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Binary Options Trading Strategy

Collected By

McHale Khan

Binary Options Trading Strategy Collected By McHale Khan

Following a strategy when trading digital options may significantly increase your chances to be profitable. However, you should stay realistic and be aware than you can never be certain of success. Just like stock trading, binary option trading requires the knowledge and use of strategies to put the odds on its side to gain in the long term. There are two main types of speculative trading strategies in the world of professional trading: it is the technical (or graphic) analysis and fundamental analysis that we will analyze in the first place. We will then deal with the two empirical methods that are most widely shared on the web: the martingale and trading with the traders’ tendency tool

Trading with technical analysis

The technical analysis – or chart analysis – involves studying the exchange rates charts of different assets in order to predict their future orientation. This type of analysis is based on the Dow Theory. This theory, realized by??a great financial analyst and co-founder of the Wall Street Journal, on the principle that the “market remembers”. This means that what has been observed in the past, reiterates itself again today and in the future. In other words, the analysis of decades of charts histories has enabled the technical analysis to identify specific contexts where it becomes possible to predict the future orientation of an exchange rate with a significant reliability. The technical analysis therefore consists of studying the charts using technical indicators (to have access to certain digital information or additional charts) and observing patterns of graphics and / or candlestick charts patterns. This type of analysis is most commonly used by traders. Many books and websites will inform you about its learning, its method of application and the different strategies associated with it.

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Trading with fundamental analysis

Fundamental analysis is the second branch of market analysis for binary option trading. This method focuses exclusively on economic statistics and the overall economic climate to predict the future orientations of the exchange rate. For example, the crisis of 2008 was an excellent opportunity to stake downwards on the main publicly-traded companies, especially the banks and investment funds. On a smaller scale, dozens of economic indicators are published daily (such as the unemployment rate in a country, for example). All these economic figures are available in economic calendars available online on the internet. The real-time monitoring of these new ones can help you take decisions to increase or decrease the principal instruments traded in binary option, including the currency pairs of the Forex market.

Trading with traders’ tendency indicator

The other empirical method regularly seen on the web consists of monitoring a tool for “indicator of traders’ tendency” (also called “tool of traders’ sentiment“), provided by the online broker. This tool describes the balance of positions at the purchase and sale of each index at a given moment. Provided by the broker, the tool shows you the percentage (%) of their clients with positions at the purchase and the percentage (%) of their clients with positions at the sale (in real time) for a defined financial asset. The clients of an online broker cannot trade on Wall Street but some have the audacity to trade “by instinct” (and ignore those who use the martingale method mentioned above). Therefore, this type of tool becomes completely obsolete and its reliability is totally uncertain or even completely absent. Once again, the bonusbinaryoptions.net

team warns you against this type of strategy and invites you to avoid following it.

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Trading with a method of martingale type betting

There are many websites or eBooks extolling the merits of using a martingale. What is a martingale? A martingale is a betting method that consists of increasing the amount of the initial investment at each loss until a gain is achieved. Suppose you stake 20 upwards to the EUR / USD exchange rate. The principle of the martingale will lead you to stake double your bet until your winning position of closing. In our example, if you lose your transaction, this principle will invite you to repeat the same bet for an amount of 20. If your position closes again at a loss, you should then bet this time an amount of 40. The principle is to offset losses of previous bets until achieving the gain that was initially sought. The risk can only become very large if you suffer a long series of consecutive losses. By leveraging 40, then 80, then 160, 320, 640, 1028 In a few blows, the amounts to invest become astronomical. The result:

Your account is empty and you just have to file new capital and file a dispute against the person who extolled the merits of strategy.

Binary Option Simple Strategy

The strategy that we are going to present is a very simple "Type 2" strategy. It's purpose is to help you predict the direction of the market movement and have a high percentage of options that finish in the money. This strategy is based on the assumption that markets tend to correct themselves after movements in one direction, and the price usually goes up and down. This means that if the

price has raised in the previous timeframe, it is more likely to fall in the next one.

Of course, this is not a rule and there will be many times when it won't happen, especially when the market is on a trend, but when the market is calm and fluctuations are at small levels (a low volatility) you will most likely see ups and downs constantly.

Binary options usually have a small timeframe and are ideal for this type of technique. The trading platforms of the brokers will show you a recent chart of the asset that is well suited for the option's timeframe. If an option expires in 15 minutes, you are likely to see the chart for the last 45 minutes and an empty chart for the next 15 minutes like in Figure 1:

price has raised in the previous timeframe, it is more likely to fall in the next

If the current price is higher than the opening price (in the current sample the current price of 79.7199 is higher than the opening price of 79.6921) the price is more likely to move down, and you should buy a PUT option. In the opposite situation, when the current price is lower than the opening price you should buy a CALL option as the market is expected to move up.

After buying the PUT option you must wait until the expiry time, which is 15 minutes in this case. Let's see how the chart looked like after 15 minutes:

The price moved down to 79.7032 and the option finished "in the money" generating a profit

The price moved down to 79.7032 and the option finished "in the money" generating a profit of 81% in only 15 minutes. As you can see, the price followed the tendency to normalize after a small increase and finished closer to the opening value. While this outcome is more likely to happen than the opposite, you should expect a decent amount of trades to end up the wrong way.

