Welcome to our binary options strategy section. Here you will find articles on specific strategies as well as more advanced information such as money management through our beginner’s guide to strategies.
Basic strategy for successful trading
Strategy is one of the most important factors in successful binary options trading. It is a framework on which trading decisions are based, including money management rules and how to make money in the market. Unfortunately, there is no single Holy Grail. Then we will all use it!
The most basic strategy categories are:
- Basic
- Artificial.
Fundamental strategy is important to focus on and understand the underlying health of companies, indices, markets and economies, but not as important to binary options as the technical aspects of trading.
Technical trading or technical analysis is the measurement of charts and price action, finding patterns in those measurements and patterns and making educated guesses, guesses.
Strategy simplifies trading, eliminates the need to guess and reduces overall risk.
The textbook definition is: A plan of action designed to achieve a goal or overall objective; the art of planning and directing operations to achieve victory. The goal of trading is to 1) make money and 2) not lose money .
The first way to achieve this goal is to use a rules-based approach to select items that rely on old, tried-and-true technical analysis indicators. There can be dozens, maybe hundreds, of ways to trade the markets. They can be categorized by the tools used, the time span they are scheduled for, the amount of risk involved, and many other ways.
- Price Action / Scaling Strategies – A price action strategy relies on movement towards market entry. These trends can be either long-term or short-term, and can leverage bullish or bearish positions.
- Trend-Following/Directional Strategies – Trend-following strategies target assets with strong trends in order to pinpoint a series of profitable entries with a high probability of success.
- Range Boundaries/Short Term Strategy – 99% of markets or individual assets trade within high and low ranges, not trends. These strategies focus on support and resistance levels, intra-range reversals and short-term trends as asset prices rise from support to resistance and vice versa.
- Long-term/Momentum Strategies – Strategies are less risky as they target stronger signals and longer term periods. These signals have a high chance of success, but they take longer to develop and deploy than other types of signals.
Technical analysis indicators are usually mathematical formulas that translate price action into an easy-to-read visual format. Common types of indicators include moving averages, trend lines, supports and resistances, oscillators, and Japanese candlesticks.
Money management
Strategy is one of the two pillars of risk management, the other being money management. You control your risk by targeting only the good signals, weeding out the obviously bad signals, and not wiping out your account by investing too much money in one trade.
Money management is the control of your entire trading funds. You need to be clear about your trade size and long-term financial management so you can focus only on trading. A well-managed money management structure should simplify:
- Trading size
- Crisis management
- Future Growth
- Stress
Traders with a clear financial plan don’t have to worry about whether they can trade tomorrow, whether the trades are sized right, or how to increase their investments based on their progress. All decisions are controlled by managing the entire capital with a clear plan.
Learn more about money management.
Japanese candlestick
This is the most common way to view price charts. Candlesticks make it easy to see prices, open highs and open highs by jumping over the chart in a way that other chart styles cannot. They are the foundation of most price action strategies and can be used to provide signals and confirm other indicators.
Read more about the candlestick strategy.
Support and resistance
These are the price areas on the chart of the asset that are likely to stop the price when it is reached. When the price stops falling, it gains support. This happens when a buyer enters the market and calls it a “support price.” Resistance is found when the price stops rising, which happens when sellers enter the market or buyers disappear to “resist the high price”. Often marked as a horizontal line, this area is a good target for items and possible areas where price action may reverse.
Trend lines
These lines connect the highs and lows formed by asset prices. A series of high lows and high highs is considered an uptrend and signals that the price is likely to move higher, while a series of lower highs and lower lows are considered a downtrend and the price is likely to move lower. A trend line can be used as a target for support and resistance, as well as an entry point for a trend following a strategy.
Moving averages
A moving average takes the average of an asset’s price over X days and then plots that value as a line on a price chart. Moving averages come in many forms and are often used to determine trends, provide targets for support and resistance, and indicate entry. There are dozens of ways to derive moving averages, the most common being simple moving averages, exponential moving averages, and volume-weighted moving averages. It can be used and set to any time frame to provide multiple time frame analysis and crossover signals.
oscillators
Oscillators may be the single largest indicator indicators used in technical analysis. This includes MACD, Stochastic, RSI and many other tools. These tools usually use a combination of price action and moving averages to determine market state. It is presented as a standalone tool and is usually displayed as a line above or between two extremes or midpoints to help determine trend, direction, support/resistance, market strength, momentum and entry signals.
Trading psychology
Psychology can play a huge role in any form of trading. Lack of confidence can lead you to miss trades or invest too little capital in winning trades. At the other end of the spectrum, overconfidence can lead to overtrading or increased risk.
Therefore, the trading psychology of traders is very important. It can also be actively controlled or managed (at least acknowledged). It’s an area of trading skills that is often overlooked, but there’s time to consider it.
Learn more about psychology trading and learning through experience.
Basic binary options strategy
Below are examples of some basic rules for binary options strategies.
