Feb 07 | Posted by Joe Best

A Basic Binary Option Trading Strategy

Strategy is pretty important when it comes to trading binary options.  While specific strategies can be helpful once you understand the process of trading more fully, a beginner’s guide to strategies is helpful when just getting started in binary options.  It will give you the basics and get you ready for more advanced topics such as specific trading strategies, money management, and trading psychology.  Your trading strategy will help determine how you approach your trading, how you handle making money from your trades, and how you handle the losses that will also occur when you trade binary options.

Sell_or_Buy

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In the most general of terms there are two basic approaches to strategy in trading – fundamental strategies and technical strategies.

 

Fundamental strategies are important for getting a higher level view as they are concerned with how real world events such as economic data, earnings, geopolitical events, affect prices of assets.  It is good to have this high level view, but it isn’t as important to binary option trading as the technical strategies are.

 

Technical strategies use price data that is visually represented on charts and it attempts to predict future price movements based on past price movements.  It does this through the use of various averages, oscillators, measurements and comparisons, trend lines, support and resistance levels, and candlestick types.

Types of Trading Strategies

A strategy is simply some plan of action that is put in place to achieve a goal.  When talking about trading binary options the goals we’re looking for from our strategies are to make profits and to avoid losses.  Using a consistent strategy also improves your trading by taking the guesswork out of your entries and hence potentially lowering your risk.  Most trading strategies use technical analysis, and since many use a combination of analysis tools there are literally thousands of strategies in use.  However, almost all of them fall into one of the four following categories:

 

  1. Trend Following Strategies – These look to identify trends in the market and then profit through multiple entries in the direction of the trend.
  2. Price Action Strategies – These strategies look to identify price patterns that frequently follow the same movement and indicate a highrobability of success.
  3. Long Term Momentum Strategies –These look to profit from longer term movements in the market, typically those that can be seen of daily time frames or even longer. They can take a long time to develop and signal few trades, but those are usually stronger signals.
  4. Short Term Ranging Market Strategies –Because markets spend a good portion of the time range-bound, these strategies look to identify support and resistance areas to profit from short term trends within these ranges or reversals from those support and resistance levels.

Technical Analysis Tools

Japanese Candlesticks – These are the most frequently used type of price candle because they are easy to read and clearly show the open, high, low and close of prices.  They are commonly used with price action strategies, but can also be helpful in providing signals from other strategy types.

 

Support and Resistance – These are levels where price has historically stopped rising or falling.  Resistance happens where prices stop rising as sellers step in to take profits.  Support occurs when prices stop falling as buyers step in to snap up assets at what they consider to be bargain prices.  Support and resistance are often shown as a horizontal line on charts, and are often areas where price can potentially reverse direction.

 

Trend Lines –These are lines drawn on a chart that follow the course of an uptrend or downtrend.  They can be used to indicate support and resistance and are often good entry points for new trades.  An uptrend line is drawn by connecting a series of higher lows on a price chart, while a downtrend line is formed by creating a line connecting a series of lower highs.

 

Moving Averages – A moving average is an average of prices for ‘x’ number of days or periods that are then drawn as a line on a price chart.  There are several kinds of moving averages that can be created including simple, exponential, weighted and others.  While the moving average line itself can indicate support or resistance, often two or more moving average lines with different timeframes are used, with entry signals being generated when the moving average lines cross.

 

Oscillators –There are many types of oscillators being used for technical analysis, including the RSI, MACD, stochastic, and many others.  They use various mathematical calculations and averages to display price action, momentum, trend direction and strength and other market characteristics to help determine entry signals.

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Other Components of Trading Strategy

Psychology – The psychology of trading is often underrated or ignored, but it is a critical part of the trading game.  Poor trading psychology can lead to missed trades, improper trades, excessive risk and a host of other trading issues.  Traders should be mindful of their own psychology as it relates to trading and strive to improve their thinking.

 

Money management – This is another frequently overlooked component of trading.  While strategy is one half of risk management, the other half is money management.  Strategy can help you identify good trade opportunities and manage your risk that way, but good money management will keep you from risking too much on any one trade.  It should be clearly defined in terms of trade size, future growth, stress, and risk management.

