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Why Binary Options Traders Must Utilize Fundamental Analysis
S ince the emergence of binary options in the financial markets, this new market has largely been viewed as a speculative way of making money online. This is primarily because of the short-term nature of trading binary options as compared to traditional vanilla options. Binary options have expiry periods ranging from 60 seconds to about two weeks in most cases.
This is why most traders tend to focus more on technical analysis than fundamental analysis disregarding the fact that the price of the underlying asset could significantly be influenced by the fundamental outlook of the stock/asset in in question.
Ignoring the potential impact of fundamental analysis in binary options is a huge risk, and traders should actually embrace doing thorough analysis before placing their trades. Jason Collins, a senior analyst at OptionsClick, agrees that in order to succeed in binary options traders must utilize both technical and fundamental analysis.
In a recent conversation he said, “While binary options are typically a short-term method of making money online, traders cannot ignore the role played by the intrinsic aspects of the underlying assets, [which are long term in nature], because price movements of stocks and indices are generally determined by the activity of traditional investors (exchange based trading activity), and these investors base their decisions primarily on fundamental analysis.”
In general terms, fundamental analysis is a method of evaluating an asset based on both the intrinsic and external factors that are likely to affect its price over a given period. Such factors include macroeconomic events, interest rates, financial and political policies, and environment, among others. In valuing stocks, items such as price to earnings ratio, profitability margins, earnings events and management changes as well as insider/institutional investor transactions can affect the price of the underlying asset.
Fundamental analysis in binary options
Now, in binary options, traders have the opportunity to trade currencies, stocks, indices and commodities via the same platform.
However, as many traders will find out, there are not many analysis tools to use when analyzing stocks and other assets. As such, wise traders try to use the trading platform in conjunction with third-party analysis tools and platforms such as the MetaTrader 4 platform to analyze the price of the underlying asset.
However, for some assets such as stocks, the MT4 platform may not be the ideal tool to use especially when attempting to analyze the fundamental aspects of the stock. In this case, traders have to turn to websites/platforms that provide financial data about stock trading and general investing. Some of these platforms also provide timely updates on market moving events such as insider transactions and guru picks which can be very useful in helping traders to make smart investment decisions.
For instance, if an insider takes a huge position in Twitter ( NYSE:TWTR ), the shares of Twitter are likely to react accordingly. Knowing this in time could help traders make the right call. While long-term investors are more interested in following what Gurus (institutional investors and hedge fund managers) are adding to their holdings, traders would be interested in following their activity as timely as possible because for them, the important thing is to determine what direction the price of the stock could move in the coming trading sessions.
This is particularly important for binary options traders because with many binary options platforms, it is now possible to trade the shares of Apple ( NASDAQ:AAPL ), Google ( NASDAQ:GOOG ) and Barclays ( ERO ), among others. Therefore, if a trader wants to have the right picture before making a trade, then it would be right to also understand what positions major holders are taking in a particular stock. This provides a signal of what is likely to be the general direction of the stock (i.e., upward or downward) given the sentiments shown by major holders.
Most binary options are short term in nature, but some of the top binary options brokers have option types that take months to expire. Some even have end-of-year expiries, while others have six-month period expiries.
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This means that fundamental analysis such as P/E ratios, P/S ratios and earnings growth can be applied in trading these types of binary options, and most importantly traders are able to apply more than just the technical view when making their decisions.
As such, traders can make more accurate decisions because in this case it is not just about interpreting technical data to predict the next move. Utilizing fundamental analysis in these types of binary options is likely to yield more than trying to use just technical analysis because a lot of events are bound to happen before the expiry period elapses.
With binary options, you only need to get the direction of the price correct to make a potential return of more than 80% among most brokerage platforms and thus getting your prediction correct is the difference between you making an 80% gain on your investment, or losing everything. Therefore, it is important to consider everything that could affect the price of the asset in question and that involves doing through fundamental analysis.
