trade plan

Let’s say that your trade plan is buy EUR/USD in case of a breakout or to short it if it fails to do so. The level can be 1.4720, you invest $100 on a binary PUT option promising a 170$ return in case the pair will close below that level.

In case of a bullish break out, you need to cover the hedging cost, which is $100 – $10 in return = $90. So, I need to anticipate a relevant breakout that will give me enough pips in order to return at least $90. Now there are two scenarios:

1. If the breakout is real, you win in the forex trade and lose the hedging in th binary option – this is like paying a small premium to the insurance compan, when everything is OK. The win on the trade should be much more than the hedging cost.
2. If the breakout was false, you lose the forex trade, but the binary option covers the losses since I get back the $100 + $70. This 70% win should cover the loss (and sometimes even more) in the forex trade.