Your Binary Options strategy determines whether you will win or lose money as a trader. Consequently, many traders are constantly looking for a better strategy to increase their profits. This begs the questions whether there is such a thing as a perfect Binary Options strategy, and, if so, how to find it. In this article, we will answer this question.
In detail, we will take a look at these points:
- Is there such a thing as a perfect binary options strategy for everybody?
- Which is the perfect binary options strategy for you?
- How can you find your perfect binary options strategy?
- Do you need a perfect binary options strategy?
With the answers to these questions, you will immediately know everything there is to know about the perfect binary options strategy, and you will be able to create a money-making strategy for yourself.
What perfect Binary Options Strategy can you apply?
Many traders enter the binary options believing in a misconception. They think that there is a single perfect strategy out there with which all traders automatically will be successful. Nothing could be further from the truth.
Just like there is no perfect career path for everyone, there is no perfect binary options strategy for everyone. Every trader has to find their own way to trading success, and trying to squeeze all traders into a one-size-fits-all approach will leave most of these traders in the same uncomfortable situation that most people would be if everyone had to become a lawyer.
Arguably, there are some great strategies out there, just like there are some great career paths. But is it better to be a doctor, a lawyer, or a pilot? There is no way to say. The answer depends on who you are. Some people will find their perfect career in one field, and some people will find their perfect career in other fields.
Don’t try to find what worked for other people, try to find what works for you. This different approach leads to a number of important changes when you try to find the perfect binary options strategy.
- Don’t listen to what others do, understand their tools. Advice can be helpful to understand the basic mechanisms of trading such as indicators, binary options types, and possible strategies, but all of these traders that claim to have to found the perfect strategy and that you only need to copy if you want to get rich are just blowing smoke. Try to understand the tools that can help you trade better, but choose if and how you apply them for yourself.
- Try to understand yourself before you try to find a good strategy: Just like someone who is looking for the perfect career has to understand their own strengths, weaknesses, and interests before they can find the perfect career, you first have to understand which type of trader you are, which things you can do well, and which things you like. Only then can you find the right strategy for you.
- Don’t compare your results to those of others. Just because someone makes more money than you, they do not necessarily have the superior strategy. You make as much money as you do, and that’s fine. Be comfortable with the profits that you make and don’t compare yourself.
We will expand on each of these points. For now, it is important that you understand that finding the perfect binary options strategy requires an inward focus, not an outward focus.
Now that we have pointed out that you need to find the strategy that is individually right for you, the next question we have to answer is by which criteria you can classify the right strategy for you, and how these criteria relate to your personality. We will focus on these issues in the next chapter.
Which kind of Binary Options strategy is right for you?
Many binary options traders struggle to find the ideal strategy for them because they fail to understand how they can classify different strategies. How can a trader know whether or not a strategy suits their character? If a strategy does not feel right, how can a trader understand the problem and find a strategy that feels better? To understand the answer to these questions, we have to take a closer look at the nature of binary options strategies.
There is a wide array of Binary Options Strategies. Some are based on trading signals, some on gambling theories, and some on reading the price chart. Based on this very fundamental difference and further differences in the detailed structure of these strategies, Binary Options strategies vary widely in risk and potential return.
Understanding this relationship of risk to potential return is the most important step on your way to finding the right strategy.
There are two main factors that influence the risk/reward relationship of your trading:
- The binary options type that you use, and
- The situations in which you invest.
Let’s take a closer look at both of these factors.
1. How the binary options type influences your perfect strategy
There are different binary options types, and each of them offers you a unique relationship of risk and reward. To understand these differences, let’s take a closer look at some of the most popular binary options types.
- High / low options: Undoubtedly the most popular binary options type, high / low options allow you to predict whether the market will rise or fall over a given period of time compared to the current market price. If an asset is currently trading at $100 and you invest in a high option, you would win the option if the asset trades at least the smallest possible increment higher than $100 when your option expires. If you are right, you get a payout of 70 percent to 90 percent.
