One of the first things that anyone new to binary options trading needs to work on before they begin is a strong strategy. Having a fundamental knowledge of how an asset moves is important, but in the world of short term trading, this is not enough to be successful. That can give you a firm grasp on how to approach investing, but in trading you need more of a technical knowledge of charts and price movement if you want to be profitable. Here we will look at some of the most basic trading strategies that you will need to understand. Please note that all brokers are slightly different when it comes to the trading tools that are available, and even though you might understand a trading strategy well, it does not mean that you are guaranteed to be successful.
The Call and the Put
The most basic tool for binary options traders is the call/put option. This is where you should begin if you are new to this type of trading, and even if you are an experienced trader, it is likely where you will spend most of your energy. If you are new, all strategies should be tested in a demo trading account to help you master them before you risk real money.
The premise of this trade is very simple. If you think the price of an asset will rise, you take out a call option. If the price does go up, then you are rewarded with the stated rate of return. If it goes down, you lose the amount that you risked. Put options are used when you believe that the price of the asset will decline.
For this type of trade, your timing is everything. Let’s say you are trading the EUR/USD currency pair and the euro is beginning to find a lot of upward strength against the dollar. You decide to take out a 15-minute call option. However, if your timing is poor, no matter what the overall trend is, you can still lose money here. That is not what you are trying to accomplish.
Instead, we recommend looking at a number of different charts to help you better pinpoint your entry point. If you break it down into threes, you will give yourself a lot more knowledge. By this we mean three separate charts.
- A chart for the timeframe below expiry.
- A chart for the expiry timeframe itself.
- And a chart for the timeframe just above expiry.
This sounds complicated, but the overall concept is pretty simple. Let’s say you have a 15-minute call option, like in the example above. You would want a 5-minute chart, a 15-minute chart, and a 30-minute chart, as these are the most commonly reported timeframes that surround your particular expiry. If you want to take out a call option on the EUR/USD, you would make sure that the evaluation data that you are using points to this being the correct call on all three charts. If you can get a consensus with this rule of three, then you are more likely to be correct, and thus have a better outcome on your trade.
Looking at Data
This brings up a very crucial part of your success as a trader. How do you know what data to look at? Unfortunately, there is no exact answer here. Some traders use different tools than others, and have similar success. Some traders use the same tools and have very different levels of success. It’s hard to say that something like “an exponential moving average is the best tool for you.” You will need to see what works for you and your style of trade and then move from there.
We recommend starting out by always looking at fundamental information first so that you can get a general picture of the asset. Once you do, move into the specifics through a technical chart. A good charting package will have built-in tools, and you should use them. Become familiar with tools like the EMA mentioned above, or MACD, Bollinger Bands, and Fibonacci levels. These sound complicated, but they carry a lot of importance with them and will help you to understand just when the best point of entry is for a trade. Using more than one tool will help you to make more informed decisions, just as using fundamental and technical analysis will help you to better understand an asset.
60 Second Binary Options
Calls and puts can be used with various expiries. Many brokers offer what is called “ultra short term” trades, ranging from 2 minutes in length down to 30 seconds. The most common ultra short term trade is the 60 second binary option. Even with this very short expiry, timing your trade has a lot to do with your success. Prices move up and down on a constant basis, and having the ability to track this in real time is your first step toward success. Next, you need to be able to identify the general direction that the price is moving in. It’s possible to take out a put option when prices are rising and still be correct, but it’s much more difficult. As a general rule, trading with the trend increases your chances of success on a statistical level.
The next step is to identify some sort of trigger for your trade. There are many different ways for doing this, and some work better than others. Because every asset class, and even individual assets within a specific class, will react differently on different technical indicators, this is something that you will need to perfect within your own trading. Some of the more common trading techniques include the use of ranges, channels, or general directional price action trading. Again, some of these will work well with certain assets, but might be complete failures with others. Even in the same asset some strategies might work well at certain times and not at others. You really need a nuanced touch to succeed with 60 second options just because of the high degree of variance that comes along with such a small amount of time for your trades to develop. Spending time with a demo trading account will help you to get a better idea of the variance that will occur here.