Binary options strategies are essential tools for your trading success. Binary options strategies define what you invest in, how you invest, and how you can improve your trading success. This guide will help you to understand the characteristics of binary options strategies and to create a strategy that is perfect for you risk-free.
In detail, this article on binary options strategies will answer these questions:
With the answers to these questions, you will know more about binary options strategies than most traders. Additionally, you will have a concrete plan to create your own strategy without risking a single Cent. Once you start trading with real money, you will have a strategy of which you know that it makes you money.
A binary options strategy tells you what to invest in, when to invest, and how to invest. For this purpose, a strategy defines how you find trading opportunities and how you react to them precisely. Equipped with a strategy, you always know exactly what to do, and there is no guesswork in your trading.
Binary options traders know three types of sub-strategies. These types og binary options strategies are:
All of these binary options strategies are essential elements to your trading success. Neglecting one type of strategy or following it only half-heartedly will sabotage your trading success and is the surest way to lose money. A successful binary options strategy combines all three sub-strategies into one coherent main strategy.
Especially new traders often make the mistake of focusing on their trading strategy exclusively. In their minds, trading means finding profitable investment opportunities, but they do not know that there are two other, similarly crucial aspects they need to focus on.
Without a strategy, long-term success with binary options is impossible. To help you understand this connection, let’s look at why you need each of the three sub-types of a strategy:
1. Why do I need a trading strategy?
Having a clearly defined trading strategy has two advantages:
Combined, these two advantages help you find better trading opportunities. By eliminating the emotions from your trading, a strategy guarantees that you will do the same thing in the same situation. This repeatability allows you to evaluate your trading.
After 50 trades, you will know whether your current strategy is good enough to make you money. If it is, great. You can keep using it knowing that you will grow your account balance in the long run. If it is not, you can improve it by using the third part of your strategy, the analysis and improvement strategy.
Without clearly defined binary options strategies, however, none of these advantages would work for you. Depending on how you feel about an asset, you would sometimes invest in rising and sometimes in falling prices, but your trading would lack a clear direction. After 50 trades, you will be unable to tell why you made or lost money, and you will be unable to improve your trading. You might gain 10 percent in one month, but you will lose 10 percent in another, and you will be unable to improve continuously.
Sooner or later, this type of trading will ruin every trader because losses weigh more than wins. To get back from a 50 percent loss, you need a 100 percent gain, and if you alternate between losses and wins of about the same percentage, you will lose money in the long run. Only a solid strategy can prevent you from this fate.
2. Why do I need a money management strategy?
A money management strategy is just as crucial to your trading success as a trading strategy. By making sure that you always invest an amount that suits your account balance, a money management strategy helps you to grow your capital and survive losing streaks.
Most new traders make the mistake of investing too much on a single trade. Sometimes, traders even invest as much as 50 percent on a trade. Since no trade is a guaranteed winner, these traders will soon lose one of their trades, and they will lose half of their money with it.
This is a problem because coming back from a 50 percent loss requires a 100 percent gain. Losing only two trades in a row would require a 300 percent gain, and losing three trades would require a 700 percent gain just to break even. As these examples show, you have to avoid digging yourself into a deep hole, or it will be impossible to come back.
A money management strategy is the tool that allows you to accomplish this goal. With a money management strategy, you grow your capital gradually and avoid big setbacks.
3. Why do I need an analysis and improvement strategy?
No trader has ever entered binary options and found the holy grail of binary options strategies right away. Neither will you. Finding the right strategy and improving your trading to a point where you can turn a profit requires you to analyze what you are doing, to strengthen the parts of your trading that make you money and to eliminate those parts that lose you money.
Without such a strategy, you will become a dabbler. You will try many different things, make some money here, and lose some money there, but you will never find a strategy of which you know that it works. Instead, you spend your career always chasing the next new trading trend, trying to find a magical tool, but always buying into ineffective ideas.
Only a solid analysis and improvement strategy can help you to avoid this fate. It will help you to understand what is working for you and what is not, and to create a definite strategy that allows you to make money.