The bottom line is that fundamental analysis is the cornerstone of investing, and any type of investor including binary options investors and exchange-based traders rely on this type of analysis in making the right investment decisions.
Therefore, traders should not overlook this type of analysis even when trading short term instruments like binary options. This could be the difference between making money and losing all of it.
About GuruFocus: GuruFocus.com tracks the stocks picks and portfolio holdings of the world’s best investors. This value investing site offers stock screeners and valuation tools. And publishes daily articles tracking the latest moves of the world’s best investors. GuruFocus also provides promising stock ideas in 3 monthly newsletters sent to Premium Members .
This article first appeared on GuruFocus .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Binary Options Training Academy for Beginners, Intermediates & Experts
Introduction To Our Binary Options School Of Trading
Investing in the financial markets has always been a risky venture. Early day financial markets had very few market participants, who were predominantly wealthy and affluent, leaving no room for the smaller investors. Regardless, the past couple of decades has seen a surge in the popularity of investing and trading among the general masses, primarily due to the availability of internet and online trading platforms. However, the financial industry witnessed a massive revolution in the form of Binary Options trading, which gave a chance for traders and investors to bet on the movement of the markets for a fixed risk/return. We have created this comprehensive binary options training program to educate traders about all the aspects of the binary options market, and we hope to offer the best binary options education for both novice and advanced traders.
Binary Options Trading & Its Relevance In The Modern Financial Markets
Traditionally, the potential gains and losses were determined by numerous factors, including market research, market volatility, money management, and the magnitude of the investments. Therefore, traders had to be aware of the numerous aspects of trading and even had to invest in expensive education to get the hang of the markets. Binary Options trading, on the other hand, eradicated the need for total inclusion in the market; instead allowed traders to enjoy a fixed return or lose a fixed amount without having to worry about increased drawdowns or account wipeouts in a single trade.
Contrary to the popular misconception, Binary Options trading is not a new trading concept. In fact, binary options trading has been popular in the US financial markets since the early 1900s. Binary Options was used by large speculators and market participants to hedge against fluctuating prices of commodities and was extensively used to mitigate the risk of unseen price variations. However, binary options’ trading became a regulated activity and was subjected to numerous trading restrictions as of recent past, primarily due to the widespread financial scams and malpractices that were rampant in the industry. Nevertheless, traders from all over the world can still indulge in binary options trading, but the actual legality of the financial product is dependent on the local laws and regulations governing the market.
Why Should You Educate Yourself Through Our Binary Options Tutorials?
Binary options trading may seem to be an easy concept to master for beginner traders. There are only two options in the market, and there are only two different outcomes. So how hard must it be? In reality, binary options trading goes beyond the conventional high/low that brokers advertise. As a trader, it is your utmost priority to realise that binary options trading is not a contract between you and the market; instead, it is a contract between you and your broker. Many traditional investors consider binary options trading to be an alternate form of gambling, but the binary options market allows room for extensive research and analysis to determine the outcome of a trade.
Binary options trading is a market where trade outcomes and the potential profits or payouts are comprised as the result of a trader’s position in the market. If they are profitable, the broker loses money, but the contrary is true for losing trades. Therefore, it doesn’t take an enormous amount of brainwork to realise that binary options brokers will not create an environment where traders have an increased chance of being profitable. Consider it as house odds that one might expect from the gambling, sports betting, and gaming companies.
In traditional gambling, the outcome cannot be predicted to any extent. The potential outcome is a mystery for both the house and the player, but the odds are stacked heavily in the house’s favour. On the other hand, binary options trading can help a trader to evaluate the market conditions and make an educated guess about the underlying market strength and the direction of movements. Therefore, binary options trading cannot be strictly considered to be another form of gambling.
In essence, it is the duty of a trader to turn the odds in his/her favour by making calculated trading decisions. Random choice of trading may be considered as gambling, but calculated investment decisions amount to investments. “For the informed and educated investor, binary options can be one of the most profitable and safest investment opportunities in the entire financial market.”