- Trends are your friend, take them by item.
- In an uptrend, enter only when the price is close to support, and in a downtrend, only enter when the price is close to resistance.
- Wait for a confirmation candlestick signal when price is close to support/resistance.
- When a candlestick signal appears, a bullish crossover of an uptrend or a bullish crossover of a downtrend, until the stochastic and/or MACD is confirmed.
- Start trading when rules 1 to 4 are met, and use only 3% of your account on each trade.
- Use 2XCandle length when selecting expiry. IE, if you use 1 minute seconds, 2 minutes expires, 1 hour seconds, 2 hours expires.
- If a transaction fails, investigate why it didn’t work, make adjustments if necessary, and move on to the next transaction. If the trade works, move on to the next trade.
Top Brokers
No strategy is profitable if you trade with an unreliable broker. These are the best trading platforms recommended for trying out your strategies.
Choose a trading strategy
Developing a trading strategy for the binary options market requires a key understanding of how the market operates, from an understanding of the available trading contracts, different expiration times, and the behavior of individual assets.
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The binary options market is unique, unlike the forex market where an asset must be moved in one direction or another by a significant number of pips in the trader’s favour, before making a profit. Apart from Up/Down trades which are direction based and mimic the trading requirements of other markets (except for pip movements), other trade types in the binary options market operate in completely different ways. Different platforms have different trading contracts. Some binary options contracts do not require the trader to correctly orient the asset. For example, trading an OUT contract requires an asset to reach one price boundary or another to make a profit. Therefore, traders need to be able to identify suitable trading contracts from which they can create suitable strategies. What is used to trade Up/Down contracts is different from what is used to trade In/Out contracts. The contract type determines your strategy.
For example, trading an Up/Down contract requires a strategy that can determine whether an asset will make a bullish or bearish move. Trading in/out contracts requires a range trading strategy or small trading strategy to identify times when an asset stays within a range or outside that range. If you want to develop a trading strategy for in/out trades, this is how your mind works.
There are tools available to help traders when developing a strategy based on the type of binary options trades they will be trading. This is where Chart Patterns, Signal Services, Candlestick Technical Indicators will come in. A simple tool like a pivot point calculator can be used as part of a touch sales strategy with very effective results. A tool like this can take you to the next level of strategy selection. This is how we understand and set expiration times.
Understanding expiration times
Expiration time is very important for binary options because every trade in this market has a time limit. However, not all binary options trading require a time limit. Trades, such as up/down trades, must expire before the outcome of the trade is known. In contrast, a trade such as the OUT component of a boundary trade or the TOUCH component of a High Yield Touch or Touch/No Touch trade contract must not necessarily reach maturity before the outcome of the trade is known. If a trader bets on the TOUCH outcome before expiry and the asset touches the strike price, the trade outcome is already known and the trade is closed as a profitable trade.
So, unless a trader is good at setting expiry times/dates (and indeed in the market, traders can’t always boast of expiry settings), a binary options trading strategy should be tailored to the trading contract. Completely not dependent on expiration.
Now, if you identify and isolate trades that don’t depend on expiry dates, you can better understand which strategies you’re looking at.
Understanding asset behavior
The binary options market combines assets from different asset classes into one market. These assets do not behave identically. Some assets are highly volatile as there are large fluctuations throughout the day. A very clear example is gold. Some binary options assets do not trade around the clock, but only at specific points in time (e.g. stock indices). Factors that can cause sharp fluctuations in stock indices are unlikely to be the same when it comes to commodities or currencies. No two devices are identical or perform identically, even within the same asset class.
Therefore, understanding asset behavior is important to developing a trading strategy for the market. It is up to the trader to study the behavior of an asset, understand the technical and fundamental indicators that will influence that asset’s behavior and price movements, and then create the right trading strategy for that asset.
Demo
In this section, we will show you how to apply all the parameters mentioned above using a simple but effective trading strategy.
– The strategy we will be using determines price bullish/bearish, so we trade Call/Put contracts.
– Exchanging strategies on the 1 hour chart, so expiry of 1 hour occurs. We do this using the understanding that the effect we want to trade on hourly charts will occur in one hour.
– You want to use it for assets that are liquid and respond to strategies. So we will use EURUSD.
This strategy was used to create a color-coded indicator that displays a green arrow for bullish signals and a red arrow for bearish signals. This currency is targeted for trading EURUSD as it responds very well to price stimuli during the London/New York overlap in the forex time zone and can deliver a response within an hour.
As soon as the red arrow appeared, the signal was to trade a PUT option on a Call/Put digital option. Using these signals, trades were executed on the binary options platform. The asset’s price (EURUSD) fell within an hour from the time the signal was created to the expiry date, resulting in a trade in our favor.
This strategy (custom strategy) met all conditions.
a) Suitable for trading contracts in the binary options market.
b) It was a strategy to allow traders to use the appropriate expiry.
c) It suited the behavior of the asset and, above all, the strategy was informative.
