Best Binary Options Trading Strategies That Work : Complete Guide
I am sure you have heard or read that you could make a ton of money trading in binary options. That’s true. Unfortunately, it is not as easy as some reviewers or affiliates of binary options brokers would want to put it. Some even make you believe that you can just stumble upon binary options and start making profits right away. Nothing can be further from the truth. Those who get involved naively, most likely end up losing their hard-earned money. Many of these binary options broker adverts just want to get you on their platform and get you to deposit your money.
So, what does it really take to make profits from binary options trading? First, we believe that binary options trading is a legit form of trade and you can make money from it. In order to make money, you have to know your trade. The same goes for binary options trading. We always advocate for trading with a strategy. Trading with a strategy means you are in control of your investment, and significantly reduces the risk of losing it. On the other hand, trading without a strategy is more like gambling. In as much as there is an aspect of luck in binary options trading, winning is more of a strategy than luck. You will certainly lose your money if you treat it like gambling.
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Many people are always wondering about how to master binary options trading. It is estimated that less than 5% of the people who get involved in binary options trading make a profit. A majority, if not all, of those who lose, probably get into binary options trading with no clear strategy. You’ve probably read somewhere that anyone can trade in binary options. While that is true, it does not mean anyone can profit. I have no prior experience with financial and stock markets, you should probably take time to learn a thing or two before staking your money. Those who put in the work, and adopt a robust strategy most likely than not end up in profits. 5% of millions of people around the world is still a large number of people. So, yes there are a lot of people making money from binary options trading.
So, what are the strategies that you can employ to ensure you end up on the profits ends? There are several tries and tested binary stock options strategies that are commonly used by binary options traders. These are actually binary options strategy that works. You need to understand how these strategies work, for you to be to employ them effectively. We seek to educate and put you in a better position to trade in binary options successfully. We are going to look at various strategies that you can employ in binary options trading. It is important to mention that whatever we publish here should not be taken as a blueprint to making money on any platform. We seek to help you understand the concept behind the strategies. The actual actions to be taken depend on the financial market charts. We are going to divide the strategies into three categories.
Money Management Strategies
Analysis and improvement strategies
The strategies are employed in the above order if you are starting as a newbie. You need to have a money management strategy to ensure you don’t run out of trading funds. Trading strategies are the actual strategies of engagement with the financial markets. Analysis and improvement strategies ensure the trading strategy you have adopted is sustainable and it keeps winning trades for you.
Tag along and let’s show you how to how to build a trading strategy on the binary options.
1) Money Management Strategies
Money management is a necessary strategy for anyone trading in binary options. It is the top binary options strategy. It is a basic but very essential strategy. It is employed together with one, or a couple of the other strategies. Money management strategy helps you leverage your money to make the most of a binary options trading winning strategy while keeping the risks to a minimum. The money management strategy is employed in two ways.
(i) Risk Management
As a new trader, you will obviously have no confidence in your strategy and skills. You are basically in an experimentation phase. Unfortunately, experimentation is the only way to test where the trading strategy you have adopted works. You may have to do so with real money on some binary options broker platforms. As such, your main focus in this phase is not only to learn, but also to reduce the rate at which your balance is depleting. You will most likely lose more trade than you are winning.
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The Kelly System is a risk management system that is renowned among trading and gambling circles. The general rule of the system is that you should never stake more than 5% of your remaining balance. The underlying argument is that, in the experimentation phase, you would rather stake small amounts since you are more likely to lose most of the trades
Another way of exercising risk management is placing a call and put options in concurrent trades. Let’s say you are working with a 1-minute binary options trading strategy, and you have placed a call option. At the 30-second mark, you realize it’s not going the way you had predicted. 30 seconds is still a long duration is short term binary options trading. To minimize the risk of losing, you could place a put option for 30-minutes. There are two scenarios here. You could win one trade and loose the other, or win both trades. The probability of losing both trades in such a scenario is almost zero. Let’s say your broker offers 90% profit on both trades and your stake was $10.
If you win one trade and lose the other. You will get a payout of $190 on the trade won, and lose $100 on the trade lost. You had staked a total of $200. It means in total you have lost $10. You would have lost $100, had you left the first trade to complete and be wrong.
If you happen to win both trades. You get a payout of $190 on both trades. You will end up with $180 in profits.
In the scenario above, you would have risked a small amount to win a big amount. That’s the whole essence of risk management. The goal is to control the depletion of your remaining balance as you seek a working strategy. You do not want to lose all your initial deposit when you probably have no other money to deposit.
Compounding still concerns itself with the remaining deposit in your account but is employed when you have found a winning formula. When you find the binary options winning strategies that you are confident in, you employ the compounding strategy to take maximum advantage of the winning trades of are making. The concept of compounding is quite simple. The amount staked keeps going up as you continue winning. It means the winnings will keep going up too. Compounding is more like the Kelly system but in the reverse direction. Businessmen call it plowing back the profits.
To clearly understand how compounding works, let’s explore a hypothetical situation. Assuming you have $2000 and you are working medium duration trades; say one week. You place five one-week trades and stake 10% of the deposit on each of the trade. Recall the compounding is employed when you have found a winning strategy. You can therefore disregard, the rules of the Kelly System. You will have staked a total of $1000. Assuming you win all the trades at the end of the week and your broker pays 90% profit. You will close the week with a balance of $2900.