What Can You Expect To Learn From Our Binary Options Academy?
We have categorised our binary options tutorials according to the proficiency and experience of the traders. We realise that no two traders are alike, and there are different types of traders in the market that are constantly seeking new ways to profit from the unique and exciting binary options market. As per the current market consensus, we have developed three main categories for binary options education:
Binary Options For Beginners & Rookie Traders
According to our estimates, more than 70% of new traders jump into the binary options markets without any formal education or training. It is also guaranteed that more than 90% of traders lose their entire trading capital within days of opening their account. Therefore, it is our aim to educate beginner traders about the various concepts of binary options trading through detailed and professional tutorials that not only makes them an informed trader but also helps them to control their emotions and limit their risk exposure. Our beginner’s section is indeed a vital prerequisite for all beginner traders, and even intermediate traders can browse through these sections to brush up on their trading knowledge and eradicate any habits that might be hindering them from enjoying a successful trading experience.
Technical & Fundamental Binary Options Education For Intermediate Traders
The intermediate trader section is designed for traders that have all the basic knowledge of the binary options market but are looking for ways to take them beyond the introductory concepts to more technical and fundamental trading strategies. These binary options trading tips are an excellent way to increase your profit potential, and to devise new strategies that will guarantee to revolutionise your trading career.
Advanced Binary Options Strategies & Concepts For Experts
Expert traders understand the need to continually innovate and find new concepts in trading to increase their trading performance and enjoy a healthy bottom line. Traders who are complacent in their trading strategies will often find it difficult to keep up with the changes in the market, and ultimately lose their touch in the ever-evolving financial markets. It is essential for every trader to seek new ways to improve their trading, and should have an open mind towards modifying their strategies according to the market requirements.
Update Your Trading With Different Concepts Covered In Our Binary Options Training Program
We cover some of the basic concepts in binary options trading for beginners; to far more advanced trading concepts that are intended for professional traders. We provide in-depth information on the technical and fundamental factors affecting the financial markets, advanced charting options, new indicators, the effect of news events on the price of markets, and the terms that are relevant in the modern financial markets. We are committed to maintaining a vast resource of trading materials that not only covers the entire financial markets but also provides the most up-to-date information on all the latest concepts in the binary options trading industry.
Learn How To Make A Difference To Your Trading Profitability Through Our Program
Succeeding in the binary options market does take a tremendous amount of effort, but it can be accomplished by any trader, provided they have the right education and the right mindset to trade. It is imperative for traders to treat binary options trading as an investment product, rather than considering it as another get-rich-quick-scheme. Binary options trading is not designed for gamblers, although it is now widely being advertised as the secret ways to untold riches.
At Binary Trading Academy, we take a different approach to teaching traders about the various perceptions of trading, and how professional education can make a difference in the overall profitability. We teach you how to approach the markets from a basic level and work your way towards analysing the market and investing in a diligent manner. We do all this in a way that is comfortable and pleasing to the trader, without overburdening them with technical jargon and inconceivable concepts that are difficult to comprehend. With our trading resources, we guarantee to make a difference in your trading for the better.
The Psychology Of Trading With Binary Options
While it is essential for a trader to be aware of the markets and be educated about the various aspects of trading, the emotional aspect of trading is indeed detrimental in deciding the possible outcome of a trader’s career. A trader should have the confidence and the humility to trade the markets according to its dynamics, rather than trying to accommodate the markets according to his/her needs. Our Binary Options Education and tutorials are created with the emotional aspect of trading in mind, and we custom-tailor our binary options tips and strategies according to the general mindset of the different category of traders. We are traders ourselves, and we have gone through the paces of the market to offer a clear understanding of what works in the binary options market.
