Pick Your Trading Strategy For Binary Options Trading
To be successful in binary options, you need to pick your trading strategy and you need to execute that strategy.
The common myth of binary option trading is that only those who are experienced can trade this instrument, but the truth is totally different.
There is no requirement to having any prior experience in trading binary options;
This is totally a unique type of trading with limited risk and option to offer maximum profits.
The skill to do this type of trading can be grasped within limited period. If offers a yes/no proposition which makes it simple to understand.
The main challenge about this trading is to predict in which direction the price of the asset will move.
The price of the asset is expected to either increase (call) or decrease (put).
Minimizing risk is an important aspect for every trader. There are a few areas to concentrate for the same. A important one would be to not invest a considerable amount in a single trade.
Another one would be to do a complete research on the asset before you invest.
While trying an asset for the first time, research on it and try to understand its market movement.
These will not just decrease your risk of trading but will also safe guard your investment.
Though they are many assets in binary options, the most commonly used and considered type of trading is single asset trading.
Focusing on one asset at a time brings better results. Let’s discuss some commonly used binary options trading strategies.
Commonly Used Trading Strategies For Binary Options:
1. Trend Strategy:
Both experienced and beginners use this trading strategy frequently.
It is also known as bull- bear strategy and it is focused on rising, monitoring, declining as well as flat trend life of traded asset.
If there is a prediction considering the price of the asset will go up and flat trend line analysis to justify the same.
Though this binary option works similar to call / put option.
The only exception is here you can select the price at which underlying asset price do not touch a certain level.
It is also known as no – touch binary option.
2. Pinocchio Strategy:
When there is too much volatility in the market, this strategy is used.
Too much volatility means when the asset prices shoots up or fall this strategy is considered as the best option.
Candlesticks are required to perform this strategy. The candlestick that has a short body and a long wick is known as a Pin bar or a Pinocchio bar.
It is named after Pinocchio because every time Pinocchio lied, his nose got bigger, and the same applies here.
Longer the wick (nose), higher the probability that the asset price will move in a direction opposite to that of the original direction.
So when the wick goes down, you place a call option and when the wick goes up, you place a put option.
3. Straddle Strategy:
This strategy is also used during market volatility when the price direction is unclear. In a straddle strategy, a trader buys or sells both a call and put option.
It is a very simple strategy to execute and is beginner friendly. There are two kinds of straddle strategy: long and short straddle strategy.
Long Straddle: Here, the trader will purchase a put and call option at the same strike price and expiration date. For the long straddle to work, the market must be highly volatile.
Short Straddle: Here, the trader will sell both the put and call option at the same strike price and expiration date. For the short straddle to work, the market must be of low volatile nature.
Straddle strategy is one of the popular strategies used by IQ Option traders.
4. Risk Reversal Strategy:
This is one of the most used trading strategies by experienced binary option traders.
As the name suggests, the aim here is to reverse the risk by applying a technique similar to hedging.
A trader hedges his initial position by going in the opposite direction. Either one of those trades will turn profitable and hence the profits are limited with this strategy.
So if a trader places a call option on a asset that is bullish, he will also a place a put option just in case the market actually moves in the opposite direction.
5. Fundamental Analysis:
Fundamental analysis is the process of analyzing the market by taking economic, industrial, social, and political factors that influence the demand and supply of that asset.
Coupled with technical analysis, fundamental analysis will result in better accuracy in the predictions of traders and analysts.
It involves analysis that takes earning reports, financial statements and market share into consideration.
Technical analysis focuses on charts, while fundamental analysis takes a look at the real world factors. They have some other differences between them that we discussed previously.
Strong predication should be backed up with sufficient statistics.
You have to understand the correlation between these factors and how it affects the price of the asset.
For example, a high interest rate means, a stronger currency. And a stronger currency means that currency will perform better well compared to other currencies.
What this means is you can go long on that currency asset as its price is expected to rise.
If technical and fundamental analysis point to the same result, that means you are going in the right direction.
It is always wise to use a combination of the two and not just focus on one single form of analysis.
Apart from the strategies listed above, traders can come up with other trading strategies as per their preference and market conditions.
These were just some of the basic strategies for binary options. You can consider these as gateway strategies to start options trading.
There are so many strategies for binary options that you can apply. At the end of the day, the trading strategy you apply must go along with your trading style.
Keep in mind that you have a clear understanding of the strategy that you are deploying. Blindly copying a top trader isn’t going to help you in the long run.
Trading binary options isn’t hard. It takes some basic understanding and accurate application of certain techniques. We will keep adding new strategies for you to experiment and use.