To increase the chances of success by trading binary options, it is essential to adopt a strategy. There are many of them, to be chosen according to the objectives of each one. This includes using even options and applying the cointegration strategy. How to use this method?
What are even options?
The principle is quite simple: with even options, the trader is invited to put two shares into competition for a pre-determined period of time. Note that this is quite different from the binary option which aims to guess the evolution of an asset (downward or upward).
Beyond the principle of even options, it should be noted that actions are not associated with chance. These are generally securities that show a significant positive correlation: they are two assets that generally fluctuate in concert. This link can be explained in different ways. These may be shares of companies operating in the same sector or trading on the same financial centre. In any case, their values are influenced by similar parameters.
To trade even options, it is then essential to take into account the link between the two actions and the history. In particular, we will be able to see how the gap between their values is changing. Basically, because of the correlation, they increase or decrease together. Or maybe one of them goes up and the other goes down. Precisely, what should interest the trader is any unusual situation. In the jargon, we speak of a “gap” that is the basis for any decision. It is important to be aware of periods when this gap is widening. To make the best possible forecast, a specific strategy must then be put in place. One example is the “cointegration strategy”.
Understanding the cointegration strategy
The cointegration strategy usually involves two steps. First, it is necessary to detect movements and variations in a pair of actions: it is then more precisely to identify the slightest deviation. Secondly, the trader can start trading by taking into account the correlation between the shares in the pair. Here, it is assumed that the difference observed will be corrected to return to their usual evolution.
Here is an example of how this strategy can be illustrated:
- First, it is necessary to detect the pair of shares that has recorded a variation in the correlation. This analysis can be based on different criteria. For example, it is possible to observe prices or analyze graphs (taking into account pairs). Here, it would be better to look at pairs that have shown a significant difference. Even better, it would be wise to favour pairs that are distant, but whose trend seems to be returning to normal.
- Once the interesting pairs have been identified, it is not necessary to delay the opening of a transaction by choosing an option opposite the spread. For example, in the case where action 1 has exceeded action 2, action 2 would have to take precedence for the gap to close. The ideal solution would then be to open a transaction on the security with the lowest value, the objective being the sale or maturity at the time the spread closes.
StockPair, the specialist in even options
StockPair is “the” specialist in even options from which it takes its name. This operator, which belongs to the Nextrade Worldwide Ltd group, has Cypriot headquarters. It operates legally in Europe thanks to CySEC regulation while being approved by the AMF or Autorité des Marchés Financiers and the Banque de France. You can find our test on Stockpair by following this link.