First things first, is to inform you that this is one of the more risky digital options strategies. This is not a recommended strategy, but we’re going to discuss it because it may provide some value to those who like to study various strategies. Should you make the decision to use it, be sure to paper test it several times in order to see what the outcomes would be.
This strategy is not based on analysis, but instead odds and investment amounts. Most digital options strategies heavily focus on analysis and price direction, but this method only requires one tool – the Traders Choice bar (included in the brokers digital options platform). Using this, you’ll select your trade position based upon which position is being opted for by the majority of traders. The Traders Choice bar will tell you the percentage of traders who have opted for Call and the percentage who have opted for Put.
For the investment portion, you’ll start out with $10 and select a 15-minute expiry. The investment amount will increase with each loss, or go back to $10 with each win. If the first trade is a loss, the next investment amount should be bumped to $26. Another loss and the amount is bumped to $65. Three losses and the amount goes to $150. Again, any winning trade sends you back to the beginning, with a $10 investment. The thought process behind this is that statistically, the 4th trade (when you get that far) should finish in the money.
Clearly, the odds of finishing in the money after three successive losing trades are higher, but there are no guarantees. The bumped investment amounts are for the purpose of covering the previous losses as the trades continue. Another problem is that Traders Choice is provided as a convenience, and should not be the only tool used to make investment decisions. Analysis is an absolute must for those who want to trade well and earn from digital options on a consistent basis.
So, is the Investment Bump digital options strategy useless? Not exactly. Many traders have learned to combine mathematical odds together with analysis and in doing so have generated massive profits. This strategy should not be used as a stand-alone method, but when combined with some solid analysis, it could offer some value to traders who like testing odds and are not afraid of higher levels of risk.