You should also keep in mind when using this strategy that sometime the market is on a trend or some important news may be released that will shake the market to a degree that such simplistic analysis will be useless. This strategy is recommended on calm markets with small trading volumes and no news expected to be released in the following hours.

Hedging/Straddle Strategy

Applying the Straddle strategy comprises a simultaneous trade of one asset in opposite directions. This strategy includes risk management features which prevent you from enduring a full loss of the trades invested capital and the chance to win BIG TIME.

The strategy is based on the presumption that "what goes up, must come down", and it works as follows:

Step 1- Choose your general direction; either invest in a Call or Put option.

Step 2- Choose your underlying asset and invest according to the general direction you earlier decided upon.

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Step 3- The strategy's tipping point; once the price of our asset advances according to our predicted assumption, in a ratio of 30-20 pips – you make an opposing investment.

Despite the positive direction the trade has taken, we traders know that the potential threat of a sudden shift of the asset's general direction continuously lurks our trades. The solution, we make an opposing investment.

If in step 1 your general direction lead you to invest in a Call option, in step 3 you will invest in a Put option. Consequently, you're now trading both Call and Put options, thereby minimizing the risk of losing on both options, and maximizing the chances of gaining from one of the options.

In other words, the Hedging strategy promises you'll win- its risk management in its finest form. To make things even better, if by the end of the trade the asset's market price was between the striking price of your first and second investments, you win them both!

Example:

The graph represents the USD/JPY price for a potential Call option. Let's assume the price will breach the descending trend line.

The graph represents the USD/JPY price for a potential Call option. Let's assume the price will

The price breaks the trend line and is retesting it before continuing its movement upward. Corresponding to the Hedging strategy, at the retesting point we invest in a Call option

Once the price movement is corresponding to your prediction, i.e., the option is 'In the Money',

Once the price movement is corresponding to your prediction, i.e., the option is 'In the Money', we wait for an opposing trend line to break again toward a decline. As a result, you lowered your risk and doubled your potential to profit.

Once the price movement is corresponding to your prediction, i.e., the option is 'In the Money',

The Hedging strategy scenario:

Normally, if we invest $100 in the USD/JPY option, as displayed on the chart above, and the asset's return is 95%, we either loose our $100 – in case the trade ends 'In the Money', or win $95 - if the option expires Out of the Money.

Applying the Hedging strategy will spring different results to your trade. If all of the conditions are correct; the price movement is in your predicted direction and you're 'In the Money', you can take this investment to a whole new level by investing in an opposing Call option.

There are 2 possible outcomes to this scenario:

  • 1. If the market's price either rises or falls over the striking price of the Put or

Call options at the end of the trade's time frame, the trade ends 'In the Money'

for one option and Out of the Money for the other option. Hence, you earned $95 and lost $100, leaving you with a loss of $5.

  • 2. In the event that the market's price stays between the striking price of the

Call and Put options, you only risked $5 and profited $190.

The Correction Strategy

During the beginning and ending of round hours, assets tend to undergo unexpected surges both upwards and downwards. These surges also occur during important announcements and are exactly what you should look for to apply the Correction strategy.

The principle of this strategy is founded on the Correction rule. The rule states that if a price of an asset surges upwards or downwards and a gap appears between the current and previous price of the asset, the asset will then correct itself, and return (close the gap) to its previous price.

Now that we know how the Correction rule affects an asset's market price, we can leverage from it. Using graphs' support and resistance lines, or the trend line technical analysis, we can identify price gaps. The Correction strategy asks you to detect such gaps and then execute a binary option trade in the opposite direction.

Binary

options

trading systems

signals

and

automated

Some very experienced traders have developed their own complex trading strategies that render very good results. Such strategies and algorithms are available to everyone through special services that offer trading signals or even automated trading through their advanced systems. Some of the best such systems are:

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How to minimize the risks

Minimizing risks constitutes a good starting point to avoid bankruptcy. The best method is to follow the rules of capital management, also called “risk

management” or “money management” by professional traders. This common sense rule consists of not:

placing big bets putting all your eggs in one basket do not invest too much available capital

It is advisable not to bet more than 5% of one’s capital in one position. Thus, if you have 1000 on your binary option account, it is not advisable to bet more than 50 in a single transaction. In the same token, it is not advisable to bet on a too large number of instruments that are correlated in the same direction. For example, it is not advisable to bet simultaneously on the fall of the EUR / USD, EUR / GBP, EUR / CAD, EUR / JPY, EUR / CHF etc. In this case, you understand that a single jump upwards of the Euro currency (EUR) could jeopardize all your positions.

The psychology of the winning trader

The psychology of the trader plays an important role in the likelihood of his / her gain or loss. In fact, the principal loss factor of a trader in binary options is directly due to his / her cognitive biases. The typical error is to lose all sense of money and bet more and more important sums to fill a high loss that has been suffered. Under no circumstances should one bet excessively; one must keep in mind a strict trading plan and a method of rigorous capital management. Being governed by one’s emotions and the desire to earn more money or to erase a loss by taking more risks always leads to loss. In contrast, a winning trader will be disciplined, Cartesian and will never let emotions interfere in his / her choice of trading (or at least, as much as he / she can.).

The best methods to gain in binary option

In conclusion, the best method to gain in binary option is to study the technical analysis and fundamental analysis, to develop a strict trading strategy with a

rigorous capital management plan (and stick to it), and to not be ruled by one’s emotions (which lead many amateur traders to lose).

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