Binary Options Trading Strategy – Best 60-Seconds Strategies
Today we are going to share our binary options trading strategy with you. This strategy is designed to help you identify whether you’ll like trading binaries and teach you how to trade binary options the right way. If you prefer to play it safe over gambling, you’ll need a strategy or tactic to help you master binary options and other trading activities. This is where our TSG team comes to the rescue. We will provide you with the best binary options strategy.
The main reason we’re interested in learning about trade binary options is the fact that binaries simplify what we’re already doing in Forex. At the same time, binary options also allow us to make more money in the process. We are also controlling the risk.
Binary options are easy to understand. This is coming from someone who has little or no experience in the area. If your favorite approach to trading forex is to jump in on a fast price movement and ride the intraday trend for as long as the momentum lasts, you can learn how to make money trading binary options very quickly.
When we first discovered binaries, the light bulb in our heads turned on. We figured out the same thing that we’ve been doing in Forex can be done. But walk away with 75%, even 95% winning trades because we only needed to get the direction right. No need to worry about how many pips we could grasp in the process.
And that, my friends, is the real beauty of binary options.
What are Binary Options?
Binary options are a form of derivatives that have a fixed profit or loss. Trading binary options is simple. All you need to do is ask yourself a simple yes or no question. Will the price of the underlying asset be worth more than the strike price at the expiration date?
Now, let’s start by understanding how binary options work.
Essentially, we can trade binary options for any type of instrument. Whether it be commodities (Gold, Oil or Silver), Forex exchange currencies (EUR/USD, GBP/USD or USD/JPY), or stocks (Amazon, Tesla or Twitter).
So, the first thing you need to decide upon is to select the asset to trade.
Second, before submitting our trades, each of these instruments has a current value at any given point in time. How to trade binary options depends on our trading skills. It is used to predict where the current value will be some time in the future. In other words, we must use our skills to predict the market direction. This will determine our success in trading binary options.
The market can only go up or down. If we believe the current value will go up in the near future, then we buy a Call option. On the other hand, if we believe the current value will go down in the near future, we buy a Put option. Read more about call options vs put options.
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Third, we need to determine what the most critical aspect of trading binary options is. The expiration time will ultimately determine if you’re making a profit or not.
Trading binary options require you to correctly forecast two things:
Whether the market will rise or fall.
Your forecast needs to be accurate during a certain time frame – called the expiration time.
If you’re right on the market direction by the time of the expiration time, you earn a profit. Being wrong means you incur a loss. The way binary options works is that if you’re right on the market direction, you’ll get a percentage of what you initially invested in.
Typically between 75% and 95% and in some cases, even 100% of your initial investment, depending on your Binary Options Broker.
Supposing we’re wrong on the trade, then we’re going to lose the whole amount invested in the short term.
We have made a nice infographic that highlights the four steps on how to master binary options trading.
Now we’re going to focus on step two, which is how to predict the price movement. If you manage to figure this out, then knowing how to make money trading binary options will be a piece of cake for you.
Now, before we’ll outline a method on how to make money trading binary options, we always recommend taking a piece of paper and a pen and take notes on the rules of the best binary options strategy.
In this demonstration, we’re going to look at the buying Calls.
The Best Binary Options Strategy
Our team at Trading Strategy Guides is ready to share with our beloved trading community our 60-second binary options strategy. We don’t just hope this strategy will make you money, we’re certain it will. The mathematical model behind this binary options trading strategy has a proven market edge.
The only tool you need to trade binary options successfully is the RSI indicator.
Even the RSI indicator is not good enough if it doesn’t have the “right” settings. The RSI default settings need a little bit of adjustment if you want to master the 1 minute time frame. We use a 3-period RSI to trade binary options profitably.
Naturally, a lower RSI period means that the indicator will tend to be noisier than normal. But it is more responsive to the immediate price action. Along with the RSI settings adjustments, we also played around with the overbought and oversold readings. We found out that by using an 80 RSI reading for overbought and 20 RSI reading for oversold condition, we get more accurate day trading signals.
*Note: Make sure you adjust the RSI settings before you jump into the binary options trading strategy.
By changing the RSI overbought and oversold line, we have eliminated the noise. So now we’re ready to highlight our binary options step-by-step guide:
Step #1: Find an instrument that is showing a low the last 50 candlesticks. Use the 60-second chart (1 Minute TF)
The 1-minute binary options or the 60-seconds time frame is the best chart for trading binary options. In other words, the best binary options expiration time is the 60 seconds time frame.
