Dome – forecasting options trading system based on Fibonacci levels

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«Dome» – forecasting options trading system based on Fibonacci levels

Trading tactics of binary options called «Dome»

Professional traders very often use combined techniques to predict the market in technical analysis. This allows them to maximize their financial performance in the binary market. Today we offer one of the simple examples of market forecasting systems – “Dome”. The work of Dome is based on the use of the Fibonacci graphical arc and the classical oscillator MACD indicator. This technical approach to generating signals allows us to accurately determine the market’s reversal trends and leads to a high and stable dynamics of capital increase.

Trading system «Dome»: technical requirements

The system requirements of the “Dome” strategy must be considered through the prism of the trading terminal for trading options. Therefore, immediately outline the range of necessary services and parameters of the platform that we need to operate the trading system:

– availability of a special service for constructing the Fibonacci arc;

– the possibility of applying indicator tools to the working schedule;

– Graph with variable timeframe;

– availability of turbooptions on the terminal;

– expiration period from 60 seconds;

– maximum payments on options;

– Good selection of assets;

– The minimum threshold for entry into trade.

As an example of a service with such capabilities, we offer a platform from a licensed Binomo broker. The terminal of this company has professional equipment and provides the most optimal financial conditions for working in the option market – the minimum starting capital is $ 10, the option amount is from $ 1.

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Trading system tools

So, we came to the technical side of the system. To mark the graph and apply this approach, set the following technical set of analysis tools on the quotation chart:

– The Fibonacci Arc. These are classical levels calculated by a special algorithm, but not linearly constructed, but in the form of arcs that outline possible ranges of fluctuations in quotations. The use of arcs allows us to identify more dynamic market movements, which leads to better forecasting efficiency. To build the necessary layout, open the Binomo terminal’s graphical tools service, select the Fibonacci tool in the Arc mode, and connect local extremes of the market with it;

– MACD indicator with standard format settings. This technical service will be used as a means of confirming the spread of quotations, which will maximize the effectiveness level of the strategy signals.

All the specified set of services is set to the timeframe of the working schedule 30 seconds. After configuring the workspace of the terminal, you get the following markup:

Dome market forecasting system: trading rules

To open the PUT trade, it is necessary to wait for the moment when the quotes of the asset after reaching one of the Fibonacci arcs will turn to decrease, and the MACD indicator will form the divergence of the oscillator lines down:

To open the CALL trade, it is necessary to wait for the moment when the quotes of the asset after reaching one of the Fibonacci arcs will turn to growth, and the MACD indicator will form the divergence of the oscillator lines up:

Expiration

Taking into account the periodicity of the frame of the trading quotes schedule, the optimal time period for expiration of options in this case will be a period of 120-180 seconds. Such a narrow trading range allows you to accurately fulfill the forecasts of the system and leads to a quick result.

Risk management

In fact, the system offers investors to work in the mode of trading scalping, which is characterized by the greatest risks. For this reason, we propose to use options with initial value or trades to reduce losses, the risk level of which does not exceed 3% of the invested amount.

“General Risk Warning: Binary options trading carry a high level of risk and can result in the loss of all your funds.”

A scalping strategy for options

The format of scalping on options is a fairly common way of making a profit in this area of the market. The speed of trading and its high profitability results are the main factors that attract people to this method of trading. Today we will consider the effectiveness of high-speed trading, as well as a few practical examples of scalping strategies for futures contracts that could become highly effective tools for predicting the market using short-term contracts.

How reliable is the scalping strategy for options?

The question of reliability and effectiveness of this strategy for scalping on the market is primarily related to the effectiveness of the trading signals of the system, as well as the correct risk management. In addition, the reliability of this scalping strategy is tied to the professional level of the trading terminal and the parameters of the trading conditions that are available on the operator’s platform. By picking the right technical and trading parameters for the scalping strategy you can get fairly stable and high results using this trading format. Here are a set of recommendations that contribute to the effectiveness of scalping on options:

• Use platforms for trading from professional companies — in this regard, we recommend the terminal for futures trading from the our brokers rating, where you will find all the necessary technical indicators for scalping, as well as a set of highly effective forecasting tools
• Carefully and accurately calculate the risks when registering trading positions. The correct ratio of the cost of the trade to the volume of capital will help you avoid critical losses and drawdown in your account
• To conduct trading in scalping mode, use a system with an efficiency level of at least 85% and maximum universality for all underlying assets

This list of recommendations will allow you to engage in high-frequency trading in a safe and profitable mode.