One the second week, you keep the same strategy. You will have staked $290 on each trade. The total amount staked will be 1450. If you again win all the trades, you will have a new balance of $4205. The trend will go on as long as you are winning your trades.
The cue to use compounding is when finding a working strategy. Therefore, we need to look at the other strategies you can employ together with the money management strategies to ensure you turn in profits. Money management is a fundamental skill for any binary options trader. As a trader, you have to know how to leverage your money two get more profits. At the same time, you have to know how to protect yourself from losing it all.
2) Trading Strategies
The trading strategies are a structure of how you will be placing your trades. As mentioned above, doing thing haphazardly with no clear plan will have you losing your money thick and fast. Trading strategies help you have a clear picture of what your trades look like. Trading strategies are basically based on two aspects. The instrument or asset you are going to trade with, and the duration of the trade.
These can be stocks, indices, cryptocurrencies, currency pairs, or commodities. You choose to trade in one or a couple of the assets you are comfortable with. If you are a beginner, stocks are always a good place to start. Information about stocks is more readily available as compared to that of the other instruments. If you have one particular instrument whose financial market you understand well, that’s where you want to start.
There isn’t much one the assets, you go with the one you understand best. If you don’t understand any, check all of them and find one that’s easy for you to understand. The back in trading strategies stops with the trade duration.
Trading strategies are classified into three categories as far as the trade duration is concerned. They are;
Conservative Long-Term Strategy
Let’s explore them one after another.
Conservative Long-Term Strategy
This strategy, as the name suggests, involves conservative trades. The target for this strategy is 1-2 almost sure trades per day. The concept is to wait for sure signals and employ money management to capitalize. You then keep the trend going and grow your capital. It is the best binary options trading strategy for beginners. The strategy will allow you to grow your capital slowly but sure. The idea is to ensure you do not burn yourself out before you even start trading. As a beginner, you may not have enough experience to interpret the charts correctly. You have to wait for the right moment to strike.
For instance, let’s take the case presented in the chart below. It is a perfect case to use the ZigZag’s two last points. You then draw a Fibonacci in between them guided by the trend.
You draw your Fibo line from point one to point two for a descending trend and vice versa for a rising trend. Therefore, the target is 161.8 projection level.
A fully valid signal should have a retracement of between 50-88.6. The higher the retracement climbs, the stronger the signal gets. In the instance depicted by the photo above, the retracement occurs close to the number 2 on the top left corner.
To give yourself the best chance, you need to be patient until all the 3 factors coincide. Follow the following rules when making your judgments.
Wait until the Fibonacci projection reaches level 161.8
Wait until the value of the chart is 8 or more
The expiry times should be between 5 and 20 minutes
You the employ money management strategies to minimize risks, or scale up your profits. Notice the duration involved here is a bit long (not very long because you can engage in trades running for months). As mentioned in the beginning, you only need 1 or 2 trades in a day. If you win the first, I’d suggest you don’t try another. This strategy will allow you to avoid losing your capital as you experiment and learn.
You probably already guessed how this one goes. It’s just an upgrade of trade aggressiveness from that exhibited in the conservative strategy above. The durations are shorter and make more trades per day. You kick it up a notch higher when you start getting comfortable with your predictions. Strategies help you get rid of emotions while trading.
A lot of the aspects of the semi-conservative strategy are quite similar to those of the conservative strategy above. There are a few differences though.
You can trade at either, 161. 8 or 127.
The price needs to be in the red zone
Place 4-6 trades in a day. We suggest you don’t go all the way to six when you have won three trades.
You should not trade for more than 6 minutes with level 127. Normally, level 127 is a consolidation level where buyers all sellers are drawn to the trend to increase liquidity. The price usually continues in the direction of the trend for the next three candles. A 5 min binary options trading strategy is your best bet here.
Remember to employ money management strategies. If you get it right, your capital should grow a bit faster than in the conservative strategies.
This is a high risk, high returns strategy. We suggest you have a clear understanding of what you are doing before trying this. It is prudent that you be patient and grow your capital with the semi-conservative strategy, to a point where you are trading with profits.
If you carefully look at the photo below, you will notice it has 9 price cycles.
Now, replace the zigzag indicator parameters with 2,1,1. Notice you can count over 41 short-term cycles. Yes, this is a short-term strategy with the potential to increase your money fast, but it has high risks. Every price cycle is a Fibonacci sequence with a high low retracement projection reverse. Take a look at the image below.
The Fibonacci line, drawn in light blue, is drawn from point 1 to point 2. The 1 and 2 points represent high and low respectively. All you need is to wait for the retracement, which can occur either as a wick, or a full candle. Notice the white box marked 3 and the green candle underneath it.
Be keen on the trend and get ready for a signal when the retracement candle is accompanied by a red candle in the same direction as the trend.
The adjacent red candle closes underneath the open of the green retracement candle, though it does not go to the value chart level 6. It does not go to the regression channels inner band either. Take this as the first breakout candle. It is marked by a blue rectangle. Enter PUT for 10 seconds before this candle closes. Note that the next candle will be bearish, with a probability of 90%. The PUT action is marked with 3 PUT on the chart.
The next candle will close under the 100 Fibonacci level, although it does not reach the 127 level. This means it terminated under the low point of the current trend. Enter another PUT 10 seconds before the candle shuts, since it will be accompanied by a bearish candle or even 2-3 bearish candles. These candles have to reach the Fibonacci level 161.8. The action is marked with 1PUT on the chart.