We recommend highlighting the starting point on your charts. And the ending point of your 50-candle low that you have identified. Simply draw two vertical lines on your chart through the starting point and ending point of your 50 candle low.
When you count the 50 candle low, you should always start from the current candle. Then go from the right side of your chart to the left side of your chart. If you manage to count 50 candle low, obviously the starting candle point will be your 50 candle low.
Moving forward, it’s time to put the RSI indicator in use and spot if we have extreme oversold reading or not.
Step #2: At the moment the 50 candle low develops, we need an RSI reading of 20 or below
Since this is a reversal trading strategy we need the RSI indicator to show a bullish reversal signal. An RSI reading below 20 shows that the market is in oversold territory and it can potentially reverse.
In our example below, the 1-minute EUR/USD chart is satisfying the two conditions.
Keep in mind that in order to move to the next step, we need the 50 candle low. We also need an RSI reading below 20 to happen at the same time.
We added one more factor of confluence that needs to be satisfied. If used in conjunction with the previous two conditions, it will make you a money maker binary options trader.
Step #3: Look for a bullish divergence to develop between the RSI indicator and the price.
When trading reversals, you need to be as precise as possible. The more confluence factors you have in your favor the more accurate the reversal signal is.
What we need to see here is for the price to continue moving lower after the 50 candle low was identified. At the same time, we need the RSI indicator to move higher in the opposite direction.
If the price moves in one direction and the momentum indicator moves in the opposite direction, it means they are diverging from each other. This signals a potential reversal signal.
Now it’s time to highlight how to find the right entry point for the binary options trading strategy.
Step #4: Buy a Call Option after the first candle that closes above the high of the 50 candle low
The first thing you need to do is to mark on your chart the high of the 50 candles low with a horizontal line. The first candlestick formation that breaks above this high is your trade entry signal to buy a 60-second Call option.
It’s that simple!
After you decide the amount to invest and pick the 60-seconds as your expiration time, it’s time to sit back and wait 1 minute before hopefully collecting your profits.
Step #5: You collect your profits if the next candle closes higher than your trigger candle
If at the expiration time, the price is higher than the price you opened your Call binary options, you’re lucky because you’re about to check-in a big payout.
For example, if you’ve invested $1,000 and your binary options broker offers you an 85% payout, it means that you accurately predicted the outcome of a trade. You get back your initial investment of $1,000 plus the 85% payout which in our case is $850 in profits.
If you want to buy Put binary options, use the same binary options guide, but in reverse.
Conclusion – Binary Options Trading Strategy
Before learning how to make money trading binary options you need a great Binary Options broker. You can’t start hitting home runs right out the gate without making sure you have a binary options broker who wants you to succeed. Secondly, you need a strategy based trading technique to reveal the market direction. You only need to forecast if the price will be up or down during the next 60 seconds, making it very convenient.
We use a heuristic approach to speculate on which way the price is going to move during the next 60 seconds. At the end of the day, traders are looking for a reliable binary options system that will help them make money from trading.
The good news is that the best binary options strategy is exactly that system. Our team is built of many traders with experience in the industry, including binary options traders who know how to make winning trades. We’re ready to help you with every step of the way.
Thank you for reading!
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Don’t forget to read our guide on regular options trading for beginners here.
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7 Binary Options
Binary Options Trading Requires Very Little Experience
The common misconception is that binary options trading and forex trading can only be done by one that has a certain amount of experience in the area. There is no requirement to have any previous experience in financial trading and with a little time, any skill level can grasp the concept of binary options trading.
The basic requirement is to predict the direction in which the price of an asset will take. The price will either increase (call) or fall (put). Successful binary options traders often gain great success utilizing simple methods and strategies as well as using reliable brokers such as IQ Option or 24Option.
From this page you will find all the relevant strategies for binary options trading.
Get started with 3 easy steps:
Choose a broker from the list below
General Risk Warning:
Binary options trading carries a high level of risk and can result in the loss of all your funds
Binary and digital options are prohibited in EEA
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The financial products offered by the company carry a high level of risk and can result in the loss of all your funds. You should never invest money that you cannot afford to lose.
(*Amount will be credited to account in case of successful investment)
Register a broker account
I personally use six different brokers for trading and would recommend all serious traders to open a few accounts with different brokers in order to build up a good variety of assets.