Scalping indicators for options

Market professionals recommend using technical indicators that are capable of generating signals on fast impulse changes in the price of an asset as forecast indicators for scalping trades on the futures market. In this case, the main trend indicators work perfectly, and they can be found on the many platforms:

This set of forecasting tools will allow you to build universal strategies for scalping on electronic options.

A scalping strategy for futures trades – practice

For our first practical example of a strategy for scalping on the financial market, we will show a system that uses a combination of settings of two trend indicators. This format of generating technical signals allows you to best assess the current market situation on the asset chart and opens up the possibility of determining the points of price quotes where the chart reverses to build corrections or new trends. So, let’s set the following technical forecasting tools on the asset quotes:

• EMA Indicators with technical parameters 10, 20, 30
• 2 MACD indicators — 50/75/9 and the standard configuration

We will use turbo trades with an expiration period of 120 to 240 seconds, and we will register the positions when we receive the following signals from the indicators:

• EMA Indicators – a beam of movings reverses upwards on the chart after convergence in one point
• Indicator MACD 50/75/9 – the lines intersect upwards
• Standard MACD – the movings intersect level 0 upwards

Signals for trades DOWN will have the reverse building configuration. This scalping strategy format has a technical signal efficiency ratio of 90% and allows you to make the most stable earnings for short-term trading. It should be noted that the risk management parameters for this system are of the classic parameters – the maximum amount of trading funds for one trade should not exceed 3% of the total amount of capital.

Scalping in 1 minute

The next scalping strategy format for electronic options is designed to work with contracts that have the minimum expiration period of 1 minute. Here, trend indicators are also used with subtle settings parameters, allowing for the formation of two types of trading signals for turbo contracts. In this way, we will achieve high cyclicity of our technical signals and increase profit opportunities for scalping since this operating approach makes it possible to register contract packages. So, let’s install the following instruments on the trading chart:

• SMA 5 and 10 indicators — we use blue for the moving with a five-minute period of building, for the second technical tool we use the standard coloring.
• MACD indicator – standard

To register trades UP with expirations of 1 minute, we use the following types of technical indicator signals:

Signal for the 1st type:

• The technical movings of the MACD indicator intersect upwards
• The blue lines of the SMA indicator intersect the second moving upwards

Signal for the 2nd type:

• The MACD oscillator lines intersect level 0 upwards
• The SMA indicator movings diverge upwards on the chart without intersecting

Using these signals, you can register up to 40 trades with short-term options in one hour, of which 90% will close with a profitable result. This factor will make it possible for you to earn up to 300% per week on options scalping.

Let’s sum up — scalping with futures trades using the correct mode of risk management and in combination with an effective trading system is the most rapid way to increase your account balance.

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”

Strategies for Trading Fibonacci Retracements

Leonardo Pisano, nicknamed Fibonacci, was an Italian mathematician born in Pisa in the year 1170. His father Guglielmo Bonaccio worked at a trading post in Bugia, now called Béjaïa, a Mediterranean port in northeastern Algeria. As a young man, Fibonacci studied mathematics in Bugia, and during his extensive travels, he learned about the advantages of the Hindu-Arabic numeral system. 

In 1202, after returning to Italy, Fibonacci documented what he had learned in the “Liber Abaci” (“Book of Abacus). In the “Liber Abaci,” Fibonacci described the numerical series that is now named after him. In the Fibonacci sequence of numbers, after 0 and 1, each number is the sum of the two prior numbers. Hence, the sequence is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 and so on, extending to infinity. Each number is approximately 1.618 times greater than the preceding number. 