The final bearish candle will hit the Fibonacci level 161.8 and value chart level-8. It will also hit the outline of the red zone. You should now place a CALL
Every price cycle within 3 points has an average of 3ITM trade setups during normal volatility trading circumstances. It is important that you trust your gut too. It is best to ignore a signal and wait for the next one if you feel something is off about it. An experienced trader will be able to strike a balance between being confident and fearful. Too much of either is detrimental. This is arguably the best binary options trading strategy if you can get it right. It is a binary option a powerful short-term trading strategy.
You can learn this steps and rules by heart. Unfortunately, they still do not guarantee winning trades by themselves. That’s where analysis and improvement strategies come in. They come in to improve and boost the trading strategies. If you can successfully combine both trading and analysis strategies to comes up with a robust personal strategy, you will certainly make profits trading in binary options. Let’s dive in an take a look at analysis and improvement strategies.
3) Analysis and Improvement Strategies
Having looked at the money management and trading strategies, let’s explore the analysis and improvement strategies. Up to this point, you will notice that there is still a part where luck is left to take the mantle. You still got to sit back and hope all goes well. The analysis and improvement strategies come to reduce that feeling of worry and uncertainty. Note, not eliminate but significantly reduce. There are three categories of analysis strategies. They are;
Overall Performance Strategy
Technical Analysis strategy
(i) Overall Performance Strategy
The Overall performance strategy concerns itself with the well-being of the company or commodity behind the instrument you choose. As mentioned earlier, it is important for you to be informed about the asset you choose to work with. Whether you are working with stocks, currencies or commodities, you need to know how the physical trade and business happens. These factors culminate in the performance assets performance on the money markets.
This is a great strategy for beginners too. You can conveniently combine it with the conservative long-term trading strategy. Let’s assume you are working with Amazon stocks as the asset. You need to keep up with the general performance of the company. Everything that happens to the company as a far as its operations are concerned will be reflected in the assets trend in the financial markets.
For instance, during the festive season, you expect more sales on Amazon than any other time. You could speculate that the stocks of Amazon will be up in that period. Such generalized speculations are best suited for long-term trades that go up to months long. If you can get access to the financial books of the company, you will be in a better position to speculate on the behavior of the asset in the short term. This strategy should be used as a support strategy, especially for long-term trades. It may be looked at as the binary options news trading strategy too. It may not be of much use if you are an aggressive trader.
(ii) Technical Analysis Strategy
The technical analysis strategy involves analyzing the financial market charts for patterns and using indicators to speculate. The strategy needs you to keep a keen eye for price fluctuations and be able to recall these patterns in the future. Technical analysis can be practiced in two ways. They are;
The patterns of the asset you are trading with on the financial chart is arguably one of the most versatile strategies. It can be employed with any of the trading strategies discussed above. Pattern traders spend time documenting the patterns of price movements. If they notice a similar pattern in the future, they can refer to their documentation and predict the movement of the asset. Pattern trading needs you to be very keen as it can be misleading. Pattern trading is a great strategy for newbies too. They can use it as part of their trading strategies. This is where you can employ a 30 min binary options trading strategy.
Indicator trading is arguably one of the easiest strategies of trading. You act on the prompts of various indicators developed by industry professionals. Indicators such as MACD, ADX, CCI, and stochastics are used to provide trade signals. However, the indicators are do not work for you. They only prompt you of the possibility of a profitable trade. These indicators are developed using the same strategies as discussed above. You can use them as a reference point after deciding on a certain trade based on your strategy or test their prompts with your strategy.
Binary options brokers normally have these indicators on their platforms. Once the indicator is never enough for you to act on. You need three or more indicators showing the same signal to have better chances of winning a trade. Normally, it quite difficult to have the indicators showing similar signals at similar times. As mentioned, these analysis strategies are supposed to be a support system for your trading strategies. Acting on the prompts of the indicators alone is always a bad idea.
(iii) Trend-based strategy
The Trend-based strategy is a highly technical strategy. It is an advanced binary options trading strategy. It is actually the most analytical of the three categories. The strategy involves keeping in tabs with the trends of the financial market charts. The strategy is almost similar to the trading strategies, only that it is a generalized strategy. The trends-based strategy is very versatile. You can use it with any of the trading strategies. The trends-based strategy is employed using particular analysis software. One of the most popular analysis software of the Trend Channels. The software allows you to draw trend lines over the peak prices of the asset you are working with, which then form the basis of your analysis.
The Trends channels allow you to draw lines of best fit over the most peak points both above and below the chart. These trend lines give you a better picture of the area you are working with at that particular time. The strategy is best suited for aggressive traders. The markets no matter how volatile, do not change abruptly. The trends lines can either form parallel, converging or diverging patterns. The most ideal situation is when they are parallel. It makes it easy to trade.
The concept is simple. You expect the chart to touch one line and turn back towards the other line. All you got to do is master the time it takes from one line to the other. Let’s take that the chart is moving towards the upper line. You wait until it touches and starts moving towards the other line. Place a Put option at that point and select a duration that is not more than two thirds twice the duration taken to move from one end to the other. The assumption is the chart will take the same amount of time to go and come back, you can, therefore, estimate where it will be by the time the trade ends. A 60 min reversal binary options strategy with the trading channel is very common.