- One touch options: One touch options define a target price, and you have to predict whether the market will reach this target price. Some brokers offer two options of one touch options, one with a faraway target price and a high payout of up to 300 percent, and one with a nearby target price and a payout similar to high / low options. The special things about one touch options is that the market only has to touch the target price briefly for you to win your option, it does not have to remain at this price level.
- Ladder options: Ladder options combine the trading styles of high / low options and one touch options, allowing you to predict whether the market will trade above or below a target price. Just like with one touch option, the market has to reach a certain target price, but in contrast to one touch options, it has to be at or beyond this price level when your option expires. If an asset is trading at $100 and you invest in a high ladder option with a target price of $101, the asset has to above $101 when the option expires. If it does, you can get the highest payouts in all of binary options, up to 1,500 percent.
With these three binary options types, you have the perfect example of how you can vary your risk/reward relationship with binary options.
Let’s assume that you predict that the S&P 500 index will rise over the next hour. Depending on the binary options type that you use, you can trade this prediction in very different ways:
- When you use a high / low option, you have the best chance to win your option, because even the smallest possible movement in the right direction is enough. You will also get the lowest payout of all binary options types. Consequently, high / low options are the low-risk/low-reward binary options type.
- When you use a one touch option, you have two options:
- If you use the low-risk form of one touch options, you get a similar risk/reward relationship as with high / low options.
- If you use the high-risk type of one touch options, you are very likely to win fewer of your trades because you need a strong movement in the right reaction. You will, on the other hand, get a higher payout on each winning trade. Consequently, one touch options are the medium-risk/medium-reward binary options type.
- When you use a ladder option, the market does not only have to move strongly, but it has to remain at the price level of the target price, which is a much riskier prediction to make than just predicting a strong movement. You do also get the highest payouts of all binary options types. Consequently, ladder options are the high-risk/high-reward binary options type.
Now, the important thing to understand about these three alternatives is that there is no single best binary options type. Risk-averse traders will love high / low options, while ladder options will drive them crazy. Risk lovers will enjoy ladder options, but high / low options would bore them to death.
As with anything in life, it is important that you choose the tool that suits your character. Being frightened or bored will cause you to make bad decisions and reduce your profits significantly. Your perfect strategy suits your character perfectly, which is why you have to base it on the binary options type with which you feel the most comfortable.
2. How the situation in which you invest influences your perfect strategy
Even if you stick with the same binary options type, you can vary the risk/reward relationship of your trading by investing in different situations.
The logic behind this approach is simple: Your binary options broker will vary the payout that it offers you depending on the market situation. You can seek out the types of market environments and payouts that fit your character.
This way of defining payouts resembles how sports bets create their odds. When the worst team in the league is playing the best team in the league, you get a better payout when the worst team wins than if the best team wins. If bookies offered the same payout on every bet, every trader would bet on the best team, and the whole betting business would make little sense.
The payouts of binary options are a little different, but they work in the same fundamental way. In some situations, all signs point to rising prices for an asset, much like all signs point to the best team in the league beating the worst team. Your broker will adjust their payouts accordingly and offer a lower payout if you invest in rising prices. When you invest in the sure thing, you have to accept a lower payout.
When you invest in the risky alternative, however, you can get a higher payout. When all signs point to rising prices, your broker will offer a high payout on investments that predict falling prices. You can use these payouts to make a risky investment that can pay off big.
This approach works best for brokers that know how to find the hidden secrets of the market. If you understand how to find the hidden resistance or support levels or use technical indicators such as the relative strength indicator (RSI) to identify weakening movements, you might be one step ahead of everyone else and make high-payout predictions that are safe nonetheless.
