Best Binary Options Trading Strategies

All Binary options strategies are different but will all have some elements in common:

• Creating a binary option signal and getting an indication of how to trade the signal
• How much should be traded
• Improving the strategy

The exact strategy can vary on each step and there is a large number of possibilities. The most important part of developing a successful strategy is to understand as much as possible about each element.

Creating a Signal:

A signal is a basic indication that the price of an asset is about to move in a certain direction. The Price of assets will move all the time and traders will need something which predicts the move before it happens. That is what a signal does.  There are two ways in which a signal is created. The first is to use news events, the second  – using technical analysis.  Generating signals from the latest news events is probably the most common approach taken by new or inexperienced binary options traders. This strategy involves looking at what is happening in the news, such as company announcement, an industry announcement or the release of government inflation figures. In most cases, positive news means prices are more likely to rise while negative news is likely to lead to a fall in prices.

Here is an overview of the best Trading Strategies available

The strategies mentioned below are amongst the most common strategies used. Many traders adapt, alter, or combine strategies to suit their individual objectives, attitude to risk, and trading goals. These strategies are a good place to start when learning about binary options trading strategies.

Trading the Trends

The price of an asset will generally move according to a trend. These price movements will never be linear and they zig-zag, sometimes moving up in price and sometimes moving down, but overall – they move in one general direction.  The zig-zag movements are predictable in certain situations and they present an opportunity for binary options trades.  Simply put, traders have two main options: they can trade the overall trend or trade each swing. Trading the overall trend means ignoring the minute-by-minute up and down movements in price and focussing on the overall trend direction for a period of time instead.  This gives traders multiple opportunities to profit from the trend, particularly given the fact that most trends continue for medium to long periods of time.

Trading each swing involves placing more trades and involves more risk as a result, plus the potential for greater rewards. This approach is based on focussing on 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.

There is no reason why a trader can’t combine both and can use both approaches at the same time. They are not mutually exclusive.

The most common way for users to trade trends is by using High / Low options. All binary options trading platforms will offer this type of trade and investors will basically trade on whether an asset’s price is going to be higher than it currently is 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 for traders to go for a one-touch option. This is another popular binary options trading selection. Instead of just predicting whether a price will finish higher or lower, traders will predict whether or not the price will reach a certain point. This is called the target price.  Traders can use a combination of both to diversify their risk while increasing their chance of making higher profits.

Trading Based on News Events

Trading on assets based on popular news events is one of the most popular styles of trading as it is fairly simple to do. Good news would see the price of that asset go up whereas disappointing news would see that company’s share price go down. Traders can make profitable binary options trades in these conditions.  This however, is not an exact science. Other styles of trading, such as technical analysis, produce parameters which are precise. Trading based on news events do leave a lot to chance, as there is no real way of knowing how much an asset’s price will increase or decrease or how exactly long the price movement will last.

Traders can adopt specific strategies and approaches in order to help increase their chances for success. These include:

Boundary options

This is the strategy traders should use when they know an asset’s price is going to move, but they are not sure in which direction it will go. With a boundary option, two target prices are defined – one is above the current price and one will be below. The difference between these two numbers is known as the price channel. If the price of the asset reaches either of these two price targets, a trader will win. If it stays within the channel, the trader loses. This is a strategy which works best when a trader expects significant movement in the price of an asset.

Trading the breakout

A breakout is the period of time immediately following the release of news which impacts the market. In binary options trading, this is a very short period of time which can be anything from 30 seconds to a few minutes. The theory behind the strategy is that the most significant price movements will occur during this breakout period as traders seek to adjust their positions in order to make a profit or limit their exposure to risk. The type of binary options trades an investor would use in this scenario is a simple High / Low option, but they will select a very short expiration time. This is sometimes known as a 60-second option.

Intelligent High / Low trades

Simply put, positive news means the price will rise, and negative news means prices will fall. The market does not always react according to this rule and sometimes news that is positive on the surface cause markets to react in a negative way. This comes down to expectation. When the news isn’t as good as the market expects it to be, it adjusts in the other direction, prompting prices to fall even though the news is generally positive. If a trader can predict when these events will happen, they can make good profits using High / Low trades.

