Top Strategies In Binary Options Trading
In order to succeed in binary options trading as in any other form of trading, one must find a sound approach and develop the right strategy both for the trading and management of investments. There are many strategies developed with the goal of increasing chances for more plentiful income provided by binary options trading, and when properly used they can definitely make a difference. In this article, you can find
- Martingale and anti-martingale Strategy
- Precise Enter Strategy
- Tunneling Strategy
We have also included a short section on volatility tools so traders understand the importance of volatility in prices on the execution of their preferred strategy.
Martingale & Anti-Martingale Strategy
Martingale strategy happens every time traders double the bet if the previous one has been lost, hoping they’ll win this time. It is assumed that this double rate would cover previous losses, and traders get a legitimate profit. Everything would be great if people did not miss one important point: it is necessary not just to double every last bid, but the sum of all previous bets lost.
Let us consider an example: let’s say trader bought a binary option for $25 (usually a minimum purchase option) and the forecast was wrong. So, they buy a new option for $50 and their prediction is incorrect. The next purchase should be $150, and if it does not bring profits, then they need to invest $450. Does average trader have enough money, and, most importantly, patience and courage to continue in order to win?
Of course, if traders buy stock options based on an analysis of the market, then applying this strategy to hedge the risk is quite possible. However, it is advised that beginners should use this strategy only if they have steel nerves and a tight budget.
There is also a strategy called anti-Martingale. Proponents of this trading strategy, on the contrary, increase the investment only after the option profits, and if the option was unprofitable – the stake is reduced. Be cautious with this strategy as well. For example, if the trader has had a number of failed transactions and their balance has decreased by 20%, in order to make a profit they need to increase the investment by 25%.
Remember that the key to success is a sensible approach: go with a plan, and decide the maximum amount willing to invest. And remember that only reason and rational approach win in trading.
Precise Enter – binary options trading strategy
In order to trade binary options more effectively, traders often use a strategy called Precise enter. Such a strategy would suggest the most appropriate time to enter the market, and help to determine the correct direction. Precise entry strategy leaves the possibility of experimentation.
A selection of different criteria can significantly improve the strategy. For example, for greater accuracy, trader can add it to use Fibonacci levels. With the use of this technical analysis part, it will be possible to detect the last oscillation. This will provide an opportunity to avoid even a small rollback, and increase the accuracy of determining when to enter the market.
Such a strategy is implemented with a number of instruments and has a number of requirements. Below is a list of tools and requirements for the use of the strategy:
- Trade should be implemented only on the daily chart.
- Trade can be made using any currency pair.
- Simple Moving Average with a periodicity of 150.
- Stochastic Oscillator or stochastic (6,3,3), horizontal lines 70 and 30.
- RSI or Relative Strength Index with the frequency of 3 with horizontal lines 80 and 20.
Traders must use the following guidelines in order to determine the correct time of entry. When the trend is growing and the price is above the 150 SMA, they must expect a level crossing indicator RSI 20 in a downward direction, and the confirmation signal, the third in a row. This signal is the intersection of Stochastics. A signal will be given when the two intersecting stochastic lines will be below 30. Only after the implementation of all of the above one can purchase “call” binary option. When a trend starts to descend, and the price will be below the simple moving average (SMA), traders need to wait until 80 level crossing occurs. The indicator RSI (Relative Strength Index) crosses this level from the bottom up. It must be established when both stochastic lines cross above the level of 70. If all parameters are filled, it’s time to buy short-term “put” binary option.
Tunneling Binary Options Trading Strategy
The tunneling strategy is simple to use and highly effective. This type of strategy is based on a moving averages intersection. It may be used on all types of binary options, on all currency pairs. The signal for purchase and sell implementation is calculated by schedule with not less than one-hour time interval.
In order to see a buy or sell signals, this strategy used a number of different instruments. EMA or exponential moving average is one of these tools. The frequency of EMA is 18 and the color of the line shown on the chart is red. The next tool is weighted moving average, also known as WMA, with a periodicity of 12. This moving average is colored in yellow. Third and the final tool is the RSI indicator with a periodicity of 21.
Two moving averages with frequencies 18 and 28 form a tunnel, consisting of two red lines. They help to define the beginning and end of the trend. Weighted averages at intervals of 5 and 12 show the time in which traders need to start trading. Also, one can determine the currently active trend using these lines.
Traders need to consider a few rules in order to make a deal. Purchase or sale of the binary options can only be made at a time when the tunnel formed by the red lines will be crossed or shrink so that the lines almost merge into one.
The acquisition of “call” binary options is possible when weighted averages (WMA), with the periodicity of five and twelve, cross the tunnel formed by EMA moving averages. The signal for the purchase will come at a time when the weighted moving average with the frequency of 5 crosses sliding WMA, which frequency is twelve.
A good moment for purchase “put” binary option will come when the weighted moving averages with intervals of five and twelve cross the channel formed by EMA moving averages. Also, a sell signal will appear at the time of moving WMA with a periodicity of five crosses the line with a periodicity of twelve from top to bottom.
Also, pay attention to RSI indicator, which frequency is twenty-one. A trader can sell a binary option at the moment when the indicator is below fifty, and should buy when the RSI is above that mark.
Volatility Tools
Volatility is a measure of swings in a price action and the rate of change of these swings. A high volatile market has major swings and is considered more unstable. A market with very low volatility is more stable and is less changing. It is easier to make bigger profits with relatively less money in a high volatile market as the ROI can be much greater; however, the risk of misjudging the market tremendously is equally higher.
The traders ignoring the volatility conditions of the underlying market are bound to get hurt and it is a recipe for misapplying binary options strategies. Similarly, ignoring high volatility conditions leads to applying inappropriate trading strategies.
The typical strategies in high volatile markets are out-of-the-money (OTM) and deep-out-of-the-money (DOTM) trades. They simply have a higher chance of success since price savings are greater and more common, but be beware that extremely high volatility conditions are often seen as a signal of reversal.
Nature hereof is that extreme volatility reflects transient conditions and the underlying market will return to average ranges of volatility. This event or norm is known as a regression to the mean. The contrary is likely to take place when there are low volatility conditions which reflect a clustered market that is likely a prelude to a breakout.