Welcome to our binary options strategy section. Here you’ll find a beginner’s guide to strategy, leading to more advanced information on things like money management, and articles on specific strategies.
Basic Strategies For Successful Trading
Strategy is one of the most important factors in successful binary options trading. It is the framework on which you base your trading decisions, including your money management rules, and how you make money from the market. There is no one Holy Grail unfortunately, if there was then we would all use it!
The two most basic strategies are:
- Fundamental
- Technical.
Fundamental strategies focus on the fundamental health of companies, indices, markets and the economy and while important to understand, are not as important as binary options as the technical aspects of trading.
Technical trading, or technical analysis, is the measurement of charts and price action, looking for patterns and making educated guesses, speculation, from those measurements and patterns.
Strategies simplify your trading, take the guesswork out of opting in and reduce overall risk.
The number one method to achieve this goal is to use a rule-based approach to selecting entries that relies on old, tried and true technical analysis indicators. There are dozens, maybe hundreds if not thousands, of ways to trade the market, all strategies. They can be categorized in terms of the tools used, the intended time frame, the amount of risk associated with and many other ways, this is the main one.
- Price Action / Scalping Strategies – Price action strategies depend on market movements to time entry. This can be trend following or not, long or short term and use bullish or bearish positions.
- Trend Following / Directional Strategies – Trend following strategies target assets that are flowing strongly to determine a number of profitable entries with a high success rate.
- Affordable Long Term / Short Term Strategy – 99% of the time the market, or individual asset, does not move but trades within a range of high and low marks. These strategies focus on support and resistance levels, range reversals and short-term trends when asset prices move up or down from support to resistance and vice versa.
- Long Term / Momentum Strategies – These are less risky strategies because they target stronger signals and long term. These signals have a higher chance of success but take a long time to develop and take longer to unfold than other types of signals.
Technical analysis indicators are, most often, mathematical formulas that convert price action into an easy to read visual format. Common types of indicators include but are not limited to moving averages, trend lines, support and resistance, oscillators and Japanese Candlesticks.
Financial management
Strategy is 1 of the 2 pillars of risk management, the other being money management. You control risk by targeting only good signals, spoiling clear signals, and never putting so much money on a single trade that it wipes out your account.
Money management is the control of your overall trading funds. It should explain trade size, and long-term financial management – leaving you to focus only on trading. A well-thought-out money management structure should facilitate:
- Trade size
- risk management
- Future growth
- Pressure
A trader who has a clear financial plan does not have to worry about whether they can trade tomorrow, or if their trade size is right or how they can grow their investment in line with their progress. All those decisions are controlled by managing the entire capital with a clear plan.
Read more about money management.
Japanese candlesticks
This is the most common method of viewing price charts. Candlesticks provide an easy-to-read view of price, open high low and close, that jump off the chart in a way that no other chart style can. They are the basis of most price strategies and can be used to signal and confirm other indicators.
Read more about the candlestick strategy
Support And Resistance
This is an area of price action on the asset’s chart that will likely stop the price when it is reached. Support is found when the price stops falling, this happens when buyers step into the market and is said to be a “support price”. Resistance is found when prices stop rising, this happens when sellers enter the market (or buyers disappear) and are said to “resist higher prices”. These areas, often represented by horizontal lines, are good targets for entries and possible areas where price action can be reversed.
Trend line
This line connects the highs and lows formed by the asset’s price as it moves down and sideways. A series of higher lows and higher highs is considered an uptrend and a sign that the price may move higher, a series of lower lows and lower lows is considered a downtrend and a sign that the price may move lower. Trendlines can be used as targets for support and resistance, as well as entry points for trend-following strategies.
Moving Average
A moving average takes the average price of an asset over X number of days and then plots that value as a line on a price chart. Moving averages come in many forms and are often used to define trends, provide targets for support and resistance and to indicate participation. There are dozens of methods for obtaining moving averages, the most common of which include Simple Moving Averages, Exponential Moving Averages, volume-weighted moving averages, and more. They can be used at any time, and set at any time, for various time frame analysis and for cross signaling.
Oscillators
Oscillators can be the single largest indicator section used for technical analysis. They include tools like MACD, stochastic, RSI and more. These tools, generally, use price action and moving averages in a combination of ways to determine market health. They are displayed as stand-alone tools, usually as lines that range between two extremes or above and below midpoints, which can help determine trends, direction, support/resistance, market strength, momentum and entry signals.
Trading Psychology
With any form of trading, psychology can play a huge role. Lack of confidence can mean missed trades, or investing too little capital in winning trades. At the other end of the spectrum, higher confidence can lead to more trades, or increased risk – which can quickly wipe out an account.
So the trader’s trading psychology is very important. It can also be actively controlled or controlled (at least, admittedly). This is another often overlooked aspect of trading skills, but a good time to consider.
Read more about the psychology of trading and learning from experience.
Basic Binary Options Strategy
Here are examples of some basic rules for binary options strategies.
- This trend is your friend, just take the trend after joining.