Timing is an important skill while employing the Trend-based strategy. You need to be able to match the trade duration and the point at which you place your option. Give the chart some time to confirm the trends lines too. Keep on the lookout for a new line of fit for the peak positions on either side. The trends-based strategy is certainly one of the best binary options strategy.
Evidently, there is a lot you need to do if you have any hopes of becoming a binary options trader. Unlike other binary options trading strategy reviews, we do not sell a notion that it easy to profit trading in binary options. We assert that it is possible, and remain adamant that you should have a strategy up your sleeve. Just to recap what we have been through. You need to practice the money management strategy at all times. Choose your trading strategy depending on how experienced and comfortable you are with the binary options strategy. Finally, choose an appropriate support analysis strategy. We have outlined the 3 binary options trading strategies for beginners.
These combinations mean that different traders have different strategies. The discussed strategies are more like frameworks, of coming up with a strategy. In reiteration, the above information is not a blueprint for making profits on any binary options platform. However, if well implemented we do not see you wouldn’t have a reason to smile. You are the master of your own trading strategy. You have to learn the various guidelines by heart so that you can apply them when the circumstances call for it. After some time, you will find yourself with a robust and winning formula. There are many binary options trading strategy forums that you can visit in a bid to sharpen your skills. You will get useful binary options trading tips and strategies.
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Binary Options Strategy FaQs
IN fact yes, you can use this strategy with IQ Options, Olymp Trade, Pocket Option or any other binary options broker you would like to use for your trading!
Yes you can use this strategy in any time frame, you just need to change the expiration time of your trades to match the 3 — 5 times the time frame. If you want to trade inside the M15 Time frame, you should trade 30 — 75 Minute binary Options! Longer time frames are easier to trade, but offer less trading opportunities in the same time!
No! Like any other strategy, this strategy is made for specific situations. There is at least a market not trade able if the market movements are to small or not noticeable! Tip: Try to figure out which markets work best for your strategy, and how to detect them! Then concentrate on these markets only to increase your results!
If you got any questions not answered here, make sure to leave them below in the comment section! Thanks and good luck with your trading!
To begin, let’s be clear: you can make a consistent income by trading binary options. It is certainly possible to generate a substantial profit. Savvy traders do this every day by trading binary option ranging from oil to gold to stocks and currency pairs.
Now, the question is: is it easy to make money as many websites and brokers claim?
A quick look at a handful of binary options brokers gives you the impression that all you have to do to make a profit while trading binary option is to create an account. Some brokers proudly announce that a return of 70% can be generated in minutes. Also, this can probably be done again and again during the day. It is hard to ignore, especially when other forms of an investment offer much lower returns. But if you can make money with binary options trading, it’s essential to have a real strategy.
The strategy is one of the most critical factors if you want to succeed binary options trading. It is the structure from which economic decisions are based, including the rules of money management, and how to make money with the market. Unfortunately, there is no winning strategy; if there were any; we will all be using it. However, you can develop your strategy based on your knowledge, expertise, and consistent learning.
What is the importance of having a binary options strategy?
If you decide to start trading binary options with your instinct and guesswork, the truth is, you will not make any money. Binary options cannot be traded with emotions believing that you will be lucky. You will reasonably lose a lot. So, while it is not necessary to have a strategy to trade binary options, an analysis and improvement strategy offers you a structured way to maximize the positive aspects of your trading and money management strategies while correcting or removing inefficient elements of your strategies. This allows you to become more profitable in the long run and adapt to changing market conditions.
Without this, your account balance may reach zero, even if you have an excellent trading strategy in place. Losing thongs and unprofitable exchanges are part of life, so it is necessary to have a strategy that takes into account these inevitabilities. It means managing your money to maximize your profits, limit your losses, and, most importantly, return to a profitable position after a bad zone.
The second reason for having a trading strategy is that it allows you to benefit from repetition. Without this type of strategy, you probably will not know what worked or why. Even if it did, it would be hard to repeat.
A trading strategy ensures that your transactions are based on clear and logical thinking while ensuring that there is a pattern that can be repeated, analyzed, optimized, and adjusted.
Develop a binary options strategy without risking money
As explained above in this article, a binary options strategy is essential if you want to operate profitably. This gives a structure to your trading, removes the emotion-based decision-making process, and allows you to analyze and develop.
How do you know whether a strategy will work without risking your money? After all, how can you know that a strategy does not work without trying it? If you try a strategy that does not work with your money, you will lose it. This could result in the available funds being exceeded before the end of the test phase, which will leave you with nothing to succeed and be profitable; you must have a binary options strategy.
There is one solution: a binary options demo account. All reliable and useful quality brokers and trading platforms offer demo accounts. They allow you to test the platform, but most importantly, to test your trading strategies using the actual market conditions. The test is done using virtual money for you, so there is no real money involved. Of course, you cannot even make money, but that’s not the question. The benefit of a demo account is to consolidate a profitable binary options strategy.
Real-Time Binary Options Chart Strategies
Generally, binary options are relatively short-term investments that require research and technical analysis. For this reason, the analysis and interpretation of binary options charts are extremely important for the success of any trader, as it will be challenging to be profitable without knowing the details of reading charts and technical analysis.
vfxAlert signals can provide additional assistance in the analysis. Binary options signals serve to confirm your strategy and help you make the right decision about the deal.