Start trading with four easy steps:
How to minimize the risks
Our goal is to provide you with effective strategies that will help you to capitalize on your returns. These are simple techniques that will help to identify certain signals in the market that guide you make the proper moves in binary options trading. Risk minimizing is important for every trader and there are a few important principles that aim to help in this area. Binary options trading can present several risks but to decrease them, take the following into consideration.
• Never invest the entirety of your capital at once • Review the dynamics of your trading asset prior to investing • Exercise the strategy by investing only 5 to 10 percent of your equity per placement
Reasons for Having a Binary Options Strategy
You don’t need a strategy to trade binary options. You could simply go with your gut, making decisions in the moment and on instinct. However, you won’t make any money with this approach. In fact, you will probably lose a lot. So, while it is not essential to have a strategy in order to trade binary options, to be successful and profitable you must have a binary options strategy.
To be more precise, you need three different types of strategy. Below is an introduction to each.
Trading Strategies – What They Are and Why You Need One
There are two main reasons for having a trading strategy and sticking to it. The first is that it removes the possibility of you making emotional or irrational decisions. Instead, decisions are based on pre-defined parameters that are developed with clear thinking. The second reason for having a trading strategy is that it makes it possible to benefit from repetition. Without this type of strategy, you probably won’t know what worked or why. Even if you did, it would be hard to repeat it.
In other words, a trading strategy ensures your trades are based on clear and logical thinking while also ensuring there is a pattern that can be repeated, analyzed, tweaked, and adjusted.
For example, you can analyze your strategy after a set number of trades or a set time period. Is it making you money? Is it making you enough money? Maybe it is making you money but not as much as you hoped. In this situation you may decide to let it continue knowing it will be profitable in the long term. Or you might decide to make carefully considered and structured changes to improve profitability. This is all possible, but only if you have a trading strategy in the first place.
The alternative is haphazard and impossible to optimize. Imagine you looked at your performance after a set number of trades or a set period of time but did not have a trading strategy to judge it against. What would you do if you lost money? All you could really do is hope you make better decisions in the future. However, you would have nothing concrete to base your adjustments on. The same applies if you were making money but not as much as you had hoped. In fact, the same also applies if you did make money – you would have no way of knowing for sure that you could replicate the performance again, as each transaction is a standalone trade and is not part of an overall strategy.
It is a completely impractical way of trading. Look at a scenario where you don’t use a trading strategy. In the scenario, you make a 50 percent profit one month and then a 50 percent loss the next month. How would you ever know why one month was successful and the other wasn’t? How would you know what to change, if anything?
You simply wouldn’t. The best you can probably hope for is break even, and that is no use to anyone. In reality, you will probably lose money because you have to win more than you lose. Without a trading strategy, that is almost impossible.
Money Management Strategies – What They Are and Why You Need One
Many people make the mistake of only developing a trading strategy – i.e., a strategy that determines the type of asset they want to trade and the level of risk they want to be exposed to. Little thought is given to the money management strategy. That is a mistake because a money management strategy will help you manage your balance so you can get through bad patches and maximize winning streaks.
To illustrate this further, let’s look at an example of someone who doesn’t have a money management strategy. Because of this they invest 10 percent of their balance on a single trade. If that trade loses, they will need a 20 percent gain on their account balance just to break even. If they lose three trades in a row, they will need a 30 percent gain on their account balance just to break even. You can see how this can easily creep up – a common losing streak of three in a row could see the account balance of that trader drop by 30 percent. When you consider the fact that many losing streaks are much longer than three-in-a-row, you will appreciate how important a money management strategy is.
Without one, your account balance is at risk of hitting zero, even if you have a good trading strategy in place. Losing streaks and unprofitable trades are a part of life, so you must have a strategy in place that deals with these inevitabilities. This means managing your money to maximize profits, limit losses, and, crucially, get back to a profitable position after a bad patch.
Analysis and Improvement Strategies – What They Are and Why You Need One
There is no such thing as the holy grail of binary options trading strategies. Markets change, and every successful trader constantly works to improve, update, enhance, and make better. Even traders with many years of experience and large profits in their bank accounts still work hard to analyze and improve how they trade. It applies even more to new traders and those with minimal experience.
An analysis and improvement strategy gives you a structured way of maximizing the good parts of your trading and money management strategies while simultaneously fixing or removing the parts of your strategies that are not working. This helps you become more profitable in the long term, and it helps you adjust to changing market conditions.