Binary Options Strategies
Why To Use Strategies While Trading Binary Options
There’s no doubt that financial instruments can appear intimidating. When news about the financial markets appears on TV, you’ll often see financial traders sweating over complicated-looking graphs on multiple computer monitors or barking at each other across crowded trading floors. The commentary will describe exotic investment vehicles that can seemingly only be understood by people with PhDs in rocket science. To be clear, there are financial instruments that are very hard for the layperson to understand, but that’s not true of all of them.
Binary options are more popular than some investment vehicles because they are less complicated. There’s a clue in the name, ‘binary,’ because as an investor you’re only having to choose between two options: will the value of an asset go up over time or down? Traders will place a bet on whether the price will increase, which is called a call, or decrease which is called a put. So, in terms of probability, you could look at binary options trading as a bit like gambling on a coin toss.
Now, having said that, binary options trading carries a high level of risk and can cause you to lose all of your funds, and it’s because of this risk that binary options strategies are so important. You can trade safely if you do your research and put effective binary options strategies in place. We’re going to help you spot the market signals that will help you to do just that.
For a start, here are your golden rules:
- don’t invest all your capital at once
- be aware of how your asset is moving before you invest
- never invest more than 10% of your total equity in a placement
Reasons to Use Binary Options Strategies
Although we think binary options strategies are worthwhile, you could just as easily go with gut instinct, flip a coin or consult a horoscope to help you decide what to do. You might even be successful here and there, but long-term this is a surefire way to lose all of your capital. Probability won’t let you win with random behaviour, any more than it will let you win 50 consecutive coin tosses. To win consecutively as a trader you will need binary options strategies, and we are using the plural because you will need more than one.
Binary Options Strategies – Description and benefits
The main reason to use any trading strategy is that it will stop you from making emotional decisions. As a trader, all of your decisions need to be grounded in logic and rationality. There is very little room for hunches or luck. The other benefit of using binary options strategies is that they allow you to do active ‘field research’, meaning that if you take a defined approach to each investment and document it, and may be it fails, then you can tweak and refine it, and if it succeeds you can use it again and maybe try to improve. The markets are your laboratory where you go about testing your trading strategies, over a set number of trades and a set period of time. When you hit your time limit then you can look back and ask yourself whether your strategy is working, is it making you enough money, could it be improved etc.
Any other approach is going to leave you guessing. If you base your trades on guesswork, then you won’t know why they succeeded or why they failed. Using binary trading strategies will give you something more concrete to base your future adjustments on.
It’s important to know not just why you succeeded or failed, but why you succeeded or failed. Conducting a series of stand-alone trades with nothing to link them is as reckless as hoping for those 50 consecutive heads to come up in a coin toss marathon. When you trade, you shouldn’t just be crossing your fingers each time and being surprised by every outcome. And long term, the law of averages says that the best thing you can hope for is to break even, which is no way to make a living. It may not even be a feasible ambition because to break even you have to win more than you lose, and that seems highly unlikely without binary options strategies.
Money Management Strategies – What They Are and Why You Need One
A lot of people fall into the trap of developing a trading strategy but not a money management strategy. It’s all very well choosing what kind of asset you want to trade and how much risk you want to be exposed to, but you also need to give some thought to money management, because it will help you to build the kind of account balance that will see you through bad periods and help you sustain winning streaks.
Let’s consider the effects of having no money management strategy on someone who gambles a tenth of their balance on a single trade. If the trade doesn’t win, they now have to increase their account balance by 20% just to break even. If three trades in a row go south, then they will need a 30% jump in their account balance to get back to the breakeven point. This is a common scenario that can dig you in deep quite quickly.
Lots of losing streaks are longer than three trades, so you can see how money management strategies play an important role within binary options strategies. Without a good money management strategy, you will undermine your efforts even if you have a good trading strategy in place. Losing streaks will inevitably happen, so you must have a plan to deal with them.
Analysis and Improvement Strategies
There is no Rosetta Stone of binary trading strategies. The only constant with the markets is change, so the best traders need to adapt all the time. You could say they constantly evolve, even when they’ve become highly successful. It’s not like there’s a magic point that they get to where they know everything, and every trade they make is a winner. That day never comes. But they do get to the point where they analyse every trade deeply and thoroughly. If there’s any magic then it lies there.