The strategy simplifies your exchanges, eliminates the uncertainties related to the choice of the trade, and reduces the overall risk.
Having a trading strategy for the binary options market requires a fundamental understanding of how the market operates in terms of available commercial contracts, various expiry times, and an understanding of the behaviour of individual assets.
No doubt, binary options offer opportunities in all market conditions. And they do it. From the top or the bottom of the market trend to flat or fork markets, or even the most volatile or unpredictable markets, there is a need for you to have a strategy before trading binary options.
However, it is imperative to understand which strategy to use in each situation, and in each event, you must have a well thought out strategy for each market situation.
Binary Options Strategies
Why To Use Strategies While Trading Binary Options
There’s no doubt that financial instruments can appear intimidating. When news about the financial markets appears on TV, you’ll often see financial traders sweating over complicated-looking graphs on multiple computer monitors or barking at each other across crowded trading floors. The commentary will describe exotic investment vehicles that can seemingly only be understood by people with PhDs in rocket science. To be clear, there are financial instruments that are very hard for the layperson to understand, but that’s not true of all of them.
Binary options are more popular than some investment vehicles because they are less complicated. There’s a clue in the name, ‘binary,’ because as an investor you’re only having to choose between two options: will the value of an asset go up over time or down? Traders will place a bet on whether the price will increase, which is called a call, or decrease which is called a put. So, in terms of probability, you could look at binary options trading as a bit like gambling on a coin toss.
Now, having said that, binary options trading carries a high level of risk and can cause you to lose all of your funds, and it’s because of this risk that binary options strategies are so important. You can trade safely if you do your research and put effective binary options strategies in place. We’re going to help you spot the market signals that will help you to do just that.
For a start, here are your golden rules:
don’t invest all your capital at once
be aware of how your asset is moving before you invest
never invest more than 10% of your total equity in a placement
Reasons to Use Binary Options Strategies
Although we think binary options strategies are worthwhile, you could just as easily go with gut instinct, flip a coin or consult a horoscope to help you decide what to do. You might even be successful here and there, but long-term this is a surefire way to lose all of your capital. Probability won’t let you win with random behaviour, any more than it will let you win 50 consecutive coin tosses. To win consecutively as a trader you will need binary options strategies, and we are using the plural because you will need more than one.
Binary Options Strategies – Description and benefits
The main reason to use any trading strategy is that it will stop you from making emotional decisions. As a trader, all of your decisions need to be grounded in logic and rationality. There is very little room for hunches or luck. The other benefit of using binary options strategies is that they allow you to do active ‘field research’, meaning that if you take a defined approach to each investment and document it, and may be it fails, then you can tweak and refine it, and if it succeeds you can use it again and maybe try to improve. The markets are your laboratory where you go about testing your trading strategies, over a set number of trades and a set period of time. When you hit your time limit then you can look back and ask yourself whether your strategy is working, is it making you enough money, could it be improved etc.
Any other approach is going to leave you guessing. If you base your trades on guesswork, then you won’t know why they succeeded or why they failed. Using binary trading strategies will give you something more concrete to base your future adjustments on.
It’s important to know not just why you succeeded or failed, but why you succeeded or failed. Conducting a series of stand-alone trades with nothing to link them is as reckless as hoping for those 50 consecutive heads to come up in a coin toss marathon. When you trade, you shouldn’t just be crossing your fingers each time and being surprised by every outcome. And long term, the law of averages says that the best thing you can hope for is to break even, which is no way to make a living. It may not even be a feasible ambition because to break even you have to win more than you lose, and that seems highly unlikely without binary options strategies.
Money Management Strategies – What They Are and Why You Need One
A lot of people fall into the trap of developing a trading strategy but not a money management strategy. It’s all very well choosing what kind of asset you want to trade and how much risk you want to be exposed to, but you also need to give some thought to money management, because it will help you to build the kind of account balance that will see you through bad periods and help you sustain winning streaks.
Let’s consider the effects of having no money management strategy on someone who gambles a tenth of their balance on a single trade. If the trade doesn’t win, they now have to increase their account balance by 20% just to break even. If three trades in a row go south, then they will need a 30% jump in their account balance to get back to the breakeven point. This is a common scenario that can dig you in deep quite quickly.
Lots of losing streaks are longer than three trades, so you can see how money management strategies play an important role within binary options strategies. Without a good money management strategy, you will undermine your efforts even if you have a good trading strategy in place. Losing streaks will inevitably happen, so you must have a plan to deal with them.
Analysis and Improvement Strategies
There is no Rosetta Stone of binary trading strategies. The only constant with the markets is change, so the best traders need to adapt all the time. You could say they constantly evolve, even when they’ve become highly successful. It’s not like there’s a magic point that they get to where they know everything, and every trade they make is a winner. That day never comes. But they do get to the point where they analyse every trade deeply and thoroughly. If there’s any magic then it lies there.
By analyzing and improving your trading and money management strategies you’ll remove the parts that aren’t working, refine the parts that are and become more profitable over the long term. Even if you’re already making money, but you aren’t trying to constantly improve, who’s to say that you aren’t actually leaving profits on the table?
Types of Binary Options Strategies
There are three common elements to binary options strategies.