Continue reading about binary options strategies below…..
Binary options strategies vary greatly. As we pointed out, the one thing they have in common is that they generate a signal and then tell you how to trade this signal and how much you should invest. For each of these steps, however, there are plenty of different approaches. To understand the differences between the types of binary options strategies, let’s look at each part of a strategy individually.
To find investment opportunities, binary options strategies can follow two basic approaches: technical analysis and a news-based approach.
For newcomers, a news-based approach is the most intuitive strategy. With this strategy, you would invest in rising prices whenever positive news about an asset reaches the market, and you would invest in falling prices whenever negative news about an asset reaches the market.
To help you execute such a strategy effectively, most brokers offer economic calendars on their websites. Whenever important news is about to be published, for example, unemployment data or a company’s earnings report, these calendars will tell you what the market expects, which helps you to decide which news would be good and which would be bad, and in which direction you should invest.
Trading the news is simple, intuitive, and easy-to-learn, but it also has disadvantages. When news reaches the market, it often reacts in unpredictable ways. Additionally, even if positive news makes the market rise, it is often difficult to predict how far it will rise and for how long. While news traders accept these uncertainties and claim that they can make a profit anyway, traders have developed technical analysis to be able to predict market movements independently from all outer influences.
For this purpose, technical analysis focuses on market movements exclusively. By analyzing past market movements, technical analysts try to understand which psychological dynamics influenced the market in the past and how these dynamics will play out in the future.
This approach sounds more complicated than it is. In our daily lives, we all perform technical analysis. When we meet a new person and they greet us with a bright smile, we predict the possibility of a great new relationship. When they barely notice us, however, we predict that we will never be friends. Depending on what happens next, we might adjust our prognosis, and we might want to collect more data before decide on our final verdict, but we would try to understand why this person does what it does and then try to predict which actions these motivations create in the future.
Technical analysis does the same thing with an asset’s price. If people were willing to buy or sell this asset for certain prices, technical analysis can predict whether these influences will make the price of the asset rise, fall, or move sideways.
Just like in our daily lives, technical analysis defines certain patterns that allow you to predict what will happen next. In our daily lives, we predict that a big smile will lead to friendly interactions; and technical analysis uses similar patterns. There are candlestick formations, trends, technical indicators, and much more. Each of them can help you to predict what will happen next in one glance.
Whether you should follow a new-based approach or use technical analysis depends on your personality. We recommend you test both strategies with a binary options demo account. Demo accounts are fully functioning accounts that allow you to trade with play money instead of real money. We will expand on demo accounts later in this article.
For investors, there are also binary options strategies that focus on long-time earnings, the prospects of a company in the future, and fundamental market data. Such factors can move the market on long time scales of many years, but for binary options, they are of little use.
Binary options focus on short-term movements, and knowing that a company’s stock will trade higher in 10 years does not help you to predict whether it will trade higher in one hour. Consequently, fundamental strategies are ill-suited for binary options trading. You should focus on short-term strategies, and when we talk about binary options strategies on this site, we always mean short-term strategies.
There are three types of money management strategies:
Of these three types of money management strategies, only a percentage based money management strategy can create long-term success.
Without a money management strategy, you will suffer the negative consequences we laid out earlier. You will keep losing money and sooner or later have too little money left to make an investment.
Martingale money management strategies are based on the assumption that you should invest big after you have lost money. To gain your losses back, a martingale system could, for example, require you to double your investment after every lost trade, assuming that you will eventually win a trade and end the series with a profit.
The issues with these types of money management strategies is that they work as long as they do not work. Since you can guarantee to win a trade with binary options, you are always working with odds. While a good trading strategy can help you to improve these odds, they will never be a 100 percent. Therefore, you will sooner or later face a losing streak. With a martingale money management system, this losing streak will ruin you.
If you lose 5 or 10 trades in a row, which happens to every trader eventually, a martingale money management system will force you to increase your investment after every trade. If you double your investment after every loss, for example, after 10 losing trades, you would have to invest 1.024 times your investment on the first trade. Since you already invested 512 times your investment on the last trade, there is no way you have so much money left – you are broke.
