Digital Options are quite similar to Binary Options in their logic. Both of these trading instruments require the trader to make a decision regarding the price’s further movement: up or down. However, Digital Options have an additional feature which demands traders to make a more precise prediction: a strike price. This instrument requires a strong Digital Options strategy and determination from the trader.
Strike is the price that the trader anticipates the asset to reach by the end of the chosen expiration time. If you wish to learn how to trade on Digital Options (DO) and understand the mechanics of this instrument, read our guide on Digital Options, which shows examples of deals and explains the advantages and disadvantages.
Unlike Binary Options, where the maximum profit is limited to 95-100%, DO allow for profit up to 900%, depending on the chosen strike price. On IQ Option, Digital Options can also be traded with the spot price — current price of the asset.
Digital Options Strategy: Keltner Channels and Stochastic Oscillator
A combination of these two indicators might become your new favorite strategy for trading Digital Options, both because of its high accuracy and simplicity.
Keltner Channels is a volatility-based indicator, which plots around the price, enveloping the chart. This indicator can help you predict the direction in which the price is going to move next. Stochastic Oscillator is used to confirm the signals: this oscillator indicates support and resistance levels, which can signal a price reversal on the asset. The combination of these two together can provide you with a high chance of success, if used correctly.
How to use this Digital Options strategy?
First of all, make sure to find the indicators and set them up on the chart. It may be wise to open several DO assets (several currency pairs) and apply the indicators on each tab. This way you could analyze several assets at the same time and open more deals, once you receive the signal from the indicators.
Keltner Channels set up
Moving Average: EMA
Setting up Keltner Channels, make sure to modify the standard setting to a more short-term approach. For this, first find the indicator in the Volatility tab of the indicator menu on the IQ Option platform.
Once you click on the indicator, you will be able to change its settings. Change the offset to 1.5 and click “Apply”.
This will adjust the indicator and make it more convenient to work with on smaller timeframes like 30 seconds or 1 minute.
Stochastic Oscillator set up
Period K: 13
Period D: 3
To set up the second component of this strategy, find the Stochastic Oscillator in the Momentum tab of the Indicator menu on the platform.
This indicator is used with the default settings, so simply click “by default” in the settings and apply the indicator to the chart.
How to read the signals?
To read the signals, you will need to search for the overbought and oversold zones of an asset and open deals at the moment when the trend is changing.
Conditions for opening a “Higher” position:
- Stochastic is in the oversold zone, below 20
- The candles went beyond the lower band of Keltner Channels and a green candle started forming
- Click “Higher” and enter the position as soon as the trend began the reversal
An example below shows an entry on EUR/USD at the exact moment both indicators show a potential reversal. The deal was opened with a 1-minute expiration time and it closed with a profit.
Conditions for opening a “Lower” position:
- Stochastic is in the overbought zone, above 80
- The chart is above the upper band of Keltner Channels and a red candle is starting to form
- Click “Lower” and enter the deal as soon as the trend begins the reversal
In the example above both the Stochastic and Keltner Channels indicate a reversal to the downside and, in fact, a red candle starts forming. The deal was opened precisely at the moment it started forming and the deal with 1-minute expiration closed in profit.
Digital Options tips for success
To make the most out of this strategy, there are several tips you could implement in your Digital Options trading.
- Remember that no strategy works 100% of the time. Not even this one. Sometimes instead of a reversal, the price continues moving in the same direction and the deal might close in a loss in this case. Keep this in mind next time you feel desperate.
- Choose the strike price with caution. Yes, the further the strike is from the current price, the more you could earn. However, the riskiness of the trade is also a lot higher with a higher strike, so
- Don’t just stick to one currency pair — open several tabs at the same time and monitor different pairs with these two indicators. Otherwise the waiting time for the signals may be too long.
- Don’t enter the deal unless you receive signals from both indicators. If the indicators show opposite signals, wait it out.
- Stick to smaller investment amounts: risking over 3% for a conservative approach and 15% for an aggressive approach may be irrational. Adding up small gains and building capital is a safer bet than risking the whole balance at once.
Make sure to remember these tips and don’t hesitate to test the strategy on the Practice balance first. After all, trading is all about practice — the more you do it, the better you become at it.
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