Without an analysis and improvement strategy, you will plod along. If you have good strategies in place you might make money, but nothing is guaranteed. In addition, you might not be making as much money as you could. Why leave these profits behind when there is a way of getting them? That way is through analysis and improvement.
Types of Binary Options Strategy
Binary options strategies are all different, but they have three common elements:
Creation of a binary option signal and getting an indication of how to trade this signal
How much you should trade
Improving your strategy
The precise strategy can vary on each step, so there are a huge number of possibilities. The most important part of developing a successful strategy is understanding as much as possible about each element. This will be covered in the next section, starting with the creation of signals.
Step 1 – Creation of Signals
A signal is basically an indication that the price of an asset is about to move in a particular direction. Of course, prices of assets move all the time. What you need is something that predicts that move before it happens. That is what a signal does.
There are two ways that signals are created. The first is to use news events, and the second is to use technical analysis.
Generating signals from news events is probably the most common approach, particularly for new or inexperienced binary options traders. It involves looking at what is happening in the news, such as an announcement by a company, an industry announcement, and the release of government inflation figures. In many simple cases, positive news means prices are likely to rise while negative news is likely to lead to a fall in prices.
The starting point for making this strategy work is knowing what news events to expect and when. This is why you will find economic calendars on most good binary options trading platforms. If you know that a company’s earnings report is due in two days’ time you can plan your analysis and trading activities around this.
The best platforms will also tell you what to expect from the news event. For example, it is helpful to know that a company’s earnings report is due in two days’ time, but it is even more helpful if you also know what the market expects to see in that report. You can then make decisions in advance of the report in an attempt to predict its contents and the subsequent market movements. You can also make decisions after it is published based on market expectations and reactions.
There are positives to a news events approach to trading. In particular, it is easy to understand and learn. There are disadvantages to the approach too. The biggest problem is unpredictable markets. For example, a company might release an earnings statement that shows an increase in profits. This is a positive news event that you would expect on first reading to cause the market to react positively. However, within the report there might be additional information that spooks the market, such as profits not being as high as expected. This could mean the market moves less than you anticipated and, in some cases, can even move in the wrong direction – prices falling even though the news event is categorized as positive.
It is also difficult to predict how long a movement will last and how far it will go. If you go back to the example of the company earnings report, it is a positive report so prices in the company’s shares are likely to rise; but how long will the rising price situation last and when will the price max out? These questions are unknowns.
Trading based on technical analysis offers an alternative. It is a strategy that seeks to predict the movement of asset prices regardless of what is happening in the wider market.
Essentially, the process involves looking at how the price of a particular asset moved in the past. From this, it is possible to establish patterns that can be used to predict price movements in the future.
It sounds complicated, but our brains are used to doing this on a daily basis. A good example is when you meet a new person. If that person greets you warmly, you are likely to predict positive things for the relationship. On the other hand, if the person is standoffish or unfriendly, you might anticipate difficulties in the relationship. You come to these conclusions based on your experiences in the past of meeting people and forming relationships.
Technical analysis does something similar. It looks at the current conditions of an asset and decides, based on past experience, if the price will remain largely unchanged or if it will rise or fall.
Once you get into the technical concepts and terms, it does, of course, get a bit more complicated. However, the overall concept is the same as the day-to-day task of making a prediction on future outcomes based on past events.
Now for the big question – should you use a news event approach to trading or a technical analysis approach? This comes down to a number of factors, and the answer will be different for everyone. The best advice is to try both to see which you are most comfortable with and which generates the most profits. Of course, you are probably not in a position to test strategies with your hard-earned money. Luckily there is another option – using a demo account. Most of the reputable binary options trading platforms on the market offer a demo account facility. This allows you to trade binary options with virtual money rather than real money. You can’t make any profits with a demo account, but you will not lose any real money either. What you can do is test strategies and trading styles without any risk.
One final point to remember when looking at signals and strategies is to focus on the short-term. There are investment strategies that aim to predict the price movement of an asset over a long period of time, such as 10 years. This type of information is of no use in binary options trading. Instead, you need to know if a price is going to move over the next couple of minutes, the next hour, the next day. A prediction of the price in 10 years’ time is not relevant.
To achieve that you need short-term signals and short-term strategies.
Step 2 – How Much You Should Trade
This is essentially a money management strategy. They vary in complexity and level of success, starting with a strategy that involves investing the same amount on each trade. Two other common strategies are the Martingale strategy and the percentage-based strategy. For long term success, the latter is the best option.
