In this guide, we will go over the best binary options trading strategies. To make money on the markets, you need a robust binary options strategy, experience, and knowledge.
What are binary options?
Binary options are all-or-nothing financial derivatives. Binary options investors trade on the direction of an asset with defined risk in a straightforward risk-reward profile. They are usually traded in short-term strategies due to their hourly, daily, or weekly expiration dates. Binary options pay out in a simple “yes or no” manner, which makes them a flexible trading option. You don't own the asset you are trading on – you don't get voting rights or dividends – like actual stock owners do. All you have to do is to predict the movement of the instrument
Risk Management of Binary Options Trades
Before you dive into binary options, you should start with risk management. A benefit of binary options is that the risks and profits are predetermined. There is no possibility of losing a lot of money overnight. However, if you are not careful, you can still lose much of your trading capital. Some brokers cap the maximum trade amount. Still, you can trade multiple options contracts at the same time. Depending on the payout percentage, the risk/reward ratio increases.
There isn't a definitive binary options trading guide that can remove the risks completely. A good marker to look at is the bid and ask prices. These prices reflect the probability of the binary options trade going in your desired direction. The most probable binary trades are based on specific technical indicators and usually have a high bid/ask price, often over $75.
In binary options in volatile markets, the bid and ask price is close to $50. This means traders expect the asset's value to end on either side of the strike price almost equal. In contrast, when an asset's probability of hitting the strike price by expiration is low, the bid and ask price will be closer to $15.
Every binary options strategy that increases your chance of profit is based on great risk management.
You should also pick a reputable binary options broker that is regulated. Due to the nature of binary options, there have been some companies that scammed users in the past. Finding a trustworthy binary options broker
Binary Options Trading Strategies
Below we break down some popular and effective binary options trading strategies to improve your overall success rate.
Trend Following
Trend following is the most common strategy for binary options trading. Following the trends means that you track the overall price trends of the underlying assets you are trading.
In essence, this means you make price predictions based on the current trends in the market. If the asset price seems to rise, you buy call options; if it is in a downward trend, you buy put options.
Trend following is one of the most straightforward strategies, but not the easiest in reality. While the overall movement might be upward or downward, these trends don't happen in a straight line. Instead, price movements are made in a zig-zag line between highs and lows daily.
To be successful at binary options trend following, you have different options. The first is to follow overall market sentiment and trends by buying binary options with longer expiry dates.
Trading The News
This strategy involves following different news events that correlate with your asset. Binary Options news trading helps predict the price movement and is much easier than technical analysis, making it great for beginners. Once you pick an asset, you want to trade, follow the news online, on TV, radio, newspapers, and look for any announcements that relate to it.
Straddle Strategy
The straddle strategy compliments the news strategy and is a type of hedging. This strategy works by executing straddle trades before news announcements are made. You open two trades, both a put and a call. If you predict the price of an asset will go up in the long term, you buy an put option and a call option for the short term. It is an interesting approach for trading decisions in a volatile market but requires good analysis and experience.
Pinocchio
The Pinocchio strategy is named after a specific candlestick on the graph. When pinocchio lies, his nose grows, just like a wick grows disproportionately compared to the overall candlestick trend. The candlestick is short, but the “wick” is long. For example, if the price trend of a commodity is growing, but your analysis shows it will go down soon, you bet it will fail. This strategy has significant risks involved. With the Pinocchio binary options strategy, you bet on less probable predictions.
Hedging
Binary options hedging strategy (also known as pairing) is when you place both a call and put option on the asset simultaneously. By hedging in binary options, you play on both sides of the trade.
Hedging can remove some speculation and risk elements from binary options. You must calculate the potential profit of your investment at expiry in each scenario. This way, you will know how much money you profit or lose in each scenario.
60 Second Strategy
The 60-second binary options strategy is one of the most popular types of binary options investing strategies. It focuses on short-term options with a 1-minute expiry. It is popular among traders because you can make a lot of trades daily compared to trades that expire hourly, daily or weekly.
The 60-second strategy is easy to implement. The key is to analyze technical indicators and predict where the price will be at the expiry time. The most important indicator is the support and resistance level of the assets. Advanced traders look beyond the basic indicators and charts and also factor in moving averages and other tools in their strategy.
The 60-second strategy works best when the market isn't very volatile, and prices move between support and resistance levels. When prices move past resistance and support levels, it is best to wait for the markets to settle.
As with any other binary trading method, you encounter the risk of losing money quickly. With a robust technical analysis method, you reduce the risks, but can't mitigate it completely.
5-Minute Strategy
The 5-minute strategy is another popular strategy among traders. It is similar to the 60-second strategy, but the expiry time is set at the 5-minute mark. The 5-minute strategy retains the volatility but follows the overall trend better.
Just like the 60-second strategy, the 5-minute strategy relies heavily on technical analysis.
Fundamental analysis
Fundamental analysis is used to gather information to allow better traders to profit in the future. It is best used when you focus on a few core instruments and research the fundamentals in detail.
To start, you have to research every aspect of the company or asset. This way, when you place a trade, you have a better chance that the outcome of the trade will be better.
Range/Range Breakout
Most of the time, assets trade in a range between support and resistance. With range trading binary options, you look for breakouts or reversals in the range and short-term trends.
Money Management
Binary Options strategies are just one part of the equation. Good risk management and money management are crucial to your success. Before entering any trade, you follow only the highest probability signals and never risk a large percentage of your total trading account value.
Money management is how you manage your overall trading fund. A trader should always specify the trade size, long-term goals, and trading rules.
Using Binary Options Signals
Any experienced trader will implement specific signals. A binary options signal is an indication that traders use to predict whether the price of an asset will move up or down. Signals are based on two things: following news events and implementing key technical indicators to predict the market direction. Most binary options traders base their signals on a basic understanding of news events. Pay attention to what happens and how certain news events like earnings affect the underlying stocks.
To summarize, focus on information relative to the assets you trade and training yourself to spot signals.
FAQ
Which binary options trading strategy is best for beginners?
The “best” strategy is the one that makes a profit while limiting risk. There is no best one strategy, but rather is a combination of strategies. First, you should find a reliable binary options broker as a strong foundation. Then you should test with a demo account and find what works for you.
Which Options Strategy is the Most Profitable?
The most profitable strategy short-term might not be the most profitable long-term. The most profitable strategy is the one that makes you the most over the long term.