By analyzing and improving your trading and money management strategies you’ll remove the parts that aren’t working, refine the parts that are and become more profitable over the long term. Even if you’re already making money, but you aren’t trying to constantly improve, who’s to say that you aren’t actually leaving profits on the table?
Types of Binary Options Strategies
There are three common elements to binary options strategies.
- Using signals to guide you
- Deciding how much of your funds to trade
- Constant refinement
To create a successful strategy, you need to understand as much as you can about every aspect of it. Here’s how to do that.
Step 1 – Using signals to guide you
A signal is something that tells you that the price of an asset is about to move one way or another. Asset prices move all the time of course, but what if there was something that could let you know which way it was going to move before it happened? There is, and we call this thing a signal.
Signals can be created using news events and/or technical analysis. Getting signals from news events is probably the more common one among new or inexperienced traders. Things like company announcements, industry announcements, governments releasing inflation figures, these sorts of things can all be viewed as signals that can affect prices.
If you want to develop a working strategy, then you need to think about what news events to expect and when. Most binary options trading platforms will feature economic calendars, so you’ll be informed that in a couple of days’ time a firm’s earnings reports are due. This kind of pre-warning will help to inform your analysis.
The best binary option trading platforms will also let you know what’s expected in that earnings report. This will help you to make decisions about which way the market is going to move before the report comes out.
A news-based approach to trading has the benefit of being fairly easy to learn and understand. It’s not like you need to gain secret knowledge. You’re just taking common knowledge and thinking about its implications for the asset that you’re interested in.
The disadvantage of news-based signals is that they don’t stop markets being unpredictable. For instance, if an earnings report shows that a company has boosted its profits, you might think that that’s a positive result. But that same report might suggest that profits were expected to be higher, or that the company expects to face stiff competition. There are all sorts of unknown quantities that can spook the markets and pull the rug out from under that good news.
Technical analysis gives traders a narrower view than that offered by the news. It focuses on how an asset price moved in the past, with the aim of finding patterns that may offer clues about how the price will move in future. This is an area that can become a rabbit hole of complexity—make no mistake—but the underlying principle is fairly straightforward. You try to work out future behaviour of an asset price based on its past behaviour.
So, the question is, which one of these binary trading strategies should you be using; a news approach or a technical analysis approach? Well, everyone is different, with different strengths and weaknesses, so the best advice we can give to you is to try them both and see which one works best for you. Either of them can bring you success if they gel with you.
Now, you may be wondering how much that little experiment is going to cost you. What if you’re terrible at using the analytical approach and it ends up costing you a fortune? Well, there’s no need for concern. Most decent brokers will be able to offer you a demo account to practice on. You’ll have full access to the trading platform, you won’t be using real money. You’ll get the chance to trade in binary options with zero risks. Sure, you won’t make any money with your demo account, but you won’t lose any either. Instead, you will have an ideal testbed on which to see how your strategies play out.
The last thing to say about signals and strategies is to concentrate on the short-term. Some investment strategies try to predict asset price shifts over long periods of time, even up to a decade. In binary options trading, you’re not really interested in this kind of information. You’re more concerned with what the price will do in the next two minutes, or hour or day.
Step 2 – Deciding how much of your funds to trade with
Money management strategies vary in their complexity. A simple one will have you investing the same amount for every trade, but it’s risky and doesn’t take your overall level of profitability into account or how much capital you have at your disposal. So, we only mention this because you might hear it mentioned and we want you to avoid it.
Another one that you may hear about is the Martingale money management strategy. The idea behind this approach is to recover from your losses as quickly as possible by increasing the size of your trades after each loss. For instance, you could set an amount of money that you will trade with, and if you experience a loss then you double it. If it’s successful then you aren’t just back to where you started, you’re ahead.