Investing the same amount of money on each trade is just like having no strategy at all. It is the riskiest strategy, as it does not take into account either your overall level of profitability or the amount of money you have in your account. Both of these are essential factors, and ignoring them can result in quickly depleted balances.
Let’s look at the other two common strategies now, starting with the Martingale money management strategy.
The core concept of the Martingale strategy is to recover losses as soon as possible. This means investing larger amounts of money in trades following a losing trade. For example, you could have a set value of money that you trade, which you then double when you have a loss. If that trade wins, then you are back in profit again rather than being somewhere around break even.
Problems with this strategy occur when you go on a losing streak with multiple losing trades in a row. Each losing trade in a Martingale strategy involves an increase in the investment on the following trade. This quickly adds up. For example, imagine you went on a 10-trade losing streak. That is a lot, but it is not an unrealistic or unreasonable situation. On a 10-trade losing streak, your 11th trade would have to be 1,024 times the value of your original trade in order to stay with the Martingale system. There are not many budgets that could withstand that sort of increase, even if the value of the original trade was low.
The question comes down to how accurate your predictions are and whether you can prevent or minimize losing streaks. It is always important to remember that nothing in binary options trading is a sure thing. Even trades that you are certain will be successful can end up as losses. Losing streaks are inevitable, regardless of how good a trader you are. It is simply impossible to be right enough times to prevent them. Therefore, for most people, a Martingale money management system is a risky option.
A percentage-based system is less risky, so it is usually the preferred choice for most traders, particularly those who are new to binary options trading. The concept is fairly simple – the amount invested on a trade is based on your account balance. If you lose a trade, your account balance will fall, so the amount of money invested on the next trade decreases. If, on the other hand, you win a trade, the amount of money invested on the next trade increases because your account balance has increased.
This strategy helps to keep your balance intact so you can realize steady profits over time.
The question then comes down to what percentage of your balance do you want to invest. As a guide, a trader who is comfortable with risk might choose a number somewhere around five percent, whereas a trader who doesn’t like risk would select a value somewhere around two percent.
Let’s look at an example, assuming you invest five percent of your balance. If your account balance was $500, your trades would be $25. If your balance decreased to $300, your trades would decrease too – each investment would be $15. If, on the other hand, your balance increased to $800, your trades would each be $40.
This is a strategy that helps you only invest an amount that you can afford. It is a strategy that lets you increase your profits while also protecting your account balance during difficult periods and losing streaks.
Step 3 – Improving Your Strategy
One of the best ways to improve your trading strategy is to analyze your performance using a diary. This is a simple but highly effective concept. It involves keeping a diary where you note down every trade that you make. You can then look for patterns and trends to see what is working and what isn’t.
This is a particularly effective approach if you are a new trader and are still trying to establish a profitable strategy. A common approach in this scenario is to place trades using both technical analysis signals and news events signals. A diary will help you keep those trades separate so you can judge which performed better. For example, you might find you are getting double the profits from trades you make based on technical analysis. However, you know from experience that you spend more time on news event signals than you do on technical analysis. The information in your diary would indicate that you should consider a change of approach.
Basically, it is all about knowing what trades are working and which ones are not. The only way to do that is by keeping a record, so a trading diary is a highly effective tool.
A trading diary also lets you focus on the details to fine tune your overall trading strategy. After all, you will get to a point where you are seeking a one or two percentage point increase in your profitability. This is simply not possible to do in a sustained way if you don’t keep good records. On the other hand, doing it successfully could result in hundreds or even thousands in additional profits.
Remember to use your trading diary to check all parts of your trading approach, not just the trading strategy. This includes how you manage money and how you decide on the value of each trade. It also includes looking at the best assets for your trading approach and style.
You can then go into even deeper detail. For example, you can look at the best days of the week or the best times of the day. This information might lead you to adjust your approach. You can also look at things like which brokers work best for you and much more.
There are many things that a trading diary will tell you. One of the problems is trying to work on too many of them at the same time. If you do that you won’t know which changes are having a positive effect and which are not. The easy way to fix this is by focussing on single changes, analyzing their impact, and then moving on. Again, your trading diary is crucial to this process.
If you don’t keep a trading diary at the moment, start as soon as possible. It will become an indispensable tool.
Trading Strategy Examples
Let’s now look in more detail at some specific trading strategies. The strategies below are among the most common, but there are others you can use as well. Also, many traders adapt, alter, or combine strategies to suit their objectives, attitude to risk, and trading goals. There has to be a starting point somewhere, and the strategies below are a good place to start your learning about binary options trading strategies.
