When it comes to long term investing, dollar cost averaging is one of the simplest ways to overcome short term fluctuations in the market. But when it comes to short term binary options trading, using this principle isn’t quite as straightforward. When you learn how to use this to your advantage, though, it can have a big positive impact when it comes to creating a profit. Here, we will show you how to use this trading strategy to your advantage, along with what to look out for.
Application of Dollar Cost Averaging
First, you need to understand what dollar cost averaging is. This is simply the concept that if you invest money into an index fund over time on a regular basis, because of the general trend that major indices have, the short term ups and downs will even out and you can ride the upward trend and see a slow and steady profit over the course of time.
With this in mind, you should have a primary focus on the major indices, such as the S&P 500 and the Dow Jones Industrial Average, when it comes to your binary options trading. You know that these indices have an upward slant over the long haul, but thanks to the unique expiration feature of binary options trading, you can’t just take out a whole bunch of positions and expect to make a profit. Instead, you first need to confirm with the appropriate technical indicators that the trend is upward for the timeframe that you are selecting.
Your goal with this strategy is to find an index that is in a confirmed bull market, and that is trading at a below average price. Once you’ve found a bullish trend and a suitable entry point, it’s time to execute a position. You should have an expiration point that is far enough in the future that there is ample time for the index to recover to where it should be. As a general rule, this can take up to a couple hours, or even a few days. You should plan accordingly with the expiries that you select. Many brokers offer long term binary options, and this is where you should be putting your money. And because this plays on the dollar cost averaging concept, you should be taking out many of these trades per week, and they should all be for very small amounts. How small is up to you, but you shouldn’t really ever put more than 1 percent of your trading account into a single trade with this.
The benefit is that over a long period of time, you will see steady growth.
Drawbacks do Occur
This method doesn’t work with 60 second trades. There is far too much variance here, and the lowered rates of returns that brokers offer for 60 second binary options makes using this method a losing proposition if you go with 60 second trades. You should really avoid trades of less than 15 minutes altogether, but many traders wouldn’t use this method if that was the case. It is possible to make money trading 15 minute options, but it isn’t easy. Ideally, your average trade should be 30 minutes or longer.
Another big drawback to this is that it doesn’t allow for quick profits. This will see ups and downs, and it will create a profit when done right, but it is more of a long term slow build up strategy than it is a homerun attempt.
Another drawback to be aware of is that if you are looking for substantial profits, this is more of a supplement than it is a main strategy. You should have other trading strategies in place in addition to dollar cost averaging in order to spur forward profits at a quicker pace.
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