As a trader, you have to pay your bills like anyone else. Therefore, you will have to meet a certain income goal with your trading. Choosing an improper strategy might make that impossible. Your ability to adjust your trading strategies for binary options according to your needs will greatly determine your trading success.
To help you make the right adjustments, this article will answer all your questions about trading strategies for binary options. In detail, we will answer these questions:
With the answers to these questions, you will be able to create the perfect trading strategy for binary options for you, and you will be able to adjust existing trading strategies for binary options to your needs.
Trading strategies help binary options trader to deal with a simple problem: you will never be able to win every single trade you make with binary options. The goal is to make money by the end of the month, after a large number of trades, maybe 100 or 200 trades. To accomplish this goal, you need a strategy that helps you to coordinate your trading in a way that guarantees that each trade is a step to achieving your overriding goal – making a profit by the end of the month.
For this purpose, trading strategies for binary options define concrete rules for how you trade. They define what you invest in, how you invest, and how much you invest. The goal of a strategy is to guarantee that you will always react in the same way to the same situation, thereby making your trading comparable and repeatable.
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If you always do the same thing and know that this thing works most of the time, you will make money by the end of the month – this is the simple logic behind a trading strategy.
There are hundreds of thousands of different trading strategies for binary options, and most of them can work if you feel comfortable with them. To help you get a better feeling for what binary options trading strategies are, we will now take a look at a random example: trading trends. Just bear in mind that this is only one of many possible strategies and the fact that we mention it here makes it in no way superior to any other strategy.
Trading trends is a classic strategy traders of all types of assets have used for decades. Trends are the zig-zag market movements that take the price of an asset to new highs and new lows, depending on the direction of the trend. Such market movements never happen in straight lines, and by understanding the exact nature in which they develop, you can find enough trading opportunities to serve you for your entire career.
Even during strong upwards movements or downwards movements, the market has to go through a consolidation period every once in a while. It is simply impossible for traders to constantly keep buying and push the market to new highs or constantly keep selling and push the market to new lows. At some point, everybody willing to buy or sell has bought or sold, and the market has to gather new momentum before it can continue its movement.
These consolidation periods make trends predictable.
When you recognize the classic trend pattern of taking two steps forward and one step back, you know that this trend is likely to continue and that you can win a binary option by predicting that the market will continue moving in the trends direction.
Every time you find a trend, a trend-based trading strategy would want you to invest in a binary option in the direction of the trend. The strategy would dictate the expiry you use, for example as the length of five periods or one full swing of the trend, and the amount you invest for example as 2 percent of your overall capital.
With this strategy, you would know everything you need to find trading opportunities and react to them. After a large number of trades, ideally at least 100 trades, you would know whether the strategy makes you money or loses you money. Depending on the outcome, you could adjust the strategy and improve your overall return until you can guarantee that you can turn a profit by the end of the month.
Many newcomers feel that they could do without the strict rules of a trading strategy. The main reason why you need them is the point we made at the end of the last paragraph. To understand why you make or lose money by the end of the month and whether what you are doing is working for you, you first need to know what you are doing. A trading strategy guarantees that you understand where your results come from.
Without a trading strategy, your trading would be random and driven by emotion. After a while, you would have made some money or lost some money, but you would be unable to say why you won or lost money. Consequently, you would be unable to improve. You would be trapped trying new trading styles every day but being unable to settle for a style that can guarantee your success.
A trading strategy makes your trading evaluable. Because you can connect what you are doing to the amount of money that you make, you can try different approaches to the market and find the one that works best. When you are trying to improve your trading, you can test which parts of your strategy work well for you and which do not, and you can strengthen your strengths and eliminate everything else.
Your trading strategy is the tool that allows you to improve over time. Nobody was born a master, and no trader starts their career with a perfect strategy, generating huge profits from the start. As with any skill, trading binary options takes time to master. Only with a strategy, you know whether what you are doing gets you closer to where you want to go.
Without a trading strategy for binary options, long-term success is impossible.
A successful strategy for binary options contains more elements than a trading strategy. It is made up of multiple elements that combine to create the total set of rules that guide your trading.
The multiple elements that make up your overall strategy are the result of the many tasks your strategy has to accomplish. As we already pointed out, your strategy defines how you find trading opportunities, how you invest, and how much you invest. Additionally, you need a way to analyze whether what you are doing works for you and improve your results. There is an element for each of these tasks in your trading strategy.
In detail, your strategy contains these elements:
Your trading strategy is the first and most important step to binary options success, but it is not the only step. To understand why, let’s take a quick look at what the other two strategies do for you.
Add these two strategies to your trading strategy, and you have all the tools you need to become a successful binary options trader.
We already explained one example of trading strategies for binary options. To provide you with a better understanding of the world of possibilities that binary options strategies have to offer, we will now take a look at a few other strategies. We will choose examples from different aspects of technical analysis to show you the full bandwidth of possibilities out there.