Before going on, it is important to remember that none of them will be effective if you don’t also combine them with a money management and improvement strategy, as explained above.
Trading Strategy Example 1 – Trading the Trends
The price of an asset generally moves according to a trend, i.e. it moves up in price for a period of time or it moves down in price. These price movements are never linear. Instead, they zig-zag, sometimes moving up in price and sometimes moving down, but overall moving in one general direction. As these zig-zag movements are predictable in particular situations, they present an opportunity for binary options trades.
In simple terms, you have two main options: you can trade the overall trend or you can trade each swing. Trading the overall trend means ignoring the minute-by-minute up and down movements in price to instead focus on the overall trend direction for a period of time. This gives you multiple opportunities to profit from the trend, particularly given the fact that most trends persist for medium to long periods of time, i.e. they are well within the boundaries of the short term trading style required to be successful in binary options trading.
Trading each swing involves placing more trades. It involves more risk as a result, but there is also the potential for greater rewards. This approach is based on thinking about the highs and lows in either an upward or a downward trend:
Upward trend – New highs and new lows will generally be higher than previous highs and lows in an upward trend.
Downward trend – New highs and new lows will generally be lower than previous highs and lows in a downward trend.
Remember the point made at the start of this section though – there is no reason why you can’t combine both so you use both approaches at the same time. They are not mutually exclusive.
The most common way to trade trends is by using High / Low options. All binary options trading platforms offer this type of trade. Basically, you trade on whether an asset’s price is going to be higher than it is now after a set period of time (a high option) or lower than it is now (a low option).
A riskier but potentially more lucrative option is to go for a one-touch option. This is another popular binary options trading selection. Instead of simply predicting whether a price will finish higher or lower, you predict whether or not the price will reach a certain point. This is called the target price.
Again, you can use a combination of both to diversify your risk while increasing your chance of making higher profits.
Trading Strategy Example 2 – Trading Based on News Events
Trading on assets based on events in the news is one of the more popular styles of trading. The theory is fairly simple. Good news, such as a company reporting profit information that was above analyst expectations, would see the price of that asset go up. Similarly, profit information that was disappointing would see that company’s share price go down. You can make profitable binary options trades in these conditions.
It is not an exact science, however. Other styles of trading, such as technical analysis, produce parameters that are precise. Trading based on news events leaves a lot to chance, as there is no sure way of knowing how much an asset’s price will increase or decrease or how long the price movement will last.
You can adopt specific strategies and approaches to help increase your chances for success. Here are three you can work into your overall binary options strategy:
Boundary options – This is the strategy to use when you know an asset’s price is going to move, but you are not sure which direction it will go. A good example of a situation where this is suitable is before a major news event, as you won’t know if it is going to be positive news or negative news. With a boundary option, two target prices are defined – one above the current price and one below. The difference between these two numbers is known as the price channel. If the price of the asset hits either of these two price targets, you win. If it stays within the channel, you lose. As you can see, it is a strategy that works best when you expect significant movement in the price of an asset.
Trading the breakout – The breakout is the period of time immediately following the release of news that impacts the market. In binary options trading, this is a very short period of time – anything from 30 seconds to a few minutes. The theory behind the strategy is that the most significant movements in the price of the asset will occur during this breakout period as traders seek to adjust their positions to take make a profit or limit their exposure to risk. The type of binary options trade you would use in this scenario is a simple High / Low option, but you select a very short expiration time. This is sometimes known as a 60-second option.
Intelligent High / Low trades – In simple terms, positive news means prices will rise, and negative news means prices will fall. As already explained, the market does not always react according to this rule. Sometimes news that is positive on the surface – falling unemployment figures, profit reports by a company, or inflation numbers that are within government targets for example – cause markets to react in a negative way. This comes down to expectation, i.e. the market expected the unemployment numbers, profit announcement, or inflation figures to be better and had already made adjustments before the news was released in anticipation. When the news isn’t as good as the market expects, it adjusts in the other direction, prompting prices to fall even though the news is generally positive. If you can predict when these events will happen, you can make good profits using High / Low trades.
Trading Strategy Example 3 – Using Candlestick Formations
For new traders, this might be the most difficult of the strategies to explain, but it is the easiest to implement and make money from once you understand it.