It shouldn’t be too hard to see that there is a problem with this strategy. Namely, if you experience a losing streak that won’t quit then the Martingale strategy would have you increasing your investment on every following trade. So, if you had a run of 11 straight losses, number 12 would be a gamble that was 2,048 times bigger than that first trade. Unless you’re a billionaire, it’s going to be hard to keep that kind of optimistic speculation going.
It all comes down to how good you are at making predictions and how good you are at ending losing streaks. You need to keep in mind that there are no certainties in binary options trading. Even surefire trades that you would stake your life on can end up losing, and losses can easily turn into streaks, even if you’re the best trader in the world because at the end of the day nobody has a crystal ball. That’s why the Martingale money management system is not for everyone. It does have its place, but it needs to be employed with caution, so it may not suit beginners.
A percentage-based system doesn’t come with as much risk, so it’s the one that the majority of traders usually prefer, especially binary options trading newbies. It’s a fairly simple concept. The amount of money you put into a trade is based on the amount of money you have in your trading account. It’s kind of the opposite of the doubling down approach that the Martingale strategy uses because after each losing trade your subsequent trades will be for lower amounts. But if you win, your following wagers will be for greater amounts, because your account balance will have gone up.
This conservative approach is designed to preserve as much of your capital as possible so that you can trade for as long as possible, and it gives you the best possible chance of clawing your way back from successive defeats and capitalizing on your successes.
The only variable for you to consider is what percentage of your balance to use. Typically, a trader who is not risk-averse will probably go for around 5%, while everyone else will probably prefer something nearer to 2%.
As an example, let’s assume you feel comfortable with 5% of your balance being invested in a trade. A $500 account balance gives you a $25 trade. If your balance dropped to $300, your trades would now be only $15. If your balance rose to $800, each trade would be $40.
With this strategy, you will only be gambling with what you can sustain. It’s a measured approach that adapts to your current situation and prevents you from throwing good money after bad when you eventually stumble into a rut of successive losing trades, and it won’t let you become overconfident if you win a few either. For these reasons, it’s one of the binary options strategies that’s hard to fault.
Step 3 – Constant refinement
Diaries aren’t just for moody teenagers. They are also essential for developing you into a better trader. It doesn’t matter whether you have a little black book or an Excel spreadsheet. Whatever works for you. The important thing is to record every trade that you make so you can build up a body of ‘evidence’. In time you’ll have a detailed history of what works and what doesn’t, and that will help to ensure that the trades you make in future are successful more often.
A diary is like a silent partner for beginning traders. It allows you to look back at trades and give yourself good advice. Try placing trades based on both technical analysis and news events signals but record them separately in your diary so you can see which one works the best for you. When you’re involved in the day-to-day business of trading, you may not realize exactly how you’re approaching it, but your diary will always tell you the truth. So, for instance, you might think that technical analysis suits you best because you’re getting twice the profits that you’re making with signals. But your diary will tell you that you’re actually spending twice as much time studying technical analysis, so it’s an unfair comparison. Maybe you’re getting greater returns per hour of invested time looking for news events signals. Only your diary can tell you.
A trading diary also delivers the kind of granular detail that is essential to fine-tuning any of your binary options strategies. This is important when you get to a decent level of competence and are only looking to improve by small amounts—icing the cake so to speak. But you can only do this if you understand the details of what you’re doing well enough to tweak them.
Don’t forget to use your trading diary to check every aspect of your trading strategy, including money management, your choice of assets, and the size of each trade.
When you get in to the detail, consider noting which days of the week are best and which times of day are best for the best results. Do you perform better with some brokers and some trading platforms? Make a note of it; it’s all-important.
Having said all that, try not to succumb to information overload. Although you’re recording everything you don’t have to change everything at the same time when you’re trying to refine your approach. If you do that it’s hard to know which aspect of the change worked. If you change broker and then asset class and then trade amount all at the same time and you have a run of successful trades, how will you know which one of those three things that you changed contributed to those successes? It is far better to change one thing at a time, then you will know that it was responsible for the change.
