The Ultimate Binary Options Trading Strategy
It’s a common misconception that binary options trading and Forex trading can only be carried out by specific people with experience in this field. The truth is that experience is not necessary for you to trade. Armed with just a little time, anyone, no matter the level of experience, can understand the concept involved in binary options trading.
What you basically need is the ability to predict the direction that the price of a certain asset is likely to take. It can be either call (increase) or put (fall). Most of the successful binary traders have risen to the top by implementing simple strategies and also using some of the best brokers.
We have detailed in this article all the relevant details that you will need to learn about binary options trading.
How to Minimize the Risks
Our main goal is to help you learn the most effective strategies that will, in turn, assist you in reaping the most out of your investment. All that the strategies involved are simple techniques that will guide you in noticing certain trends in the market and in turn help you make the right moves. Minimizing the risk is important in every business, and there are a few principles that work in this regard.
Binary options may present you with some of the toughest risks.
To tackle them wisely, you should take the following points into careful consideration:
- You should never invest all your capital at once
- Go through all the dynamics of your asset before taking the plunge
- Put this strategy to exercise by investing only 5 to 10 percent of your capital at once
Why You Should Have a Binary Options Trading Strategy
A strategy is not a necessity in trading binary options. One can just choose to go ahead with nothing but their gut and instinct. They could choose to make decisions based solely on these two. This won’t make you any money, however. You might even lose a lot, actually. As you can see, you might not need a strategy in trading binary options, but if you want to be successful, then a strategy is a must.
More accurately put, success in binary options trading is dependent on three different types of strategy. We have given a brief introduction to each below.
There are two main benefits for trading under a strategy. First is that it removes the possibility of you making decisions based on your emotions. Decisions are, instead, based on sound predefined boundaries that have been clearly thought out. The second reason is that having a strategy makes it possible for you to make a profit from repetition. You find that without a strategy, one would never know why a certain process worked. It would also be hard to execute the same step even if you knew why it worked.
Simply put, a strategy keeps your trades in order by making sure that they are executed on sound thinking. A strategy also ensures that there exists a pattern that can be repeated to give the same results.
For instance, you can scrutinize your strategy after a certain period of time. Get to know whether it’s making you money or not. It could be that the amount of money that you hope to be making is not what you’re getting. It’s at this point that you decide whether to keep the strategy going in the hope that it will reap more profits in the long run or whether you might want to make careful considerations to the structure of the strategy and maybe change or alter it. This might bring you more profits. All of this is possible, but you need a strategy first.
Types of Binary Options Strategies
Binary options strategies are never the same.
However, they all have three common components:
- Strategy improvement
- The amount you should trade
- You can create a signal for binary trading and get an indication of how you can trade this signal
There are many possibilities in each step of the strategy since variations may arise at each stage. The most vital part when coming up with the strategy is to understand each element properly. This is due to be revisited in this next section. We will start by creating signals.
- Creation of Signals
Binary Options Signal Services is just something that gives you a heads up that the price of a particular asset is about to change towards a particular direction. Now, prices are always changing. What we need is something that will alert you before this happens. This is basically the job of a signal.
We can create signals by two methods. One is by using news events while the other is by using technical analysis.
For the new and inexperienced traders, the most common way of creating signals is by doing so from news events. This mainly involves paying attention to what’s going on around you; release of inflation figures by the government, announcements by a company or even industry announcements. In most of the simple cases, positive news indicates that the price will go up while negative news indicates that the price is about to fall.
If you want to make this strategy work, you first need to know the news events to expect and when. This is the reason why you will always find economic calendars on the best binary options trading platforms. If you find out that there’s scheduled to be a company’s earnings report in a week, you can plan your trading activities and analysis around this time.
- How Much You Should Trade
This strategy is basically about managing your money. The level of success and complexity varies, with the first being a strategy in which you invest the same amount of money in each trade. Some of the most common strategies are the percentage-based strategy and the Martingale strategy. The former is the best option for you if you’re looking for long-term success.
Investing the same amount in each stage carries the biggest risk overall. It’s almost like you have no strategy at all. This is because it really doesn’t care how much money you have left or even your level of profitability. These two factors are incredibly important, and they could lead to a financial disaster if they are ignored.