When you look at an asset’s price chart over time, it is typically a line chart showing the price at each point in time. For example, looking at the price over a month is likely to show you the price the asset closed at on each day. However, this is only one piece of price data. Candlesticks give you much more.
Candlesticks are represented on an asset’s chart over time, just like a line graph, but they are designed to give you much more information. The bottom of the candlestick represents the low price it reached during the specific time period, and the upper part of the candlestick represents the high price it achieved. In between, you will also see both the opening and closing price. In other words, a candlestick lets you see, at a glance, the price range that a particular asset fluctuated between during that specific period of time.
Using candlesticks as a trading strategy involves recognizing various candlestick formations that you can use to predict an asset’s price movement.
A Candlestick with a gap is one example. This occurs when the price of an asset moves from one price to another that is significantly higher or lower. The difference between these prices is the gap. It is an unusual occurrence because price movements are typically much more gradual, with the asset hitting all or most of the price points as it moves through the range.
So, what can you learn about an asset when you spot a gap in a candlestick, and how can you use this information to make a prediction?
A gap that occurs during times when there isn’t much trading volume can be an indicator that a quick correction is likely to occur. One of the situations where this might happen is shortly before a market closes for the day when there are not many traders left placing trades. Large trades in these situations can produce the gap, but that is not necessarily reflective of the strength of the asset, i.e. if the trade had taken place when the market was more active, the gap would not have occurred. You can therefore predict the gap in the price of this asset and base your trades accordingly.
Gaps that appear during periods of high trading activity but where the price is not generally moving very much can be an indication of a new breakout, i.e. that the asset’s price will start moving in that direction. You can use this information to predict the price and make a trade.
If there is already a trend in a particular direction and the volume of trading is normal, the gap might indicate an acceleration of the trend. In other words, the movement of the price in a particular direction is likely to accelerate. You can use this information to base your next trade.
A candlestick formation with a gap is just one of many. However, knowing and having confidence in several will greatly improve your binary options strategy.
Developing a Binary Options Strategy Without Risking Money
As explained in detail throughout this article, a binary options strategy is essential if you want to trade profitably. It gives structure to your trading, removes emotion-led decision making, and lets you analyze and improve.
How do you test a strategy without risking your money? After all, how can you find out that a strategy doesn’t work without trying it? If you try a strategy that doesn’t work using your own money, you will lose it. That could result in you going through your available funds before the testing phase ends, leaving you with nothing to trade with.
There is a solution – a binary options demo account. All reputable and good quality brokers and trading platforms offer demo accounts. They let you test the platform, but, crucially, they also let you test your trading strategies using real market conditions. The testing is done using virtual money instead of your own, so there is no real money at risk. Of course, you can’t make any money either, but that is not the point. The point of a demo account is to solidify a binary options strategy that is profitable.
There are several assets to select from in binary options trading. However, the oldest and most effective approach to minimize risks is to focus on a single asset. Trade on those assets that are most familiar to you such as euro-dollar exchange rates. Consistently trading on it will help you to gain familiarity with it and the prediction of the direction of value will become easier. There are two types of strategies explained below that can be of great benefit in binary options trading.
1. Trend Strategy
A basic strategy most adopted by beginners as well as experienced traders. This strategy is often referred to as the bull bear strategy and focuses on monitoring, rising, declining and the flat trend line of the traded asset. If there is a flat trend line and a prediction that the asset price will go up, the No Touch Option is recommended.
If the trend line shows that the asset is going to rise, choose CALL.
If the trend line shows a decline in the price of the asset, choose PUT.
This method works the same as the CALL/PUT option except in this case, you select the price at which the asset must not reach before the selected period. For example, Google’s share price is $540 and the trading platform is on the No Touch price of $570 with percentage returns of 77%. If the price doesn’t reach $570 after the specified time, then there is a gain.
2. Pinocchio strategy
This strategy is utilized when the asset price is expected to rise or fall drastically in the opposite direction. If the value is expected to go up, select CALL and if it’s expected to drop, select PUT. This is best practiced on a free demo account from one of the brokers.
3. Straddle Strategy
This strategy is best applied during market volatility and just before the break of important news related to specific stock or when predictions of analysts seem to be afloat. This is a highly regarded strategy utilized throughout the global community of trading. This is a strategy best known for presenting an ability to the trader to avoid the CALL and PUT option selection, but instead putting both on a selected asset.