Two of the simplest elements of technical analysis are resistance and support levels. Both elements are simple to explain:
Resistance and support levels allow for easy predictions: since the market is apparently unable to break through a price barrier, you can predict that it will turn around when it gets near this barrier the next time.
Depending on the binary options types your broker is offering you and your personal preference, there are a number of ways in which you can trade this prediction. These ways are:
Oscillators are technical indicators that allow newcomers to binary options to find trading opportunities in a simple and easy way.
As all technical indicators, oscillators aggregate past market movements in a way that allows for predictions about what will happen next. The special thing about oscillators is that they calculate a ratio of market data, generate a value between 0 and 100 and display the changes in this value in a chart. The result is a line that oscillates between 0 and 100. The current value of the oscillator and the relationship of this value to past movements make predictions easy, obvious, and unambiguous, which is a great way to trade for newcomers to strategies for binary options.
One of the most popular oscillators is the relative strength index (RSI). The RSI relates the size of past upwards movements to past downwards movements to understand whether the market has some momentum left to rise or fall.
The RSI generates a value between 100 and 0.
These results are interesting because the RSI follows a simple logic: at any given time, there is only a limited amount of traders who are willing to buy or sell an asset. As soon as the traders have bought or sold, even the best reasons in the world are unable to move an asset higher or lower. The market has to go through a consolidation period first and gather new momentum. In this way, the RSI can help you avoid investing in weakening movements and discover new movements before they become trends.
Generally, any RSI value of over 70 is considered overbought, and any value below 30 is considered oversold. You should be careful to invest in downwards movements when the RSI is below 30 and in upwards movements when the RSI is above 70.
On long time scales, when you look at the price movements of months and years, for example, the RSI can stay in an overbought or oversold area for a long time if there are strong enough reasons to push the market up or down. On the short time frames of binary options, however, such strong reasons are rare, which is why the RSI’s readings become prime tools for finding new trading opportunities.
The classic way of generating trading signals with the RSI is to invest when the market leaves an extreme area.
To trade this prediction, you can use a number of binary options types:
When the market moves up and down, it often creates formations that allow deep insights into what will happen next. We already looked at trends, but there are far more price formations that you can use to create trading strategies for binary options. Some of these price formations are:
You can trade all of these predictions with multiple binary options types:
You can predict that the market will move significantly when a formation is complete, thereby creating high payouts but also taking high risks.
You can predict that the market will stay within the boundaries that the formation defines.
All of the strategies that we outlined so far have their unique characteristics. Some of them are the high-risk-/high-reward type, and some follow the slow-and-steady approach to trading. To help you understand whether the characteristics of a trading strategy match your personality and whether your strategy is good enough to make you money, we will now take a look at how to evaluate trading strategies for binary options.
In conventional theory, the success of any trading strategy is determined by two factors:
By multiplying both numbers, you will get your total winnings with this strategy. As long as the result is over 100, you will make money with this strategy. For example, if a strategy enables you to win 70% of your trades, and you get 1.7 times the invested amount with each winning trade, the result is 119%. The result is over 100, which means you will make money with this strategy.
This, however, only tells you whether or not your strategy will work. It does not tell you how fast it will work. If your strategy is to trade double tops and double bottoms in hourly charts, for example, you will probably only get one trading signal a day, even if you are monitoring dozens of assets and markets at the same time. Sometimes you will not even get a single signal a day. If you had been planning to make four or five trades each day, this would turn into a big problem for you. After some time, you will inevitably realize you need to be making more money.
One of the most dangerous situations any trader can be in is to trade an effective, money-making strategy, and still not make enough money to cover his cost of living. In this situation, most traders start looking for more trading opportunities to make more money.
Since many of them do not know how to adjust their trading strategies, they make the mistake of investing outside their original trading strategy. Desperate for more money, they fall back into old habits of making random trades without a strategy, and start losing money instead of making more. This vicious cycle will speed up until they are in deep trouble. It is therefore very important to know how to adjust your trading strategy according to your needs.
There are a number of ways you can adjust your trading strategies in binary options without completely abandoning your original strategy. First of all, you can try to monitor more assets for signals. This is not always possible, and in most cases, it cannot triple the number of signals you can find. If you are trading rare signals like double tops, you, therefore, have to look for other solutions. One possible option would be to switch to a smaller time frame. If you are currently trading an hourly timeframe, you could get significantly more signals by switching to a 15-minute timeframe.
Keep in mind, though, that if your old strategy was working for you, almost every adjustment to generate more signals would lead to a reduced quality of each individual signal.
In other words: You will be able to invest in more trades, but you will win a smaller percentage of them. Still, if you triple the number of your signals, for example, and at same reduce the percentage of winning trades from 80% to 70%, this trade-off is well worth it. On paper, your strategy might look worse than what you started out with, but over the course of a month, you will make more money. In the end, that is the only number that matters.