2. Binary options strategy
In order to have good performance while trading binary options it is advisable to have a strategy. Relying on luck is not a good option since it will turn your investment into gambling, and eventually you will end up losing. There are two important aspects when talking about binary options trading:
- having some good technique to help you predict the market correctly in most of the situations
- having a good strategy regarding the use of binary options in a way that greatly increases your winning chances
While predicting the market correctly is very good and can make you a profitable trader in almost any circumstances, there are certain strategies that can generate very good profits even for traders who are not very skilled at identifying market trends.
2.1 General tips for improving results
Here are some basic tips that will help you identify the direction where the market is heading:
- Watch the charts for longer periods of time, and identify the current market trend. It is well known among professional traders that trading against the trend is not recommended unless you know very well what you're doing
- Big spikes in the charts mean that the asset was bought or sold in large quantities in a very small period of time. This happens mostly because speculative investors are trying to obtain short term profits. In order for them to be in profit they must close their positions, which mean they must sell what they initially bought, or vice-versa. This phenomenon is called "marking the profit" and has an opposite impact on the market than the initial movement. That means that every time you will see a big spike in the charts, it is very likely to see normalization afterwards. If the market raised excessively it is time to sell.
- Watch an economic calendar in order to know what to expect. At certain announcements the market becomes very volatile, and you must adapt your trading strategies accordingly.
- If you are more experienced in trading you can use technical indicators in order to identify trends and market movements. This is recommended only for advanced traders who know what they are doing. Technical indicators can be very tricky if they are used wrongly, and we advise you to stay away from them unless you understand the phenomenon very well. There are plenty of other ways to make profits trading with binary options, so this is not a big inconvenient. However, if you are skilled with technical analysis you should take advantage of it, because it can be a very potent tool combined with the advantages of binary trading.
Special TIp: You can try any strategy risk free with a special offer from NRG Binary where the first three trades get reimbursed if the result in a loss. This way uoui have full insurance on your first three trades, but if you win you keep your winings. Follow this link to take advantage of this special offer: NRG Binary Risk Free Trades
2.2 Signals and algorithmic trading
Another great way of improving results in binary trading is by using signals from experieneced traders. While finding a good singal providing service can be pretty hard and expensive, sometimes there are also affordable options that may prove to deliver a very good return on investment. For binary options trading we reccomend trying a specialized service like BinaryOptionsSignals
Some people prefer to use automatic systems for trading (also known as algorithmic trading) and let the computer trade by itself. This hands free approach has the advantage of not requiring much effort and time, but those using it must always check the performance and adjust their strategies to maximize the results. When it comes to binary options you can check the algorithmic trading service from Option Bit named Algobit.
2.3 Binary options basic strategy
The basic strategy is a simple but effective strategy for binary traders. This strategy can be used when the trades start in the correct direction. That means that if you bought a call option and the market raised (you are in the money but still need to wait until the expiry) you can use this strategy to aim high with low risks. The strategy is best described with an example, so this is what we'll do. Here is a sample on how this strategy can be used:
Step 1: You buy a call option on EUR/USD at 1.3500 worth $100 with the expiry in one hour, a payout of 80% and a refund of 10%. The market moves in your favor to 1.3520 (20 points in the first 15 minutes). In this given situation, the strategy can be used as described in the next step.
Step 2: You buy a put option on the same asset (EUR/USD in this case) with the same value at 1.3520 (the option must have the same expiry as the initial one, and it will have the same payouts since it is on the same asset).
There are three possibilities at the expiry:
1) The closing price is above 1.3520 -> the first option finishes in the money and the second one out of the money. Total investment $200 and total payout $190 ($180 from the winning option and a $10 refund from the losing one). Outcome: a loss of only $10
2) The closing price is between 1.3500 and 1.3520 -> both options finish in the money. Total investment is still $200 and total payout is $360. Outcome: a profit of $160
3) The closing price is below 1.3500 -> the first option finishes out of the money while the second one finishes in the money. The outcome is the same as in the first situation: a loss of $10
As you can see from the above example, by using this basic strategy you can take advantage of a good start and risk only an insignificant amount with the chance of winning big. In this particular situation you risk to lose $10 in order to win $160, which is a reward to risk ratio of 16 to 1!
2.4 Touch options strategy for news trading
The Touch Options Strategy for News Trading (TOSNT) is our first proprietary binary options strategy, which means that this strategy was developed buy one of the traders in our team. You are free to use it if you consider it good, but as with any other strategy, you use it at your own risk and we are not responsible for any possible loss that you may incur while using it. However, it is strictly prohibited to reproduce this strategy on a different website.
