If you have decided to reach your financial goals through binary options trading and have enrolled with a binary options broker, then it is important that you arm yourself with a few strategies that will help to up your success rate. The different market conditions require that different strategies be applied to conduct successful trades. Though some of the strategies may seem difficult to implement in the beginning stages, they will get easier as time passes and become part of your regular trading activities. This article aims to list out a few binary options strategies that you can learn and implement along the way to realize your financial goals.
Strategy #1: Fundamental Analysis
One of the basic skills that will help you to successfully perform in the binary options market is fundamental analysis. The parameters related to fundamental analysis include unemployment figures of a country, prevailing interest rate, national debt, and other economic indicators. These are the factors that drive the value of the underlying asset being traded. It is, therefore, a good idea to incorporate the current market sentiment and the immediate future scenario after release of economic and news data. The assessment that you make of the current market condition based on these factors forms the fundamental analysis strategy.
Strategy #2: Technical Analysis
The technical analysis starts with studying the historical prices of any underlying asset. This will enable you to predict the direction of the movement of the value of the asset with a reasonable amount of accuracy. A study of the factors that influence the asset’s value both in the recent past and long ago is important to make the right inferences. Marking the lowest and highest values that have been hit by the asset’s value, determining the median price points and price trends of the underlying asset are helpful because these trends are likely to repeat under similar conditions in the future. Binary options brokers help traders by providing graphs and charts for technical analysis. By using technical analysis a binary options trader can make a decision on the direction in which the price of the underlying asset will move. Further, depending on the expiration time the trader can decide whether to buy a Call or a Put binary option contract on that asset.
Strategy #3: Risk Reversal
Risk reversal is a strategy employed to reduce losses that may occur during binary options trading. The strategy involves the purchase and sale of out-of-the-money binary options contracts simultaneously in a bid to avoid extra costs. To put the risk reversal strategy into action, an out-of-the-money put option on a specific underlying asset has to be sold while simultaneously purchasing an out-of-the-money Call option contract on that same asset so that the expense of the purchase can be offset by the profit received through the sale. Though it takes a while to learn and implement this strategy, it does offer some merits.
Strategy #4: Inside Bar
If you have decided to trade in binary options, the inside bar strategy is an effective tool that can be used. To use this tool, the trader has to keep abreast of the trends in the market. It aids the trader in establishing the right price for the options. Documentation of the highest/lowest prices of the underlying assets and drawing relevant graphs helps to determine its actual price also helps. An inside bar gives an indication of the volatility of the underlying asset’s price. It is a helpful price-action strategy and if used properly can give the best trading opportunities. Inside bars denote points where the price of the asset when the high point is lower than the previous day’s high point and the low point is higher than the previous day’s low point. These indicate lower volatility in the price of the assets and also to determine the overall upward or downward price trend.
Strategy: #5: Long Shot
The long shot strategy is one that can help a trader recover the full investment and much more if it is applied successfully even if it is only for a few times. It is also to be noted that this strategy involves higher risk. Learning and executing this strategy assures the trader of higher profits which are usually available only when riskier trades are executed. The long shot strategy can be applied on any type of underlying asset. The strategy involves buying a binary options contract in the underlying asset if the trader believes that the asset’s price is far beyond the strike price. If the difference between the two is larger, the chances of the trade becoming successful are lower. But if the binary options contract end in the money, the returns made will be large. Even a 50% success rate ensures very high returns.
Strategy #6: Money Management
Strong money management is required to optimize profits as well as cut down losses that may occur during the course of trading. Losses can occur in as much speed as profits do when trades are executed one after the other. For effective money management, it is highly essential to exercise discipline while investing in the trades. It is recommended that the trader selects a specific percentage of the funds available to invest in trades. This amount should always be the same and should never be exceeded. Most traders commonly invest 10% of their funds in a trade.
Strategy #7: Bullish and Bearish
These are simple strategies that can be easily implemented even by beginner traders. Whereas the price trend will be rising in a bullish market for many of the underlying assets, in a bearish market traders will be selling off assets anticipating a fall in their prices. Both these market conditions can be exploited adequately by selecting a suitable Call or Put option and a contract expiry time. However, the trader has to realize the fact that even strong bullish or bearish trends are but temporary in the market and can reverse any time. This happens when the support and resistance levels dominate the price movement of the assets.
Wrapping up, trading in binary options is simple. However, to be successful, it is crucial to learn the basic strategies and implement them at the right times. Additional strategies that can be employed include boundary and knock-on. To maximize profits and cut down on losses, it is important to apply the strategies according to the current market condition.