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Trading binary options involves substantial risk and may lead to loss of all invested capital

Feb 07 | Posted by Joe Best

Will you Make Money or Lose Money with Binary Options?

Binary options trading continues to grow in popularity, but there are still many who question if you can really make money with binary options.  The rest of this post will attempt to answer that question satisfactorily for you.

 

 

The answer to the question of whether you can make money trading binaries is a yes.  However as binary options is considered a complex financial instruments that is not suitable to all types of traders as money can be lost as well.  As with any financial product the difference comes down to your skill in predicting future price moves of the underlying assets.  There are other factors involved as well, such as your money management, risk management, and trading psychology.  As you can see, it isn’t really a simple question to answer.

 

At the end of the day it all comes down to you. If you are willing to put in the work of learning how both fundamental and technical analysis work you’ll improve your chance of success.  Learning how the underlying assets you’ll be trading react to various global events can also help.  It isn’t impossible to learn, you just need to be willing to invest the time and effort to become a well rounded and knowledgeable trader.  Treat your trading like a business, not like a trip to the casino, and you’ll have a much better chance of consistent success, though there are always risks involved which you should be fully aware of and you may lose all your invested capital.

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How do Binary Options Work?

Binary options give you the opportunity to predict the price movement of some underlying asset such as a stock, a currency pair, a commodity, or a stock index, and potentially profitrom your prediction.

 

Binary options got their name because they have just two possible outcomes.  You predict whether price will go up or down, and the binary option is either a winner or a loser, also called finishing in the money or out of the money.  When your option ends in the money you win as much as an 86% return on your investment.  If the option ends out of the money however, you lose 100% of your investment.

 

Besides deciding which direction price will take you also need to decide how long it will take for price to move in your favor, which is known as the expiry of the option.  This can be as short as 60 seconds to as long as a week or more.  This can lead to different trade styles for long-term trades versus short-term trades.

Binary Option Long-term Trades

One of the preferred ways to trade longer-term binary options is through news events.  Some traders spend much of their time watching for new product releases from companies such as Apple, because such new products can cause an increase in stock price, at least temporarily.

 

Basically these traders will watch for new product announcements from tech companies and then mark the date of the release on their trading calendar.  A day or two prior to the product release they will purchase a long-term binary option that predicts the price of the underlying stock will increase over the coming 48-72 hours.

 

Because there is usually several new product releases each monththis can be one way to conduct analysis , even though alone,  it is not sufficient. Savvy traders know that it is important to take both fundamental developments and technical factors when trading.  Fundamental analysis requires the patience to consistently mark these product releases on your calendar and wait for them to happen.  It is common though not guaranteed to see a stock rising in anticipation of a new product launch, which is what has made this a popular strategy for binary option traders.

Short-term Trades

Flexibility is a key aspect in binary options trading. Traders can complement their long terms trades with shorter expiries. Short term expiries can be more challenging and risky, and it is imperative to do technical analysis on charts.

 

This technical analysis is done to identify price trends based on historical data so that you can take advantage of them by making a trade that is hopefully profitable for you.

 

There are many strategies that depend on technical analysis.  Some are quite simple, such as moving average crossovers, while others can be extremely complex.All of the technical analysis strategies share one thing though; they are an important aspect to the assessment of the current market situation and add to the traders analysis and research.

 

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Are Binary Options a Financial Product?

The question whether binary options are considered financial instruments (for example like shares) often comes up because some people equate these products as gambling products. As per the European Commission, binary options meet the definition of financial instruments and therefore fall within the remit of the Markets in Financial Instruments Directive (MiFID).

 

Cyprus Securities and Exchange Commission (CySEC), and certain other regulators, decided to authorise companies offering binary options and/or allow the provision of such services in their jurisdiction on a cross border basis in the European Union.

 

We encourage you to trade only with regulated brokers in order to take advantage of a number of benefits like transparency, clients funds safeguarding measures, best execution and many more.

 

Remember always to ascertain whether you are permitted to use the services of each broker (even if it is regulated somewhere) based on the legal requirements in your country of residence.

 

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Trading binary options involves substantial risk and may lead to loss of all invested capital