Binary Options Strategy
Trading with binary options is perhaps one of the easiest ways in which to get started with your financial trading career. This has been one of the reasons why brokers have seen a high uptake on new accounts as an ever greater number of people look to try their hand making at making significant financial gains with digital options.
However the simple methods offered by this approach to trading should not be mistaken for easy profits. If you take a strategic rather than a maverick approach to your trading then you will want to set out how you are going to trade before you sit down in front of your account.
While many people who first start out think this is an unnecessary step, long term research among the top traders shows that it is the only way in which you will achieve long term success.
Get a piece of paper, write ‘Trading Plan’ at the top of it and then work through the points below. This will become your strategy or ‘blueprint’ to trade with. Your strategy can be altered but try to only do this when you are away from the trading environment. In this way you will avoid making rash decisions while actually trading. These are only likely to end up costing you a lot of money.
Choose A Market
The great advantage to trading with binary options is that you can access a wide range of different asset classes from your broker. However don’t mistake this for an invitation to trade all of them. Many markets are notoriously hard to judge and can be difficult to profit from. Commodities in particular regularly exhibit much higher levels of volatility than say the Stock Indices and this can easily catch out an unwary trader.
Always start by selecting an asset that you can easily track. If an asset is popular with other traders then not only will you be able to follow it more easily, you will also be able to find good analysis on which to base your decisions. You will also find that it is more likely to move in line with expected technical moves.
Know Your Signals
The hallmark of a good strategy is good timing. You will need to know when you are going to enter a position, when to exit and when you should walk away. The first thing you will need to define is your signal for entry. It maybe that you plan on trading a specific event such as the release of news or simply that you are going to try to take advantage of strong daily trends or market reversals.
Most traders will use some form of technical analysis indicator to help them with this. These can be used to refine your entry and supply you with the best time to enter for profit. An example here would be using the crossing of two moving averages as a signal to purchase your contract in the direction of the cross.
Whichever approach you use you need a ‘trigger’. Sticking to this signal will help you to avoid trading on a ‘hunch’ and which will in turn raise your overall probability of success.
Keep Up With The News
News is one of the biggest creators of volatility in the markets. Unless you have a strategy specifically designed to trade at these times it is best to be out of the market when news is due for release.
Finding the best times to trade a binary strategy is not easy. It will to some extent depend upon the methods you intend to use. However at peak trading times or when the release of figures or data is imminent, standing on the sidelines is often the best option. By following the schedule of news releases to the markets you will be able to map out your strategy for trading.
By sticking to a plan for your trading you will to some extent be managing your risk, as you will avoid the temptation to make rash decisions in the heat of the moment. However you will also have to apply good money management rules to protect your trading capital over the long term.
Using the 5-10% rule is a great starting point for creating the money management part of your strategy. This means not allocating more than this proportion of your trading capital for each individual contract that you place. Higher risk approaches may want to use even less.
Also be aware of other factors that increase the risk of your trading. For example correlations between assets can increase your risk if you have a multiple positions running in your account at once.
Trial Your Strategy
With any strategy that you create for binary options it is vital that you trial your approach in order to validate its performance. Don’t simply think that you have a winning formula and jump headfirst into the markets. If the strategy is not up to much then it is better to find this out when your money is not on the line.
By trialing the system you will be able to find out how it actually performs and make any adjustments or tweaks that are needed to increase the profitability before you start trading. Many binary options brokers offer the facility to open a free demo account which is ideal for this very purpose.
One of the most important things that you need to start trading consistently with binary options is a good strategy. If you trade in a random manner with no thought for your trading then it is unlikely that you will achieve success. To be a successful trader you should have a plan. This must detail a framework for your trading as well as the strategy that you will use to find the best opportunities.
Finding a good strategy is not easy. You need one that is easy to use. You also need it to be accurate and provide you with an indication of the optimum time to trade. The good thing about devising a strategy for binary options is that it is relatively easy to create a good strategy. You don’t have to worry about setting a take profit or stop loss level. You only concern is in deciding if the price will move higher or lower than you entry point.
Here is a simple strategy that you can use. If you stick to it you will find that it yields a solid win rate over time. It will work on any binary options asset from your broker that you want to trade. It is simple and easy to apply. All you have to do is follow and stick to some simple trading rules.
BINARY STRATEGY RULES
- 1. A the start of the hour check your chart to determine which direction the market is moving. Set you chart to show 15 minute candles. You are looking three sequential candles that are moving in the same direction.
- 2. When you have found three candles moving in the same direction the next step is to check the news. You are looking to make sure that there is no news due for release in the next 15 minutes. This is unlikely to be the case but it pays to make sure.
- 3. Go to your binary option broker account and place a trade in the direction that the market has been moving. It is important that you only use a small amount of your available trading capital. This is key and vital if you want to make your trading consistent. It is advised that you risk no more than 2-5% of your available money on the outcome of any one trade.
It is also very important to make sure that you don’t place too many trades on your account simultaneously. When the markets are moving strongly there can be a lot of correlation across markets. Therefore you don’t want to over expose yourself to sudden market shakes. Trading with two or three open positions at any one time is the limit of exposure that you should put your account under.
That’s it! There is little more to do. This really is a simple system that you can use to trade on a wide variety of assets. It is designed to be simple and will yield consistent results if you stick to it. The key to getting the most from this strategy is to ensure that you always minimise your risk. Don’t over leverage yourself otherwise the strategy won’t work. Always balance your risks no matter how tempting it maybe. Trading with binary options can often reveal greed in traders to the detriment of their success.