Using Candlestick Formations

For new traders, this might be the most difficult of the strategy to explain, but it is actually the easiest to implement and make money from.  When a trader looks at an asset’s price chart over time, it is typically a line chart showing the price at each point in time. But this is only one piece of price data. Candlesticks offer traders much more.  Candlesticks are represented on an asset’s chart over time designed to give traders 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, traders will also see both the opening and closing price. A candlestick lets traders see 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 which traders can use to predict an asset’s price movement.  A Candlestick with a gap occurs when the price of an asset moves from one price to another which is pointedly higher or lower. The difference between these prices is the gap. This is an unusual occurrence because price movements are typically much more gradual, with the asset hitting all or most of the price points.

What traders can learn about an asset when they spot a gap in a candlestick, and how they can use this information to make a prediction includes:

• A gap which occurs during times when there isn’t much trading volume can be a good 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 and large trades in these situations can produce the gap, but is not necessarily a reflection of the strength of the asset. Traders can predict the gap in the price of this asset and base their trades accordingly.

• Gaps which appear during periods of high trading activity but where the price is commonly not moving a lot can be an indication of a new breakout. Investors can use this information to predict the price and make a trade.

• If there is already a trend in a certain direction and the volume of trading is normal, the gap may indicate an acceleration of the trend.

A candlestick formation with a gap is just one of many – knowing and having confidence in several will greatly improve a traders binary options strategy.

Developing a Binary Options Strategy Without Risking Money

A binary options strategy is essential if a trader wants to trade profitably. It will give structure to their trading, remove emotion-led decision making, and let them analyse and improve.  How does a trader test a strategy without risking their money? How can a trader find out that a strategy doesn’t work without trying it? If a trader tries a strategy that doesn’t work using their own money, they will end up losing it. This can result in traders going through their available funds before the testing phase ends, leaving them with no funds to trade with.

The solution? A binary options demo account. All reputable Brokers and trading platforms will offer a demo account. Demo Accounts allow traders to test the platform and test their trading strategies using real market conditions. The testing is done using virtual money instead of the traders own, so there is no real money at risk.

Trading Strategies

There are multiple assets available for trader to choose from in binary options trading but the most effective approach to minimize risks is to focus on a single asset. Users should trade on those assets which are most familiar to them, such as euro-dollar exchange rates. Consistently trading on it will help traders 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.

Trend Strategy

This is a basic strategy which is most adopted by beginners as well as experienced traders and is often referred to as the bull bear strategy which 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.  The bull bear strategy method works the same as the CALL/PUT option except in this case, traders will select the price at which the asset must not reach before the selected period.

Pinocchio strategy

This strategy is utilized when the asset price is expected to drastically rise or fall in the opposite direction. If the value is expected to go up, select traders will select CALL and if it’s expected to drop, select PUT. This is best practiced on a free demo account.

Straddle Strategy

This strategy which is best applied during market volatility. The Straddle Strategy is a highly regarded strategy which is utilized throughout the global community of trading,  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 with the belief that it will to drop soon. Once the decline sets in, place the CALL option on it, expecting it to in actually bounce. This can also be done in the reverse direction.

Risk Reversal Strategy

The Risk Reversal Strategy is one of the most highly regarded strategies amongst experienced binary options traders. The strategy aims to lower the risk factor and increase the chances of a successful outcome. The Risk Reversal Strategy is executed by placing CALL and PUT options simultaneously on an individual underlying asset.

Hedging Strategy

This Hedging strategy is commonly known as Pairing and is most often used along with corporations in binary options traders, investors and traditional stock-exchanges. This Hedging strategy is executed by placing both Call and Puts on the same asset at the same time assuring that regardless of the direction of the asset value, the trade will generate a successful outcome.

Fundamental Analysis

This strategy is mainly used during stock trading and primarily by traders to help them gain a better understanding of their selected asset. This strategy increases their chances of accuracy in the prediction of future price changes and the approach involves an in-depth review of all of the financial regards of the company.

In Conclusion

Before learning how to make money through binary options trading, traders will need to find a great Binary Options broker.