Binary Options Trading Strategy Examples
Let’s take a more detailed look at some binary options strategies. The ones listed below are some of the most frequently used, but there are plenty of others available as well. As you learn more, you’ll no doubt come across traders who split, combine and adapt their binary options trading strategies to suit their own goals. You’ll probably be tempted to try this kind of thing yourself, but it’s important when you start out to learn the basics and save the customized approach for later. Whichever one you choose, don’t forget to combine them with a money management strategy too.
Example 1 – Trading the Trends
Asset prices usually move in line with a trend. You’ll often see a zigzag of ups and downs that are actually all part of a larger upward or downward trend. When you understand the shape of the trend you begin to see that the zigzag movements can be predictable in certain situations, and when you can predict those movements you have an opportunity to execute profitable binary options trades.
To put it simply you have a couple of main options: you can gamble on the overall trend or on each of those zigzags. Trading the overall trend means looking at the big picture. You’re not interested in trying to capitalise on the minor ups and downs of an asset price. Instead, you are looking at a shift in price over the longer term.
Trading on swings in price requires that you place more trades, which is inherently riskier but potentially more rewarding.
Upward trend – New highs and new lows will usually be higher than past highs and lows in an upward trend.
Downward trend – New highs and new lows will usually be lower than past highs and lows in a downward trend.
Of course, you shouldn’t lose sight of the fact that you are free to use both approaches to trading. It’s a free country!
One of the most frequently used ways of trading trends is with High / Low options. Every binary options trading platform will offer this kind of trade. With a high option, you’re betting that the price will go up and with a low option you’re betting that the price will go down. The only variable is the period of time during which you think this will happen.
A riskier, but potentially more profitable variation of this is called a one-touch option. Instead of just betting on whether the price will go higher or lower, you’re predicting whether it will hit a specified number called the target price.
Example 2 – Trading on News Events
This is a fairly popular type of trading strategy. You will use the news as your source of intelligence. When a company reports greater profits or a new and exciting product then the theory states that generally, this will cause more people to want to own shares in that company and this demand will push up their price. The opposite is true if the company announces bad news of some sort. In both cases, binary options traders are in a position to make money if they can anticipate the direction of the next shift in the share price.
The downside of this type of approach is that it is not clear cut. When you trade on the basis of news events you place your fortune in the hands of fate.
So, it’s a good thing that there are other strategies that you can take to increase your chances of successfully trading binary options. Here are three of them.
Boundary options – when you’re certain that an asset price will change but you can’t be quite sure which way it’s going to go then a boundary option can be really useful. With it, you set two target prices, one of which is below the current price and one of which is above. The difference between them is called the price channel. If the asset price passes either of them then you win. If it only moves inside the channel then you lose.
Trading the breakout – The breakout represents a window of opportunity. It’s the time, anywhere from 30 seconds to several minutes after a piece of news about an asset goes public. It’s the perfect opportunity to use a high/low option because it’s here that traders will try to limit their losses or alter their positions for profit, and so it’s here that you’re likely to see significant fluctuations. You’ll sometimes hear breakout trading being called the 60-second option because the timeframe is literally that short.
Intelligent High / Low trades – it seems counterintuitive, but sometimes good news may result in falling prices in the markets. That’s because even though the news may appear to be good on the surface, such as a rise in manufacturing productivity, if the markets were expecting a greater rise then the news comes as a disappointment which they will then adjust for. If you can predict when such things will happen then high/low trades can help you to profit from them.
Example 3 – Using Candlestick Formations
As a new trader, you might find this strategy the most difficult to understand, but the good news is that once you do it is going to be the simplest one to put into practice and profit from.
When you look at a typical graph of an asset price then you’ll be looking at an oversimplification that features a before and after. If you want to know more (and you do) then look to candlesticks to fill in the details.
