The key to successful binary options trading is the ability to predict the movement of prices with a reasonable amount of accuracy. Often, traders must choose one of a number of position where the price movement can either continue to trend in the same direction or change and take a different tack. Sometimes, a trader will be correct in several of their predictions, but will be incorrect on the prediction that they chose to trade with. In these situations, ladder trading makes a good choice.
Ladder trading is becoming increasingly popular as more trading sites have started to make it available to investors. Those who choose to use ladder trading enjoy quite a lot of success, however before they try it out, it is important to know how the system works.
What is Ladder Trading?
Once a trader is aware of the theory behind ladder trading and the way in which it is accomplished, they will find that ladder trading is actually quite simple. One way of looking at it is similar to placing a win, place and show bet in horse racing i.e. if all 3 of the horses are successful, that’s great, but if they fail to win, the other bets will give the bettor a chance at gaining their investment back.
Ladder trading is a trading type in which the trader will receive a number of price levels that are equally distant from each other, forming a pattern that looks like a ladder, giving it its name. To put it simply, a ladder trade is where the trader makes an attempt to predict an asset’s price level to alter over a specific timeframe until the option becomes active. A trader predicts and sets the levels and the time periods to which they pertain. In order to successfully trade, the price must exceed the level of every “rung” in the ladder.
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Whether the price is descending or ascending, if the asset’s price systematically reaches one or more of the set price levels while the contract is open, an investor will see a profit. Usually, the predefined time will be at the day’s end when using the ladder trading strategy as this enables an adequate amount of time to be taken for every step to be reached.
A ladder trade is ideal when a trader likes an asset’s price movement but suspects when looking at the analysis that it may get a significant amount of resistance or support in the short term. The ladder trade allows a trader to make profits even if only 2/3rds of the prediction are correct, thus minimising risk.
An Example of Ladder Trading in Action
Here is an example of ladder trading in practice:
A trader will examine an asset that they believe is acting predictably and then set about making their ladder trade. This is placed by choosing a series of progressive strike prices with expiry times in the same direction as they believe the market is going to trend. Payoffs will be based on the percentage determined by their broker.
So, for example, a trader chooses their asset, sets where they think the strike price is going to be and sets three different expiry times. The broker sets the payouts for each of the three expiry times depending on the risk factors associated with the trade e.g. if short strike prices are set with shorter time timeframes, it is likely that you will be offered smaller payouts than if the opposite was true. Therefore, it is important to ensure any risk is worth the payout, or the trade is not worth it. However, if the risk level is right, ladder trading is a profitable way of binary options trading.
Other educational articles
- What is the Trend Following Binary Options Trading Strategy?
- Use the Straddle Strategy for a Possible Put and Call Double-Win
- How to Use a Risk Reversal Strategy to Avoid a Large Part of Your Risk While Trading Binary Options
- What is the Pinocchio Binary Options Trading Strategy?
- How to Use Hedging Strategy to Manage Risk Effectively in Binary Options Trading
- Using Fundamental Analysis in Binary Options Trading
- Is It Possible to Successfully Trade a Flat Market in Binary Options Trading?
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- The Short Call Ladder strategy and its application in Trading and hedging. Amaitiek, O. F. S., Bálint, T., & Rešovský, M. (2010). Acta Montanistica Slovaca, 15(3), 171.
- “Trading up the happiness ladder.” Dluhosch, Barbara, and Daniel Horgos. Social indicators research 113, no. 3 (2013): 973-990.