You don’t have to be a guru to understand how to trade Boom and Crash, but you do need a good understanding of price action to become a successful Boom and Crash trader. As it is in every trading adventure, you need a solid plan and a strategy to win in the market. But the truth is, there is no strategy that is 100% perfect, so how do you navigate the strange candles and become profitable?. In this article, I will share some tips that will guide you in your journey to become a successful Boom and Crash trader.
Learn the Secret of Forex Trading, Click here to download a free e-book now
Table of Contents
First, what is Boom and Crash Indices?
If you are a newbie , you must have heard of Boom 300, Boom 500, Boom 1000, Crash 1000, Crash 500 and Crash 300. For the sake of clarity, Boom and Crash are ‘synthetic indices ‘ that is found only under the Deriv.com platform.
With Crash 1000, Crash 500 and Crash 300 Index, there’s an average drop in the price series that occurs at anytime within 1000, 500 and 300 ticks respectively. With Boom 1000, Boom 500 and Boom 300 index, there’s an average of one spike in the price series that occurs at anytime within 1000, 500 and 300 ticks respectively.
How to Trade Boom and Crash Indices Successfully
A number of traders (both expert and beginner) have had issues with the market structure of boom and crash. This is because, unlike the currency pair, boom and crash have been structured to either buy or sell using spikes at an even period of tick.
Don’t be left out, Open a free trading account now by clicking here
For instance, when trading either the boom (Boom 300, Boom 500 or Boom 1000) or crash (Crash 300, 500 or 1000) assets, one will observe that the boom market sells by default while the crash assets buy by default. However, when boom markets buy, it buys with long bullish spikes while crash markets sell with long bearish spikes. This characteristic feature makes the boom and crash unique but, also scary for beginner traders (See Figure 1 to 4).
Figure 1: Boom 1000 chart showing a bullish spike.
Figure 2: Boom 500 showing the default sell candles.
Figure 3: Crash 500 chart showing a bearish spike.
Figure 4: Crash 500 chart showing the default bullish buy candles.
Step 1: Develop a Strategy
Like in every forex market, different trading strategies are employed by traders to make profits. This includes scalping, day trading, swing trading, and position trading. As a trader opts for a particular type of trading strategy, foundational factors influencing such a choice include a person’s trading style, trading psychology, exposure, and experience. All these foundational factors anchor on two basic characteristics: Personality and Knowledge.
Trading Boom and Crash, My Story
When I began trading boom and crash markets, I began my trading adventure as a scalper. In fact, in the first year of my trading experience, more than 95% of boom and crash traders that I have been privileged to meet were scalpers. As much as I knew that there were other trading strategies, scalping was the basic trading strategy I felt was suitable for trading boom and crash markets. This was further confirmed by the way the market was structured, and also on low risk to reward ratio when day or swing trading with very small lot sizes.
For instance, in currency pair trade, using a lot size of 0.01 for a $100 account is a good risk management decision. However, trading boom and crash with a lot size of 0.01 is a difficult adventure that will demand more than 100 pips before a trader gets a profit of $1. For that reason, Deriv.com upgraded the lowest lot size in Crash and Boom market from 0.10 to 0.20 to enable profit maximation.
Generally, scalping the Boom and Crash market tends to be the norm due to the market structure and psychology. For that reason, many traders tend to focus on just lower time frames; precisely, M1 to M15. This rather makes it difficult to convince traders to look away from the spikes (which are so obvious and influencing in lower time frames) and put their focus on the general big picture of the market (the market trend).
However, the boom and crash market can still be ‘day or swing traded‘ if a trader has a good knowledge of the market psychology, price action, and good risk management. In fact, the best way to make profit lies in day trading or swing trading. This is because either of these trading strategies always respect the price action. Figure 5 to 7 shows the price action chart as observed in Crash and Boom markets.
Figure 5: Crash 500 chart showing price action chart.
Figure 6: Crash 1000 chart showing price action chart.
Figure 7: Crash 500 chart showing price action chart.
From the above setup, it is never wrong to begin trading boom and crash as a scalper but it will be wrong if you continue as a scalper. The aim of trading is not just in making profits but also in the personal development of one’s skill. Hence, as one sets out as a scalper, one should also endeavor to be part of the market’s big picture by improving to a day, swing, and position trading
Step 2: Develop a Winning Psychology
To be successful in Trading Boom and Crash you need to have a good trading strategy, psychology and risk management. Strategy itself is not enough, that is why most traders fail to succeed in the market even with a very good strategy.
How do you develop a winning Psychology for Boom and Crash Market?
The first step in developing a winning psychology is to practice your strategy on a Demo account and understand the drawdown of your strategy before going over to your real account. When I started trading Boom and Crash, each time I lose a trade, especially if a series of spikes caught me, I will be scared of the market for days. And because of this, I will keep losing until I was able to develop a good trading psychology.
Like I told my mentees, don’t expect to win all the time, if you have like 10 wins out of 12 in a week, that is a very good week. For instance, before placing a trade, monitor your risk to reward ratio and place your take profit and the stop loss at the same time before clicking buy or sell on the market. If your take profit is 40 pips, your stop loss should be like 10% of your take profit level.
