
Ladder Option strategy
Using the ladder option can surely increase your profit. But you can enhance your chances of winning by using one of the three strategies mentioned below.
Trading Ladder with ATR and moving averages
To trade with the ladder option, you should use the ATR and Moving Averages tool. This way, you can overcome the two challenges, i.e., predicting the market’s range and direction.
ATR is a volatility indicator that can quickly measure the average distance the market has moved in the past. On the other hand, Moving Average calculates the average price and helps you create a perfect trading strategy accordingly.
Using ATR and ADX
If you want a little more precision, you can use ADX, i.e., average directional moving index. But make sure that you are using this trading strategy only when ADX reads below 20.
Trading support/resistance with Ladder Options
If you don’t like mathematical calculations and rely more on visual data, this trading strategy will be helpful. Simply look for the support and resistance level.
If the market breaks the support and resistance level, that means it’s likely to move in a strong direction, trade using the ladder option at this moment because you can easily win a huge payout.
The ladder option is one of the best binary options trading types as it lets you win a huge payout, but it’s not for beginners. That’s because it’s complicated and requires basic knowledge of practical binary options trading.
You can, however, learn ladder options trading in a few weeks. Then depending on your risk tolerance, combine it with potential trading strategies. And if you have correctly analyzed the market, you will win. Otherwise, you will lose all the money.
Also, before using the ladder option for real trading, you can practice it using the demo trading platform. This way, you can understand how this trading strategy actually works.