Even though such an event is highly unlikely, if you trade for a year, you will encounter such a losing streak. To avoid bankruptcy in this case, you have to avoid martingale money management system.
This leaves you only with the option of a percentage-based money management system. Percentage based money management system do the exact opposite of martingale systems – they decrease your investment after a loss and increase your investment after a win. They accomplish this goal by investing a fixed small percentage of your overall account balance on every trade.
Ideally, you would invest less than 5 percent on every trade. Risk-averse binary options trader might invest only 2 percent, and risk-takers could invest the entire 5 percent per trade.
With a percentage-based money management, you could, for example, invest 3 percent on every single trade. With an account balance of $1,000, you would invest $30, if your account balance climbed to $2,000, you would invest $60, and if it fell to $500, you would invest $15.
In this way, a percentage-based money management strategy adjusts your investment per trade to your financial capabilities and helps you always to invest as much as you can afford – not more, and not less. You will be able to survive losing streaks but also to increase your profits as your account balance grows.
When it comes to analysis and improvement strategies, there is only one way to go: a trading diary. A trading diary can be anything that helps you to understand why you made a trade and how this motivation works out for you.
To understand this system, let’s look at an example. Assume that you are a trader that combines a news-based trading style with technical analysis. To improve your trading, you want to know which type of trading works better for you. With a trading diary, you would note every trade you made, whether it was based on a news story or a signal from technical analysis and whether you won or lost the trade.
After a while, you would be able to see a trend. Let’s say that you win 60 percent of your trades based on news but 75 percent of your trades based on technical analysis. Knowing this could lead you to drop news-based trading from your strategy and focus on technical analysis. In a next step, you could identify which aspects of technical analysis work for you and further specify your strategy.
By paying attention to details and committing to continuous improvement, you can use an analysis and improvement strategy to increase your returns step by step. Even if you start as a complete newcomer, you will be able to turn a profit eventually and to keep improving your profits after that.
Of course, an analysis and improvement strategy applies to all parts of your trading, not only your trading strategy. Among others, you could also ask yourself these questions:
These are only a few examples. A trading diary can help you to analyze any aspect of your trading. We recommend to focus on one aspect at a time, though, or your results will be difficult to evaluate.
To help you find your trading strategy more easily, we want to provide you with a starting point. For this purpose, we will now list examples for popular trading strategies and explain the logic behind them and the type of trader that should use them. We will focus on trading strategies since we already explained the two other aspects of a strategy – money management strategies and analysis and improvement strategies – sufficiently.
When the market moves up and down, it rarely moves in a straight line. Instead, the market moves in zig-zag lines, always taking two steps ahead and one step back. These zig-zag movements are called trends, and they are predictable, which makes them a great basis for a strategy.
To trade trends, you have two basic possibilities:
Of course, you can also combine both approaches and trade a trend in multiple ways simultaneously.
The classic way to trade a trend would be with a high / low option. High / low options predict that the market will trade higher or lower than the current market price after a given period of time, which is ideal for trends. To trade an uptrend, you would invest in a high option; to trade a downtrend, you would invest in a low option.
If you are willing to accept more risk in exchange for a higher payout, you can also trade a trend with a one touch option. With once touch options, you predict whether the market will reach a target price. Trades can be a great tool to make this prediction.
Regardless of which strategy you use, trends will provide you with plenty of trading opportunities on all time scales and are a great tool to build a strategy around.
Significant news often has a big impact on the market. When a company exceeds the market’s expectations, its price will soar; and when the government publishes disappointing unemployment data, the entire market will fall.
Nonetheless, turning news into a precise trading decision is difficult. Unlike trends, which allow for mathematically exact predictions, news provides you with no indication for how far the market will rise or fall or for how long the market will rise or fall.
To help you make money by trading the news, here are three ways to turn news into trading decisions despite these difficulties:
These are only three examples for how you could trade the news. There are many more possibilities –traders who are willing to take risks could also use one touch options, for example. Nonetheless, this introduction should provide you with a starting point for understanding the different possibilities and creating your own strategy.