- In an uptrend only enter when the price is near support, in a downtrend only enter when the price is near resistance.
- When the price is near support/resistance wait for a confirming candlestick signal.
- When a candle signal appears waiting for stochastic and / or MACD to confirm, a bullish crossover in an uptrend or a bearish crossover in a downtrend.
- When rules 1 to 4 are met, enter a trade, only using 3% of the account on each trade.
- When choosing a long 2XCandle usage period expires. IE, if you use a candle 1 minute then expire 2 minutes, if a candle 1 hour then expire 2 hours.
- If a trade fails examine why it didn’t work, make adjustments if necessary and move on to the next trade. If the trade works move on to the next trade.
Malaysian brokers
The strategy will not be profitable if you trade with an unreliable broker. This is our recommended trading platform to try out your strategy.
Choosing a Trading Strategy
Developing a trading strategy for the binary options market requires a basic understanding of how the market operates in terms of available trading contracts, various expiration times, and an understanding of the behavior of individual assets.
Unlike the forex market where the asset is forced to move in one direction or the other by a large enough amount of pips for the trader’s interest before a profit is made, the binary options market is peculiar. Apart from Up/Down trading which is based on direction and mimics trading requirements in other markets (except for pip movements), other types of trading in the binary options market operate in a completely different way. There are different trading contracts for different platforms. Some binary options contracts do not require the trader to get the right direction of the asset. For example, OUT contract trading requires the asset to hit one price limit or another for a profit to be made. Therefore, traders can identify suitable trading contracts to be able to form appropriate strategies. What is used to trade an Up/Down contract is not the same as what would be used for an In/Out contract. The type of contract will determine the strategy.
For example, Up / Down contract trading requires a strategy that can determine whether the asset will make an upward or downward movement. Managing In/Out contracts will require either a range trading strategy or a diversion trading strategy to identify when the asset is in range or out of range. If you want to develop a trading strategy for In/Out trading, this is how your mind needs to work.
In developing a strategy based on the type of binary options trade to trade, there are tools that can help traders. This is where chart patterns, service signals, candlesticks and technical indicators come in. Simple tools like the pivot point calculator can be used as part of a TOUCH trading strategy with very effective results. Using a tool like this will take us to the next part of choosing a strategy, which is how to understand and set the expiration time.
Understanding Time Lapse
Expiration time is very important for binary options, as all trades in this market have a time limit. However, not all binary options trades require a time limit to be successful. Trades such as Up / Down trades must reach an end before the trade results are known. On the other hand, trades such as the OUT component of a border trade or the TOUCH component of a High Touch or Touch / No Touch contract do not necessarily reach maturity before the outcome of the trade is known. If a trader bets on the TOUCH outcome and the asset touches the strike price well before expiration, the outcome of the trade is already known and the trade is terminated as a profitable profit.
So, if the trader is not very good at setting the date/expiration date (and really, there is no trader in the market who can boast of getting his expiry set all the time here), the binary options trading strategy should be adapted to the trading contract that does not depend in full at the end of the term.
Now that you identify and separate trades that aren’t as dependent on the expiration date, you have a better understanding of what kind of strategy you’re looking for.
Understanding Asset Behavior
The binary options market combines assets from different asset classes into one market. These assets do not behave the same. Some assets are highly volatile with large intraday movements. A very obvious example is gold. Some binary options assets are not traded all the time but only at certain times eg stock indices. The factors that might trigger a big move in a stock index are obviously not the same for commodities or currencies. Even within the same asset class, no two instruments are the same or the same.
Therefore, an understanding of asset behavior is essential to be able to develop a trading strategy for the market. It is up to the trader to learn the behavior of the asset, understand the technical and fundamental indicators that will influence the behavior and price movement of the asset, and then create a trading strategy that will work for the asset.
Demonstration
In this section, we will demonstrate the application of all the parameters we have mentioned above using a simple but effective trading strategy.
– The strategy we will use determines the price of bullishness / bearishness, so we will sell Call / Put contracts.
– We will trade the strategy on the one hour chart, until it will expire one hour. We do this by understanding that the effect we want to trade on the hourly chart, will happen in one hour.
– We want to apply this to assets that are liquid and react to strategy. So we will use EURUSD.
This strategy has been used to create a color-coded indicator, which shows a green arrow on a bullish signal and a red arrow for a bearish signal. It is intended to trade EURUSD because this currency reacts to the price stimulus during the London / New York overlap in the forex time zone, and the reaction can be sent within an hour.
Once the red arrow appears (as shown above), the signal is to trade the PUT option on a digital Call/Put option. Using this signal, trades were executed on the binary options platform. The price of the asset (EURUSD) fell within one hour from the time the signal was generated to expiration, resulting in the trading results we enjoyed.
This strategy (specific strategy) meets all our requirements:
a) It is suitable for trading contracts on the binary options market.
b) It is an appropriate strategy to help traders use appropriate expirations.
c) It fits the behavior of the asset and above all, the STRATEGY OR A RELATED ONE.