Using signals to guide you
Deciding how much of your funds to trade
To create a successful strategy, you need to understand as much as you can about every aspect of it. Here’s how to do that.
Step 1 – Using signals to guide you
A signal is something that tells you that the price of an asset is about to move one way or another. Asset prices move all the time of course, but what if there was something that could let you know which way it was going to move before it happened? There is, and we call this thing a signal.
Signals can be created using news events and/or technical analysis. Getting signals from news events is probably the more common one among new or inexperienced traders. Things like company announcements, industry announcements, governments releasing inflation figures, these sorts of things can all be viewed as signals that can affect prices.
If you want to develop a working strategy, then you need to think about what news events to expect and when. Most binary options trading platforms will feature economic calendars, so you’ll be informed that in a couple of days’ time a firm’s earnings reports are due. This kind of pre-warning will help to inform your analysis.
The best binary option trading platforms will also let you know what’s expected in that earnings report. This will help you to make decisions about which way the market is going to move before the report comes out.
A news-based approach to trading has the benefit of being fairly easy to learn and understand. It’s not like you need to gain secret knowledge. You’re just taking common knowledge and thinking about its implications for the asset that you’re interested in.
The disadvantage of news-based signals is that they don’t stop markets being unpredictable. For instance, if an earnings report shows that a company has boosted its profits, you might think that that’s a positive result. But that same report might suggest that profits were expected to be higher, or that the company expects to face stiff competition. There are all sorts of unknown quantities that can spook the markets and pull the rug out from under that good news.
Technical analysis gives traders a narrower view than that offered by the news. It focuses on how an asset price moved in the past, with the aim of finding patterns that may offer clues about how the price will move in future. This is an area that can become a rabbit hole of complexity—make no mistake—but the underlying principle is fairly straightforward. You try to work out future behaviour of an asset price based on its past behaviour.
So, the question is, which one of these binary trading strategies should you be using; a news approach or a technical analysis approach? Well, everyone is different, with different strengths and weaknesses, so the best advice we can give to you is to try them both and see which one works best for you. Either of them can bring you success if they gel with you.
Now, you may be wondering how much that little experiment is going to cost you. What if you’re terrible at using the analytical approach and it ends up costing you a fortune? Well, there’s no need for concern. Most decent brokers will be able to offer you a demo account to practice on. You’ll have full access to the trading platform, you won’t be using real money. You’ll get the chance to trade in binary options with zero risks. Sure, you won’t make any money with your demo account, but you won’t lose any either. Instead, you will have an ideal testbed on which to see how your strategies play out.
The last thing to say about signals and strategies is to concentrate on the short-term. Some investment strategies try to predict asset price shifts over long periods of time, even up to a decade. In binary options trading, you’re not really interested in this kind of information. You’re more concerned with what the price will do in the next two minutes, or hour or day.
Step 2 – Deciding how much of your funds to trade with
Money management strategies vary in their complexity. A simple one will have you investing the same amount for every trade, but it’s risky and doesn’t take your overall level of profitability into account or how much capital you have at your disposal. So, we only mention this because you might hear it mentioned and we want you to avoid it.
Another one that you may hear about is the Martingale money management strategy. The idea behind this approach is to recover from your losses as quickly as possible by increasing the size of your trades after each loss. For instance, you could set an amount of money that you will trade with, and if you experience a loss then you double it. If it’s successful then you aren’t just back to where you started, you’re ahead.
It shouldn’t be too hard to see that there is a problem with this strategy. Namely, if you experience a losing streak that won’t quit then the Martingale strategy would have you increasing your investment on every following trade. So, if you had a run of 11 straight losses, number 12 would be a gamble that was 2,048 times bigger than that first trade. Unless you’re a billionaire, it’s going to be hard to keep that kind of optimistic speculation going.
It all comes down to how good you are at making predictions and how good you are at ending losing streaks. You need to keep in mind that there are no certainties in binary options trading. Even surefire trades that you would stake your life on can end up losing, and losses can easily turn into streaks, even if you’re the best trader in the world because at the end of the day nobody has a crystal ball. That’s why the Martingale money management system is not for everyone. It does have its place, but it needs to be employed with caution, so it may not suit beginners.
A percentage-based system doesn’t come with as much risk, so it’s the one that the majority of traders usually prefer, especially binary options trading newbies. It’s a fairly simple concept. The amount of money you put into a trade is based on the amount of money you have in your trading account. It’s kind of the opposite of the doubling down approach that the Martingale strategy uses because after each losing trade your subsequent trades will be for lower amounts. But if you win, your following wagers will be for greater amounts, because your account balance will have gone up.
This conservative approach is designed to preserve as much of your capital as possible so that you can trade for as long as possible, and it gives you the best possible chance of clawing your way back from successive defeats and capitalizing on your successes.
The only variable for you to consider is what percentage of your balance to use. Typically, a trader who is not risk-averse will probably go for around 5%, while everyone else will probably prefer something nearer to 2%.
As an example, let’s assume you feel comfortable with 5% of your balance being invested in a trade. A $500 account balance gives you a $25 trade. If your balance dropped to $300, your trades would now be only $15. If your balance rose to $800, each trade would be $40.
With this strategy, you will only be gambling with what you can sustain. It’s a measured approach that adapts to your current situation and prevents you from throwing good money after bad when you eventually stumble into a rut of successive losing trades, and it won’t let you become overconfident if you win a few either. For these reasons, it’s one of the binary options strategies that’s hard to fault.