Key Takeaways

  • In the Fibonacci sequence of numbers, after 0 and 1, each number is the sum of the two prior numbers.
  • In the context of trading, the numbers used in Fibonacci retracements are not numbers in Fibonacci’s sequence; instead, they are derived from mathematical relationships between numbers in the sequence.
  • Fibonacci retracement levels are depicted by taking high and low points on a chart and marking the key Fibonacci ratios horizontally to produce a grid; these horizontal lines are used to identify possible price reversal points.

This value–1.618–is called Phi or the Golden Ratio. The inverse of 1.618 is 0.618. The Golden Ratio mysteriously appears frequently in the natural world, architecture, fine art, and biology. For example, the ratio has been observed in the Parthenon, in Leonardo da Vinci’s painting the Mona Lisa, sunflowers, rose petals, mollusk shells, tree branches, human faces, ancient Greek vases, and even the spiral galaxies of outer space.

Fibonacci Levels Used in the Financial Markets

In the context of trading, the numbers used in Fibonacci retracements are not numbers in Fibonacci’s sequence; instead, they are derived from mathematical relationships between numbers in the sequence. The basis of the “golden” Fibonacci ratio of 61.8% comes from dividing a number in the Fibonacci series by the number that follows it.

For example, 89/144 = 0.6180. The 38.2% ratio is derived from dividing a number in the Fibonacci series by the number two places to the right. For example: 89/233 = 0.3819. The 23.6% ratio is derived from dividing a number in the Fibonacci series by the number three places to the right. For example: 89/377 = 0.2360.

Fibonacci retracement levels are depicted by taking high and low points on a chart and marking the key Fibonacci ratios of 23.6%, 38.2%, and 61.8% horizontally to produce a grid. These horizontal lines are used to identify possible price reversal points. 

The 50% retracement level is normally included in the grid of Fibonacci levels that can be drawn using charting software. While the 50% retracement level is not based on a Fibonacci number, it is widely viewed as an important potential reversal level, notably recognized in Dow Theory and also in the work of W.D. Gann. 

Fibonacci Retracement Levels as Trading Strategy

Fibonacci retracements are often used as part of a trend-trading strategy. In this scenario, traders observe a retracement taking place within a trend and try to make low-risk entries in the direction of the initial trend using Fibonacci levels. Traders using this strategy anticipate that a price has a high probability of bouncing from the Fibonacci levels back in the direction of the initial trend.

For example, on the EUR/USD daily chart below, we can see that a major downtrend began in May 2020 (point A). The price then bottomed in June (point B) and retraced upward to approximately the 38.2% Fibonacci retracement level of the down move (point C).

Figure 1: EUR/USD Daily Chart Fibonacci retracement. Chart Courtesy of TradingView.

In this case, the 38.2% level would have been an excellent place to enter a short position in order to capitalize on the continuation of the downtrend that started in May. There is no doubt that many traders were also watching the 50% retracement level and the 61.8% retracement level, but in this case, the market was not bullish enough to reach those points. Instead, EUR/USD turned lower, resuming the downtrend movement and taking out the prior low in a fairly fluid movement.

The likelihood of a reversal increases if there is a confluence of technical signals when the price reaches a Fibonacci level. Other popular technical indicators that are used in conjunction with Fibonacci levels include candlestick patterns, trendlines, volume, momentum oscillators, and moving averages. A greater number of confirming indicators in play equates to a more robust reversal signal.

Fibonacci retracements are used on a variety of financial instruments, including stocks, commodities, and foreign currency exchanges. They are also used on multiple timeframes. However, as with other technical indicators, the predictive value is proportional to the time frame used, with greater weight given to longer timeframes. For example, a 38.2% retracement on a weekly chart is a far more important technical level than a 38.2% retracement on a five-minute chart.

Using Fibonacci Extensions

While Fibonacci retracement levels can be used to forecast potential areas of support or resistance where traders can enter the market in hopes of catching the resumption of an initial trend, Fibonacci extensions can complement this strategy by giving traders Fibonacci-based profit targets. Fibonacci extensions consist of levels drawn beyond the standard 100% level and can be used by traders to project areas that make good potential exits for their trades in the direction of the trend. The major Fibonacci extension levels are 161.8%, 261.8% and 423.6%.

Let’s take a look at an example here, using the same EUR/USD daily chart:

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