The TOSNT can be use only when trading the news, as the name suggests, and requires a broker that allows Touch Options. For this strategy we recommend brokers like 24 Option or Option Fair. If you are not familiar with news trading, you can't use this strategy. If you know what news trading is and what happens with the markets during the news, this strategy may be your lucky bullet to success. As with all the strategies presented here, we will use an example in order to make it easier for you to follow.
Step 1: You are ready for the release of big news that will shake the markets. The NFP (Non-farm Payrolls) is a good example of such news that affects the US Dollar. 10 minutes before the news is released you take action.
Step 2: You buy a Touch Up Option and a Touch Down Option with the same value, at the same time. Let's say you are trading on EUR/USD and the price is 1.3500. The Touch Up option will pay you 250% profit if the pair will hit the price of 1.3525 in the next 20 minutes. The Touch Down will pay you 250% profit if the pair hits 1.3475 in the next 20 minutes. That means that if the market will move more than 25 points in the next 20 minutes in any direction, one of your touch options will hit.
Since the NFP shakes the market with at least 50 points every time, one of your options will surely hit. If you are lucky enough and the market moves both ways before deciding which direction it goes you can even hit both targets. If you hit only one of the touch options (this will happen in most of the cases) and you invested $100 in each option, you will get a $350 payout for the winning option and zero for the losing one. That means a net profit of $150.
Hitting both options is pretty uncommon, but if you are lucky enough to be in this situation you will make a profit of $500! If you chose the right news that move the markets well enough you are almost certain to win with this strategy. The key to success with this strategy is to choose the right news and have good timing.
2.5 Advanced strategy: binary options combined with classical trading
The Advanced Strategy for Binary Options and Classical Trading (ASBOCT) is another strategy developed by our team's strategist. Just like the TOSNT described above, this strategy cannot be reproduced on other websites, and those who wish to use it are free to do it while taking full responsibility for their actions. We don't guarantee results and cannot be held liable if using our strategies results in loses for you. As a trader you decide if you want to use the strategies found here at your own risk.
The ASBOCT is an advanced strategy because it requires you to use a binary options broker that offers Touch Options and a classical forex broker (or CFD broker if you want to use it for commodities, indices or stocks). We recommend using 24 Option or Option Fair for the touch options and any of the following brokers for the classical trading: Markets.com, Ava Trade or XM. This strategy is very difficult to use for US traders because they will have a hard time finding a good forex broker, but if you are from US and already trade with a forex broker, you can use it as well.
To understand this strategy you must have good knowledge of traditional forex trading. If you don't know the basics of traditional trading then this strategy is not for you.
This strategy is pretty similar to the TOSNT in the way that it is best used when market moves are expected. It can be used before news releases or in very volatile market conditions. If your technical analysis detects a possible burst in one direction of the market, but you don't know in which direction, this is another good moment to use this strategy. Now, that we have described the necessary situation in order to make this strategy effective, we will explain how it works.
The touch options are used to hedge the trade that is executed on the normal trading platform. That means that the option's payout must compensate for the loss incurred if the stop loss is triggered. This will give you a risk free trade before the option's deadline. Since this may sound pretty odd, we will give an example to make it easier to follow:
You trade on EUR/USD and the market is at 1.3500. You expect big movements in the next 30 minutes. The binary options broker offers you a Touch Down option that will pay 250% profit if the price hits 1.3475 in the next 30 minutes. If you trade with a standard lot on EUR/USD, one pip will be valued at exactly $10. This means that a Stop Loss order of 25 pips (set at 1.3475 just like the Touch Down target) will incur a $250 loss. If you buy the Touch Down option with $100 you will hedge your Buy order of one lot perfectly. If during the next 30 minutes the Stop Loss is triggered you end up with no loss and no profit, since the Touch Down option compensates the loss of the trade.
Now let's see some possible outcomes and analyze the results. Here is what can happen in the 30 minutes when the option is live:
Outcome 1: The market moves UP with 50 points and you close the trade with 50 pips of profit. You have a profit of $500 from the trade and a loss of $100 from the option. This means a net profit of $400
Outcome 2: The market moves UP with 30 points. You have $300 profit from your trade and lose the option, so you end up with a net profit of $200
Outcome 3: The market moves UP with only 10 points. In this situation your trade ends up as break even.