- Improving Your Strategy
One of the best ways through which you can scrutinize your strategy is by using a diary to analyze your performance. This is simple but highly effective. All it involves is writing down each trade that you make and later you can analyze each of them and look for patterns. You can also see what’s working and what’s not.
This strategy is particularly used by new traders that are still trying to come up with a profitable strategy. In this scenario, the common approach is usually to place trades using both news event and technical analysis signals. With a diary, you can keep these trades separate and also determine which one performed better. For instance, you could be making a lot by using technical analysis than by using news events. However, you know that you spend most of your time on news events. Analyzing this in your diary might suggest that you need to change your approach.
Ideally, the idea is to know which trades are effective and the sluggish ones. A trading record is an important way of doing this. Thus, a trading diary is very important.
How to Create a Binary Options Strategy Without Risking Money
As it has been stated continuously in this article, a trading strategy is important if you want to make profits. It allows you to analyze your trades, it gets rid of emotional decisions, and it gives a clear structure to your trading.
How can you test a strategy without risking your money? How can you find out if a strategy works if you don’t try it out? If you use your own money to try out a strategy, you will end up losing it. This may lead you to deplete your account before the testing stage is over.
A binary options demo account is the answer to this dilemma. All the best trading platforms offer their users demo trading accounts. They will give you access to real market conditions under which you will be able to test your trading strategies. The risk of losing your own money is eliminated since they give you virtual money to trade with. The point of this demo account is to assist you in solidifying a strategy and not to make real money.
In binary options trading, there’re many assets that you can choose from. However, the most encouraged strategy is to stay on a single asset so that you can also cut down on the risk. Trade on the assets that you’re familiar with, for instance, the euro-dollar exchanges. You will be able to gain much familiarity with it once you have consistent trading. The ability to predict the directions of the value will also become easier.
- Trend Strategy
Most beginners use this strategy. Some experienced traders also employ it. This is also known as the bull-bear strategy, and it focuses on the trends taken by a particular asset. If the trend line is flat and there’s a prediction of the price going up, then the No-Touch Option is recommended.
- If the trend line indicates an increase in the price, choose CALL.
- If the trend line indicates a fall in the price, choose PUT.
This strategy is similar to the CALL/PUT option, but in this case, you get to choose the price that the asset shouldn’t reach before the specified period. For instance, Google’s share price is $540, and your trading platform operates on the $570 no touch option with a 77% return. If the price doesn’t get to this point in the specified period, then there’s a gain.
- Pinocchio Strategy
This strategy is useful when the price of an asset is set to fall or rise a lot in the opposite direction. Select CALL if the value is expected to drop and PUT if it rises. A free demo account can help you put this to practice.
- Straddle Strategy
This strategy comes in handy when the market is volatile or when the predictions by analysts don’t seem to yield much or just before the break of important news about a particular asset. This is a well-known strategy in the financial world. It’s famous since it presents the trader with the ability to avoid the CALL and PUT options. Instead, they can apply both to a selected asset.
The PUT option is applied when the price of the asset is increased, but the trends indicate that the price will drop soon. The CALL option is now put in when the decline begins, of course, expecting the price to rise once again. This method can also be executed in the reverse direction. This method increases your chances of making money by producing an “in the money” result. This strategy is most preferred when the market is unpredictable or when an asset is volatile.
- Risk Reversal Strategy
This strategy is one of the most beloved in the binary options trading world. Its goal is to lower the risk significantly by placing a simultaneous call and put options on a specific underlying asset. This strategy is highly beneficial when the particular asset is volatile. Trading on a two for two opposite directions makes sure that there’s definitely going to be a result. It also guarantees that there will be a positive outcome at the end of the day.
- Hedging Strategy
This strategy is also known as a pairing, and it’s mostly used to minimize risks as well as provide protection for investors and traders. It’s executed by simultaneously placing a call and put options on an asset. This is a sort of an insurance cover since a positive outcome is expected regardless of the direction that the asset value takes. In this strategy, there’s always an “in the money” outcome.