There are strategies that will create relatively safe predictions. If you apply these strategies perfectly, you will win 75% of your trades, but, because of their safe predictions, you will only get 70% of your invested money as profit from your broker. Other, more risky strategies will create a winning percentage of 90%, but will only win you 60% of your trades, if you apply them perfectly.
In real life binary trading, the winning percentage of each strategy will be relatively constant. The percentage of successful trades, however, will vary greatly, depending on which trader applies a certain strategy.
If you like to be right, you should choose a Binary Options strategy that will guarantee you a high winning percentage, even if the return per trade is a not as much as with a more risky strategy. Otherwise, a few losing trades in a row will likely cause you to stray from your strategy, and fall back into the habits of traders without a strategy. Then you will lose money, regardless of how great your strategy is.
On the other hand, if you can live with winning only slightly more than half of your trades, and if the prospect of many losing trades in a row does not scare you or make you abandon your strategy, a more risky Binary Options strategy might be better suited for you. A safe strategy would likely bore you and make you place a few riskier trades on the side. This, again, will cause you to lose money in the long run.
A Binary Options strategy must suit your character
There is no such thing as a perfect strategy for every trader. There is only a best strategy for each individual trader. You, therefore, should not listen to other traders that want to sell you their strategies as the perfect solution. Neither should you simply copy what someone else is doing or choose a strategy because of the money it mathematically can generate if you apply it perfectly.
The success of a strategy is determined by your ability to follow it as close to 100% of the time as possible. Choosing a strategy that suits you, your tolerance for taking risks, and your tolerance for being wrong is far more important than choosing a strategy with a high potential return that you cannot apply. Chose a strategy you feel comfortable with, and that will generate a profit, and you will be fine.
Especially when you are new to binary options, it may be a smart idea to try several strategies with a demo account before you use them with real money. This way, you can eliminate strategies that are not working for you without losing real money, and you can learn about your own preferences, which are often very different from what we expect them to be.
If you are planning on doing this, make sure your Binary Options broker offers a demo account before opening an account.
Do you need a perfect binary options strategy?
Maybe the most important takeaway from this article is that you do not need a perfect binary options strategy. All you need is a binary options strategy that is good enough to make you money.
This difference is important. Many traders get so caught up in the attempt to perfect their strategy that they completely forget the fact that they are already making money. In their quest for better and better strategies, these traders often forget that they have found what they were looking for – a way to financial independence.
Perfecting their strategy stops being a tool for achieving the goal of financial independence and becomes a goal in itself. As a result, these traders often abandon working strategies in the vague hope that they might be able to find something better if they only accepted another year of losing money while trying out new trading styles. Such tradeoffs make no sense.
Your perfect strategy is a strategy that makes you money. There will always be another strategy that might be able to make you more money, but that is something every trader must learn to accept. You will never be the best, the genius, or the one and only, but that was never your goal, remember? All you have to be is good enough to leave free from financial concerns and to buy your loved ones something nice on their birthdays.
Keep this goal in mind, and avoid getting sidetracked. Once you have found a strategy that works for you, stick with it. It’s all you need. In this way, “perfect” in relation to binary options means “well enough.” This is not loser’s talk; this is the reality of making money. Once you make money with trading, be satisfied with the gains that you make, even if someone else makes more. Trying to beat them will cost you a lot, maybe everything.
There is no such thing as a perfect binary options strategy for everyone. Every trader has different skills and a different personality, and finding the perfect binary options strategy means to find the ideal strategy for this combination of skills and personality traits.
To adjust a strategy to your character, you can trade a different binary options type or invest during a different situation. There are so many different binary options types and so many situations during which you can invest that you can create an almost unlimited number of trading strategies and find the one that fits your character perfectly.
The most important thing to understand about a perfect binary options strategy is that the pursuit of such a strategy is a means to an end, not an end in itself. Once you have found a strategy that is perfect enough to make you money, there is no reason to let the quest for perfection destroy what is already good enough.
As soon as a strategy makes you money, it is perfect for you. Stick with it.