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.You can also back test manually by simply following the chartof the instrument.BACK TESTING BINARY OPTIONS STRATEGIES-readily available data on each option historically.certain tools readily available to them.You should check our companionhistorically analyze the underlying instruments on which binary optionsare available.-torical data for an underlying instrument and see what percentage of thetime the price of the underlying moved outside of this range.-percentage of the time that this range was breached. Systems with Binary Options 159Another way to approach back testing option strategies is to simplyhave a short term system that you want to use to forecast the price of oil.You can back test the price of oil very easily using a back testing program--fast and moving past your stop.You can simply use the option premium asusing the option premium as your stop loss with this approach.you can back test volatility strategies.One technical strategy that traders often use is a breakout strategy.-ing in a tight range with increasing volume for an extended period of time.-above resistance.which direction the breakout will be in.Is the price going to break aboveEXHIBIT 12.2 Chart of a Breakout 160 BINARY OPTIONSthe upper level of the range? Or is it going to break down below the lower--money as long as the breakout happens it does not matter if it is to thedownside or to the upside.The way that you would test a system like this is by simply manuallygoing back on a chart and looking for where you forecast a breakout to-before applying any serious money to it.-It is likely that there is a big buyer or seller in the market of the un-Support:Price went down to the support level,attempted to move through it, and thenreversed direction.Resistance:Price went up to the resistance level,attempted to move through it, and thenreversed direction.EXHIBIT 12.3 Support and Resistance Systems with Binary Options 161or lower.-of support.You may decide to purchase an in the money binary option withyou will win on your trade.you can assume that you would have lost on the trade.This is a way thatyou can manually back test such a strategy.need to play with this strategy on a demo account to make sure that itworks for you and then trade it with a very small real account to get com-fortable before applying any serious money to it.-with confirming indicators.This practice is typically called curve fitting.Insystem look good on historical data.The key is to use unconfirming indica-tors to test your edge on a robust period of time.Price1.37001.36501.3600Large Buy1.3540Order1.35001.3400EXHIBIT 12.4 Support 162 BINARY OPTIONSTHREE BACK TESTING RULESThere are three practical rules that you want to apply when back testing.Rule 1: Back Test over a Sufficient and a RobustSample Size of Data-trend following system and back test it on a short uptrend.The results willbe spectacular! You will probably see extremely high accuracy and hugeprofits on your trades.so testing on strictly an uptrend will not provide you with sufficient infor-mation.during a choppy period or a sideways market? There is a good chance that-least four years of data
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