Step 3 – Constant refinement
Diaries aren’t just for moody teenagers. They are also essential for developing you into a better trader. It doesn’t matter whether you have a little black book or an Excel spreadsheet. Whatever works for you. The important thing is to record every trade that you make so you can build up a body of ‘evidence’. In time you’ll have a detailed history of what works and what doesn’t, and that will help to ensure that the trades you make in future are successful more often.
A diary is like a silent partner for beginning traders. It allows you to look back at trades and give yourself good advice. Try placing trades based on both technical analysis and news events signals but record them separately in your diary so you can see which one works the best for you. When you’re involved in the day-to-day business of trading, you may not realize exactly how you’re approaching it, but your diary will always tell you the truth. So, for instance, you might think that technical analysis suits you best because you’re getting twice the profits that you’re making with signals. But your diary will tell you that you’re actually spending twice as much time studying technical analysis, so it’s an unfair comparison. Maybe you’re getting greater returns per hour of invested time looking for news events signals. Only your diary can tell you.
A trading diary also delivers the kind of granular detail that is essential to fine-tuning any of your binary options strategies. This is important when you get to a decent level of competence and are only looking to improve by small amounts—icing the cake so to speak. But you can only do this if you understand the details of what you’re doing well enough to tweak them.
Don’t forget to use your trading diary to check every aspect of your trading strategy, including money management, your choice of assets, and the size of each trade.
When you get in to the detail, consider noting which days of the week are best and which times of day are best for the best results. Do you perform better with some brokers and some trading platforms? Make a note of it; it’s all-important.
Having said all that, try not to succumb to information overload. Although you’re recording everything you don’t have to change everything at the same time when you’re trying to refine your approach. If you do that it’s hard to know which aspect of the change worked. If you change broker and then asset class and then trade amount all at the same time and you have a run of successful trades, how will you know which one of those three things that you changed contributed to those successes? It is far better to change one thing at a time, then you will know that it was responsible for the change.
Binary Options Trading Strategy Examples
Let’s take a more detailed look at some binary options strategies. The ones listed below are some of the most frequently used, but there are plenty of others available as well. As you learn more, you’ll no doubt come across traders who split, combine and adapt their binary options trading strategies to suit their own goals. You’ll probably be tempted to try this kind of thing yourself, but it’s important when you start out to learn the basics and save the customized approach for later. Whichever one you choose, don’t forget to combine them with a money management strategy too.
Example 1 – Trading the Trends
Asset prices usually move in line with a trend. You’ll often see a zigzag of ups and downs that are actually all part of a larger upward or downward trend. When you understand the shape of the trend you begin to see that the zigzag movements can be predictable in certain situations, and when you can predict those movements you have an opportunity to execute profitable binary options trades.
To put it simply you have a couple of main options: you can gamble on the overall trend or on each of those zigzags. Trading the overall trend means looking at the big picture. You’re not interested in trying to capitalise on the minor ups and downs of an asset price. Instead, you are looking at a shift in price over the longer term.
Trading on swings in price requires that you place more trades, which is inherently riskier but potentially more rewarding.
Upward trend – New highs and new lows will usually be higher than past highs and lows in an upward trend.
Downward trend – New highs and new lows will usually be lower than past highs and lows in a downward trend.
Of course, you shouldn’t lose sight of the fact that you are free to use both approaches to trading. It’s a free country!
One of the most frequently used ways of trading trends is with High / Low options. Every binary options trading platform will offer this kind of trade. With a high option, you’re betting that the price will go up and with a low option you’re betting that the price will go down. The only variable is the period of time during which you think this will happen.
A riskier, but potentially more profitable variation of this is called a one-touch option. Instead of just betting on whether the price will go higher or lower, you’re predicting whether it will hit a specified number called the target price.
Example 2 – Trading on News Events
This is a fairly popular type of trading strategy. You will use the news as your source of intelligence. When a company reports greater profits or a new and exciting product then the theory states that generally, this will cause more people to want to own shares in that company and this demand will push up their price. The opposite is true if the company announces bad news of some sort. In both cases, binary options traders are in a position to make money if they can anticipate the direction of the next shift in the share price.
The downside of this type of approach is that it is not clear cut. When you trade on the basis of news events you place your fortune in the hands of fate.
So, it’s a good thing that there are other strategies that you can take to increase your chances of successfully trading binary options. Here are three of them.
Boundary options – when you’re certain that an asset price will change but you can’t be quite sure which way it’s going to go then a boundary option can be really useful. With it, you set two target prices, one of which is below the current price and one of which is above. The difference between them is called the price channel. If the asset price passes either of them then you win. If it only moves inside the channel then you lose.
Trading the breakout – The breakout represents a window of opportunity. It’s the time, anywhere from 30 seconds to several minutes after a piece of news about an asset goes public. It’s the perfect opportunity to use a high/low option because it’s here that traders will try to limit their losses or alter their positions for profit, and so it’s here that you’re likely to see significant fluctuations. You’ll sometimes hear breakout trading being called the 60-second option because the timeframe is literally that short.
Intelligent High / Low trades – it seems counterintuitive, but sometimes good news may result in falling prices in the markets. That’s because even though the news may appear to be good on the surface, such as a rise in manufacturing productivity, if the markets were expecting a greater rise then the news comes as a disappointment which they will then adjust for. If you can predict when such things will happen then high/low trades can help you to profit from them.