The overall idea is to utilize PUT when the value of the asset is increased, but there is an indication or belief that it will being to drop soon. Once the decline sets in, place the CALL option on it, expecting it to actually bounce back soon. This can also be done in the reverse direction, by placing CALL on a those assets priced low and PUT on the rising asset value. This greatly increases chances of success in at least one of the trade options by producing an “in the money” result. The straddle strategy is greatly admired by traders when the market is up and down or when a particular asset has a volatile value.
4. Risk Reversal Strategy
This is indeed one of the most highly regarded strategies among experienced binary options traders across the globe. It aims to lower the risk factor associated with trading and increase the chances of a successful outcome that results in positive profit gains. This strategy is executed by placing CALL and PUT options simultaneously on an individual underlying asset. This is especially beneficial when trading on assets with fluctuating values. Naturally, binary options can experience two possible outcomes and trading on a two for two opposite’s predictions over an individual asset at once, guarantees that at least one will generate a positive outcome.
5. Hedging Strategy
This strategy is commonly known as Pairing and most often used along with corporations in binary options traders, investors and traditional stock-exchanges, as a means of protection and to minimize the associated risks. This strategy is executed by placing both Call and Puts on the same asset at the same time. This assures that regardless of the direction of the asset value, the trade will generate a successful outcome. This provides the investor with profits of an “in the money” outcome. This is a great means of protecting yourself as an investor in whichever scenario is produced. It’s sort of an insurance method that prepares you for any scenario.
6. Fundamental Analysis
This strategy is mostly utilized during stock trading and primarily by traders to helm gain a better understanding of their selected asset. This increases their chances of accuracy in the prediction of future price changes. This approach involves conducting an in-depth review of all of the financial regards of the company. This info should include earnings reports, market share and financial statements.
This review helps the trader to better understand the previous activity of the asset and its reaction to certain financial or economic changes. This review helps the trader to make a strong prediction under familiar circumstances in future trading strategies. Keep in mind, that using a good binary trading robot can help you to skip these steps completely.
The best way to practice is to open a free demo account from one of the brokers.
3 Effective Binary Options Trading Strategies
Having completed the binary options trading related lessons, we believe that you have gathered enough knowledge to trade in the market without inhibitions.
However, before doing so, an effective trading strategy is required to succeed in the binary options trading.
Almost 90% of the trading strategies are basically an extension of the below explained 3 basic methods of entry and exit from the market.
Support and resistance:
Trading based on support and resistance is the most simple, but effective way of capitalizing on the price movements in the market. In the case of binary options, a trader should purchase a put option or similar contracts when the price hits a major resistance. Likewise, a call option should be purchased when the price bounces off a major support level.
While taking the above mentioned steps, it is also a must to see whether there any major news announcements associated with the asset being traded. When the price is trading near a resistance, any overwhelmingly positive news would enable the asset to break above the barrier. In the same manner, strong negative news announcement would enable the asset to break below the support level. Thus, a trader should purchase a call or put option contract near the support or resistance levels, after taking the news announcements into consideration. The expiry period of the contract should be lower than the time frame of analysis. For example, if the time frame of analysis is 1hr, then it is better for the expiry period to remain within 30 hr.
To identify whether the price trend of an asset, invariably all the traders use an ascending or descending channel. As long as the price moves with in an ascending channel, the asset is considered to be in an uptrend. Similarly, when the price moves within a descending channel, the asset is considered to be in a downtrend. Of the two bands that make up a channel, one of them will act a resistance, while the other will act as a support.
In the equity, Forex, and commodity markets, when the price hits the band which acts as a resistance, a short position is taken with a stop loss order above the band (after taking the implied volatility into consideration). A long position is taken when the price touches the band, which acts as a support. The stop loss order can be placed few notches below the band.
In the case of binary options trading, a put option can be bought when the price hits the band which acts as a resistance. A call option can be purchased when the price hits the band which acts as a support. For positive results, the trading time frame should be lower than the time frame used for analysis. Indicator based trading:
It is quite common to see an equity, commodity, or Forex trader to use a technical indicator for trading (buy/sell) decisions. Usually, an oscillator such as a relative strength index or stochastic is used in combination with a momentum indicator such as MACD (Moving Average Convergence Divergence) to determine the entry and exit. When the RSI/Stochastic indicator enters an oversold region, then a call option is bought as long as the MACD (main line and signal line should be rising above the zero line) is indicating an uptrend.
Similarly, a put option is bought when the RSI/Stochastic indicator enters an overbought region. In this case, the MACD (main line and signal line should be falling below the zero line) is indicating a downtrend.
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