Trading candlestick formation might be the easiest strategy for newcomers to execute profitably.
Candlesticks are a special form of displaying market movements. Instead of displaying price movements as a thin line – the price diagrams most people are familiar with – candlesticks display market movements in the form of multiple candles. Each candle aggregates the market’s movements over a given period of time and displays the period’s opening price, close price, high, and low.
With this simple change, candlesticks tell you everything you need to know about a period. You get the opening, the close, and the full trading range, which means that you know every price the market reached in this period. Line charts use only one of these prices for their lines and ignore the rest, denying you most of the information a period has to offer.
To trade candlesticks with binary options, all you have to do is learn and understand a few crucial candlestick formations. There are hundreds of formations out there, but knowing only four or five is already enough to begin your journey.
One important candlestick formation, for example, is the gap. If the market jumped from one price to another, leaving the price within this jump as a gap, there are three things that can happen:
There are many more simple candlestick formations that can provide you with great trading opportunities. They all follow the same basic principle as the gap: by knowing and understanding simple patterns in market movements, you can find many trading opportunities with all forms of assets and in all types of market environments.
As you can see from this article, there are many variations of binary options strategies. Consequently, finding the variation that is ideal for you can take time, especially because every trader is different and it is impossible to recommend a single strategy that suits everyone.
This is a problem. Testing different binary options strategies while knowing that some of them are not for you necessarily involves some initial losses. You might make some rookie mistakes, and you might trade in ways that you feel uncomfortable with, which will result in lost trades. For newcomers to the binary options who trade with a limited budget, these losses can threaten to end their trading career before it has begun. This is why finding the right binary options strategies is the most difficult step in your trading career.
Luckily, binary options brokers have thought of a way to make this step easier for you. This way is a binary options demo account.
A binary options demo account is a fully functioning trading account with a twist. You can use all the features a broker offers, get the same payouts, and get all the assets, but you can trade with play money instead of real money.
Most brokers offer demo accounts, and once you have decided on which broker you want to trade with, there is a good chance that this broker will offer a demo account, too.
With a demo account, you can take your first steps in the world of binary options completely risk-free. This premise enables you to develop your strategy without having to fear initial losses. You can try all the binary options strategies you want and see whether you can make money with them. Once you have found a strategy that works for you and that you feel comfortable with, you can start trading with real money knowing that you will be able to turn a profit. That is the power of a binary options demo account.
Of course, there are hundreds of binary options demos out there, and this wealth of offers can be confusing. If you want to simplify your search, we recommend using the IQ Option demo, the ideal demo for new traders that want to find their strategy.
IQ Option has the unique advantage of allowing you to register without making a deposit. Most other binary options brokers offer their demos as features of their regular accounts, which means that you have to get a regular trading account to get their demos. Since getting a regular trading account involves depositing money with a broker, you would have to deposit money to access their demo.
Such a system is all right for experienced traders, but it makes no sense for newcomers. They would have to invest money into a trading style they have never tried before.
IQ Option, however, allows you to sign up for their demo directly, without getting a regular trading account. All you have to do is follow one of our links to the IQ Option website and sign in with your Facebook account, your Google account, or your email. The entire process requires only two clicks and works as simple as signing into a mobile game. There are no strings attached, and you do not need to worry about the money you deposited. This is the ideal way for newcomers to use a demo.
The IQ Option demo also convinces in every other aspect:
Combined, these advantages make the IQ Option demo the ideal for newcomers. We recommend the demo to all newcomers, and we suggest you try it, too. After all, you have nothing to lose but you might find a fun way to make a lot of money. Why would you pass on such an offer?
Binary options strategies are a crucially important tool for your trading success. Every trader should have three types of sub-strategies:
These three binary options strategies are the cornerstones of your binary options success. Without them, success is impossible. While it takes time to create three sub-strategies that work well for you, this is a process no trade can avoid. With a binary options demo, you can start the process for free and complete it without risking a single Cent. Especially the IQ Option is ideal for newcomers to the binary options scene.