Example 3 – Using Candlestick Formations
As a new trader, you might find this strategy the most difficult to understand, but the good news is that once you do it is going to be the simplest one to put into practice and profit from.
When you look at a typical graph of an asset price then you’ll be looking at an oversimplification that features a before and after. If you want to know more (and you do) then look to candlesticks to fill in the details.
Candlesticks appear on an asset’s chart over time. The bottom of the Candlestick indicates the lowest price it reached during a particular time period and the top indicates the highest price it hit. In the middle you will also see the opening and closing price, so a candlestick gives you an easy to digest view of the price range fluctuations for that asset in that particular time period.
Now the way to use candlesticks in trading is to recognize different formations of them. Once you can do this you can better understand which way the price will go next.
For instance, if you see a candlestick with a gap then that means the asset price jumped significantly higher or lower. Gaps are unusual because prices usually move in a much more gradual fashion, hitting the majority of price points on the way. When one appears during a period of low trading volume then it’s telling you that there is likely to be a quick correction.
This can happen just before a market closes for the day when there aren’t many traders left placing trades. The gap can be produced in this situation by large trades, but that doesn’t mean that the asset is strong. Maybe the gap wouldn’t have appeared if more trading had been going on, so knowing this you can estimate the gap in the price of this asset and use that information to plan your trades.
If gaps appear when trading activity is high, but the price is not moving much then this can indicate that there may be a new breakout, or surge in that direction. Again, use this information to your advantage when you trade.
If a gap appears when trading volume is normal and there’s a trend in one direction, it might suggest that the trend is accelerating. Good intelligence to have for your next trade.
Developing a Binary Options Strategy Without Risking Money
If you’ve taken all of the advice in this article on board then you’ll no doubt be wanting to test your new binary options strategies, but you still might be reluctant to get your feet wet when you are aware of how easy it is to lose money. You don’t want to blow all the money in your trading account on testing out your theories, do you?
That’s where a binary options demo account comes in useful. Every half-decent broker will let you use their trading platform demo fashion, gambling nothing more than numbers on a screen instead of money from your account. It’s probably the best way there is to start testing (and recording in your diary, naturally) your binary options strategies, without losing your shirt.
One of the beauties of binary options trading is that there is virtually no limit to the kinds of assets that can trade in. Trade on those assets that are most familiar to you such as euro-dollar exchange rates. Consistently trading a single asset will help you to gain that all-important familiarity with it to help you predict changes more easily. There are two types of strategies explained below that can be of great benefit in binary options trading.
1. Trend Strategy
This is a popular strategy, and it is also called the bull-bear strategy. To implement it you’ll need to keep an eye on the rising, declining and the flat trend line of the traded asset. If you see a flat trend line and think that the asset price is about to climb, use the No Touch Option.
If the trend line shows that the asset is going to go up, choose CALL.
If the trend line shows a decline in the asset price, choose PUT.
This method works just like the CALL/PUT option but in this instance, you decide on a price that the asset mustn’t hit during the time period you specify. So, save Facebook’s share price is $490 and the trading platform says the No Touch price is $495. If it doesn’t hit $495 during the time of the trade, then you win.
2. Pinocchio strategy
Use this strategy when you expect the asset price to fall or rise dramatically. Choose ‘call’ if you think it’s going to go up or ‘put’ if you think it’s going to go down. This one is best tested on a demo account before you go live.
3. Straddle Strategy
This approach is best used when the market is volatile and when you’re expecting significant news about a particular asset to break. This is a strategy that’s much respected throughout the world of trading. It lets you avoid choosing between CALL and PUT; you put them both on the selected asset instead.
The overall plan is to use PUT when the asset’s value has gone up, but there is a suspicion that it will go down again soon. As soon as the decline starts, put the CALL option on it, because you expect it to rebound soon. You can also use this strategy in the other direction, by placing CALL on a low-priced asset and PUT on a rising asset value. This boosts your chances of success by covering you in both directions. The straddle strategy is a favourite of traders when the market or asset is tending to fluctuate.
4. Risk Reversal Strategy
This is one of the most popular binary options strategies because it’s designed to reduce the amount of risk involved with trading and boost the likelihood of securing a profitable trade. With this approach, you place CALL and PUT options on an asset at the same time. This can really help when assets are volatile.
5. Hedging Strategy
This is another one of those binary options strategies where you place both call and put positions, with strike prices that overlap. The thinking is that at least one of them will pay out. You can make more than if you just select one option, and if you lose then it will still be a lot less than the straight loss you would suffer from just one option. It’s a useful tool to add to your trading bag of tricks.
6. Fundamental Analysis
Binary options strategies almost always require that you have knowledge of the underlying assets that you are effectively gambling on. The theory with fundamental analysis is that you really go to town on understanding the business whose share movements you are interested in understanding. To do this you need to get to grips with things like their earnings reports and financial statements.
As a trader, this review helps you to understand how the company has been performing and how its stock reacts to particular market news. If you know well enough what kind of shape the company is in and what kind of events have caused its share price to fluctuate, then you’ll be much better placed to predict and therefore profit from future changes.
We hope that this guide has been useful in preparing you to take your first steps with creating your own binary options strategies.
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