Binary Options Trading Strategies

31.05.2022
Stefan

Trading options can be a successful and profitable experience, but only if you use the right binary options trading strategy, especially if you’re just starting out. That’s why we took it upon ourselves to explore different tactics for those that want to learn, with both new and seasoned investors likely to find useful tips. 

How to Determine the Most Accurate Binary Options Strategy

There is no one-size-fits-all answer for the best tactic. Different strategies will work better or worse depending on your level of experience, market conditions, and the underlying asset. However, there are a few general rules that can help you become more successful when trading options and join the coveted club of investors that make money with derivatives, according to trading statistics.

Determination of the Bid & Ask

Before figuring out your binary options strategy, make sure you’re clear on the terms. Traders establish the ask and bid based on their assessment of the proposition’s likelihood of being true or false. The ask is the price at which a trader is willing to sell a binary option, and the bid is the price at which a trader is willing to buy it.

The ask and bid will always be slightly different, with the ask being higher than the bid. This is because the ask represents how much profit a trader would make if they sold the option, while the bid represents how much profit a trader would make if they bought the option.

Risk Management

Before jumping into what you believe is the best binary option strategy for you, it’s essential to assess your potential threats and your tolerance to them. Risk management is built on two pillars: strategy and money management.

You may manage risk by selecting only excellent signals, eliminating obviously bad signals, and never investing so much money in a single trade that it destroys your account. Money management is the monitoring of your entire trading fund. It should describe trade size as well as long-term financial planning —  how to preserve your profits and how to grow them.

Directional Trading vs Volatility

In relation to risk management, it’s important to know the differences between binary options strategies for directional and volatility trading. Directional refers to investing in the direction of the underlying asset’s movement. For example, if you think a stock is going to rise, you would buy a call option. Volatility trading, on the other hand, is based on exploiting short-term changes in the price of an asset. This could include buying options when the volatility is high and selling them when it decreases. 

Naturally, direction-following strategies are more popular among beginners, while risker, volatility-trading methods are better suited for more advanced traders with higher risk tolerance. 

Binary Options Trading Strategies for Beginners

If you are a beginner, it is important to start with a simple strategy. This will help you learn the ropes without taking on too much risk. 

Breakout Strategy

One basic game plan is called the breakout strategy. With this approach, you wait for a certain price level to be breached before placing your trade. One example is waiting for the price of a stock to break above its previous high before you place your trade.

Trend Following 

Another common tactic of the beginner binary options strategies is called the momentum or trend-following approach. With this method, you look to invest in stocks that are moving in an uptrend. Conversely, you would sell (or go short on) your position in an asset that is going downwards.

Price Action/Scalping Strategies

Price action or scalping is another potentially lucrative binary options strategy for beginners. With this approach, you are looking to take advantage of small price moves in either direction.

One way to scalp the market is by using short-term moving averages, such as the 20-day moving average. When the price breaks above or below this level, you can enter into a trade.

A variation to this strategy is using Bollinger Bands. With this approach, you are looking for stocks that are trading near the upper or lower band. When the price breaks out of the bands, you can enter into a trade.

Advanced Binary Options Trading Strategies

Once you’ve gained more experience (and hopefully more cash into your account), you could explore some more advanced strategies or ones that are more reliant on market volatility. 

News Releases Trading 

This is one of the simpler volatility-based strategies for binary options trading. It is centered around news releases, the idea being that these can cause short-term volatility in the price of an asset that you can profit from. 

One example of this type of potentially profitable binary options trading strategy is trading stocks on the day of the company’s quarterly results or other major events such as a CEO/CFO change, M&A deals, etc. For assets such as forex, that would be interest rate decisions by the US Federal Reserve, the European Central Bank, Bank of England, etc. For commodities such as oil or precious metals like gold, tracking geopolitical developments is the way to go. 

60-Second Binary Options Strategy

If you are looking for a more aggressive strategy, the 60-second one might be the right for you. With this approach, you can make a profit in as little as one minute! To apply the tactic successfully, you need to be able to make quick decisions and have a solid understanding not only of market trends but also of support and resistance levels — or the price points where a pause or reversal of a trend becomes more likely.  

5-min Binary Options Trading Strategy

Another plan that can be employed in both trending and volatile markets is the 5-minute strategy. This approach is based on the assumption that most market moves are temporary, and that if you wait long enough, you will see a move in the opposite direction. 

To trade this binary option strategy, you need to be able to spot short-term market moves and have a good understanding of how to trade binary options. 

One way to do this is by using technical indicators, such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD). These indicators can help you determine when the market is overbought or oversold. 

Binary Options Trading Strategy with Candlesticks

One tactic that can be used in both situations is candlestick trading. Candlesticks are price charts that show the high, low, open, and closing prices of a given asset over a specified period of time. Candlesticks help you trade in the direction of the trend, as well as take advantage of price reversals. You can also use candlesticks to spot overbought and oversold conditions.

Bullish Candlestick Patterns

The most common bullish candlestick pattern is called the morning star, considered the best binary options strategy for a downtrend. This triple-candlestick pattern typically occurs when there is a lot of bearish sentiment in the market and gives a warning that a reversal is in the cards.

The hammer is another popular bullish candlestick pattern, formed when the closing and opening prices are almost the same. 

Bearish Candlestick Patterns

The most common bearish candlestick pattern is called the evening star. Similar to the morning star, this is a three-candlestick pattern appearing at the end of an uptrend and signaling a reversal. 

Another bearish pattern to employ along your binary trading strategies is called the hanging man which signals weakness in the ongoing price uptrend. This formation shows that the bulls were unable to push the price any higher and that a reversal is in the works.

Bonus Tip: How to Find a Binary Trading Broker

Now that you have a basic understanding of how to find the best binary options trading strategy for you, it’s time to find a broker so that you can apply it. When choosing it, remember to consider the type of trading you want to do. Some offer a wide range of assets, while others specialize in a certain type of dealing. Consider your level too — the best trading platforms for beginners may not be the ultimate choice for advanced traders.

Before employing the binary options strategy that works best for you on any platform, consider the payout offered by the broker. Most brokers offer a payout of around 70-85%. However, there are some brokers that offer payouts as high as 90% or even higher.

Then, explore the features —  charting tools, news feeds, and other research tools. Check whether the broker offers a demo account so that you can learn the ropes without losing any money. 

Finally, it is important to choose a broker that is licensed and regulated by a reputable agency. The most well-known agencies include the CySEC (Cyprus), FCA (UK), and ASIC (Australia). The best binary options brokers in the USA will use the CFTC accreditation.

Picking the right binary options trading strategy takes time, experience, and practice. However, armed with the right information, you can begin to develop your own tactics. 

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