I have been working on a better way to mitigate risk combining my Spot transactions and Binary options.
Currently it has serve to either increase my risk and increase my profit.
taking a binary put in the direction of my analysis either
1= increases my reward by 80% payout over the premium
2) increases my risk by both loss in spot and loss of 100% of premium.
now using binaries alone has -20% probability expectation meaning worse case scenario inflicts 20% more damage than the reward at best case scenario...this is unacceptable as I do not currently have the ability to predict the market in such a way that i come out on top by win:loss ratio alone.
I might be doing an error in calculation but with a 60:40 win:loss i would deplete 100% of my capital....this is unacceptable.
now as a tool to mitigate risk on my spot transaction appeared to be promising but i am stuck at -16.3% negative probability expectation no matter how i permute my strike put/call to hedge my long/short.
to explain the illustration: if i hedge with a binary put at the same place i initiate a long i get negative expectation of 16.3%, due to (best out come/ worst outcome)-1 in other words the difference between best case scenario vs worst case scenario
if i play sort spread or do a range with a long position below the put if i am immediately wrong still -16.3%
if i initiate a put below my stop still -16.3% as my stop would have to be 19pips to even be a conceivable strategy.This makes it susceptible to volatility.
now keep in mind i am not interested in HOW TO ANALYSE THE MARKET CORRECTLY, my question is WHAT IF I AM WRONG? HOW DO I MITIGATE THE RISK?
any thoughts on this?
seems to me at least for now that the simple stop away from volatility or capped risk threshold continues to be the best strategy with 20% positive expectation
lose 50 gain 60. However I would like to see if any smart trader out there has sort of worked out a way.
in effect a touch option at a stop loss area is the only way i found to have 0 net loss. however most binary brokers touch/no touch binaries are at an expiry of 1 hour at the most, the time constraint takes away all benefits in my opinion.
Currently it has serve to either increase my risk and increase my profit.
taking a binary put in the direction of my analysis either
1= increases my reward by 80% payout over the premium
2) increases my risk by both loss in spot and loss of 100% of premium.
now using binaries alone has -20% probability expectation meaning worse case scenario inflicts 20% more damage than the reward at best case scenario...this is unacceptable as I do not currently have the ability to predict the market in such a way that i come out on top by win:loss ratio alone.
I might be doing an error in calculation but with a 60:40 win:loss i would deplete 100% of my capital....this is unacceptable.
now as a tool to mitigate risk on my spot transaction appeared to be promising but i am stuck at -16.3% negative probability expectation no matter how i permute my strike put/call to hedge my long/short.
to explain the illustration: if i hedge with a binary put at the same place i initiate a long i get negative expectation of 16.3%, due to (best out come/ worst outcome)-1 in other words the difference between best case scenario vs worst case scenario
if i play sort spread or do a range with a long position below the put if i am immediately wrong still -16.3%
if i initiate a put below my stop still -16.3% as my stop would have to be 19pips to even be a conceivable strategy.This makes it susceptible to volatility.
now keep in mind i am not interested in HOW TO ANALYSE THE MARKET CORRECTLY, my question is WHAT IF I AM WRONG? HOW DO I MITIGATE THE RISK?
any thoughts on this?
seems to me at least for now that the simple stop away from volatility or capped risk threshold continues to be the best strategy with 20% positive expectation
lose 50 gain 60. However I would like to see if any smart trader out there has sort of worked out a way.
in effect a touch option at a stop loss area is the only way i found to have 0 net loss. however most binary brokers touch/no touch binaries are at an expiry of 1 hour at the most, the time constraint takes away all benefits in my opinion.
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