When your analysis is right, don’t be scared of losing a trade, that is while you have to test your strategy on a demo account before going out to your real account. Then, have a daily target for win/lose, once your real that target, leave the market for that day and review your trading history, monitor your chart and mark some point of interest that wait for the next day.
6 Things to do if you want to win in the Crash and Boom Market.
If you are currently struggling in the market, please don’t give up. I blow my account more than 3 times before I finally understand how the market works. Here is what you should learn from me:
1. Price Action is very Important.
I don’t know how to put this, but from now on before taking any trade, try and understand the market structure. If you understand the market structure, your success level will increase by 90%.
Read More: The Complete Guide to Price Action Trading Strategies
If you want to fully understand how to trade crash and boom indices successful, First, mark out all the higher high and Higher lows in the chart; study price action reaction at those point; (you can include a trend indicator e.g., moving average like EMA 48 or Bollinger band (default setting); analyze and trade with proper risk management.
For EMA , when price is above the EMA, the trend is up, when the price is below the EMA, the trend is down, in this situation, look for the nearest Double Bottom (to buy) or Double top (to sell).
For Bollinger Band, look for Buy Entry when the price touches the lower Bollinger band and a sell entry when the price touch the upper Bollinger band
2. Beware of Stop Loss hunt
When I started trading Boom and Crash newly, I was a victim of stop loss hunt. If I enter a sell trade on Crash 500 for instance at a double top, the market will push pass that point and I will be force to close in red, but after some minutes the market will reverse back to my entry point before deciding on the next direction. After understanding Stop loss hunt, I began to trade with patience especially when I have clearly study and understand the market structure.
3. Risk Management is Very Important
Know when to close a trade in blue or in red; This is a problem many newbie face; even as an experience and a profitable trader, I still close some trades in red; this is because sometimes, breakout can happen, and once you notice this especially from candlestick formation, minimize your loss and look for the next entry point.
4. Develop a target based trading strategy
To become in successful in trading Boom and Crash, you need to develop a strategy that is target based. That is, having a daily profit target and sticking to it. Your strategy should include lot size, conditions for entering a trade, condition for exiting a trade and how to recover when you close in red.
5. Practice and Patience is Key
Before trading on your real account, practice first in your demo (if you don’t have a demo account, click here to open one). I study all my strategy first on my demo account at least one full week, monitor the result before trading on my real account.
6. Take Trading as your business
Trade as if you are investing to make gain, not gambling; because jumping in to get few pips for quick profit can land you in red. Trade only based on Market structure, and your strategy.
Some Frequently asked questions:
1. Which indicator is best for boom and crash?
Indicators are based on market history and may not accurately predict market movement. However, most traders has recorded huge success by using indicators like moving average to predict trend, Relative Strength Index to spot divergence, etc., but we will recommend that you understand price action. Understanding price action and actively using it to trade Boom and Crash is one of the best strategy, you can add indicator along the line to complement the price action
2. How much does it cost to trade boom and crash
You can open a trade for as low as $5 equity. The bottom line is to get the knowledge first, develop a strategy, back-test it before trading with your real account.
3. Can I make Money trading Boom and Crash?
Yes, you can make good money, but you can also lose all your money. Trading forex is risky, you can lose all your equity, that is while it is advisable to trade with money you can afford to lose. We have so many traders who are making a fortune trading boom and crash. Like I always say, focus on the getting the knowledge, have a mentor, build your confidence level, trade and you will make money from the market.
4. How do I set up Stop loss in Boom and Crash
Yes, stop loss works in Boom and Crash. But for all the boom and crash indices like Boom 300, 500, 1000 and Crash 300, 500 and 1000, stop loss is dependent on the length of the spike or crash that will happen close to your stop loss point.
For instance if you were buying Crash 500 at 3043 and it bought to 3050 and you put stop loss at 3047, and it crashes at 3051, where-ever the crash ends is where your stop loss will end. if it ends before your entry point, you will be in profit, if it goes below your entry point, you will be in red.
Final Thoughts on How to Trade Boom and Crash
You don’t need to trade all the indices to be successful, instead do the following:
- Find one or two indices.
- Look for a pattern that occur on each of them frequently (example M and W).
- Study those pattern and understand it.
- Build a strategy and a good to risk to reward ratio around the pattern.
- Practice that strategy first on your demo.
- Study the result from your demo before implementing it in your real account
- Work on your psychology and allow trades to either hit stop loss or take profit level based on your analysis.
Goodluck in your trading journey. You can share your experience below this article.
Edited and Reviewed by Warren Ventekas
Risk Disclaimer
Deriv offers complex derivatives, such as options and contracts for difference (“CFDs”). These products may not be suitable for all clients, and trading them puts you at risk. Please make sure that you understand the following risks before trading Deriv products: a) you may lose some or all of the money you invest in the trade, b) if your trade involves currency conversion, exchange rates will affect your profit and loss. You should never trade with borrowed money or with money that you cannot afford to lose.