Candlesticks appear on an asset’s chart over time. The bottom of the Candlestick indicates the lowest price it reached during a particular time period and the top indicates the highest price it hit. In the middle you will also see the opening and closing price, so a candlestick gives you an easy to digest view of the price range fluctuations for that asset in that particular time period.
Now the way to use candlesticks in trading is to recognize different formations of them. Once you can do this you can better understand which way the price will go next.
For instance, if you see a candlestick with a gap then that means the asset price jumped significantly higher or lower. Gaps are unusual because prices usually move in a much more gradual fashion, hitting the majority of price points on the way. When one appears during a period of low trading volume then it’s telling you that there is likely to be a quick correction.
This can happen just before a market closes for the day when there aren’t many traders left placing trades. The gap can be produced in this situation by large trades, but that doesn’t mean that the asset is strong. Maybe the gap wouldn’t have appeared if more trading had been going on, so knowing this you can estimate the gap in the price of this asset and use that information to plan your trades.
If gaps appear when trading activity is high, but the price is not moving much then this can indicate that there may be a new breakout, or surge in that direction. Again, use this information to your advantage when you trade.
If a gap appears when trading volume is normal and there’s a trend in one direction, it might suggest that the trend is accelerating. Good intelligence to have for your next trade.
Developing a Binary Options Strategy Without Risking Money
If you’ve taken all of the advice in this article on board then you’ll no doubt be wanting to test your new binary options strategies, but you still might be reluctant to get your feet wet when you are aware of how easy it is to lose money. You don’t want to blow all the money in your trading account on testing out your theories, do you?
That’s where a binary options demo account comes in useful. Every half-decent broker will let you use their trading platform demo fashion, gambling nothing more than numbers on a screen instead of money from your account. It’s probably the best way there is to start testing (and recording in your diary, naturally) your binary options strategies, without losing your shirt.
One of the beauties of binary options trading is that there is virtually no limit to the kinds of assets that can trade in. Trade on those assets that are most familiar to you such as euro-dollar exchange rates. Consistently trading a single asset will help you to gain that all-important familiarity with it to help you predict changes more easily. There are two types of strategies explained below that can be of great benefit in binary options trading.
1. Trend Strategy
This is a popular strategy, and it is also called the bull-bear strategy. To implement it you’ll need to keep an eye on the rising, declining and the flat trend line of the traded asset. If you see a flat trend line and think that the asset price is about to climb, use the No Touch Option.
If the trend line shows that the asset is going to go up, choose CALL.
If the trend line shows a decline in the asset price, choose PUT.
This method works just like the CALL/PUT option but in this instance, you decide on a price that the asset mustn’t hit during the time period you specify. So, save Facebook’s share price is $490 and the trading platform says the No Touch price is $495. If it doesn’t hit $495 during the time of the trade, then you win.
2. Pinocchio strategy
Use this strategy when you expect the asset price to fall or rise dramatically. Choose ‘call’ if you think it’s going to go up or ‘put’ if you think it’s going to go down. This one is best tested on a demo account before you go live.
3. Straddle Strategy
This approach is best used when the market is volatile and when you’re expecting significant news about a particular asset to break. This is a strategy that’s much respected throughout the world of trading. It lets you avoid choosing between CALL and PUT; you put them both on the selected asset instead.
The overall plan is to use PUT when the asset’s value has gone up, but there is a suspicion that it will go down again soon. As soon as the decline starts, put the CALL option on it, because you expect it to rebound soon. You can also use this strategy in the other direction, by placing CALL on a low-priced asset and PUT on a rising asset value. This boosts your chances of success by covering you in both directions. The straddle strategy is a favourite of traders when the market or asset is tending to fluctuate.
4. Risk Reversal Strategy
This is one of the most popular binary options strategies because it’s designed to reduce the amount of risk involved with trading and boost the likelihood of securing a profitable trade. With this approach, you place CALL and PUT options on an asset at the same time. This can really help when assets are volatile.
5. Hedging Strategy
This is another one of those binary options strategies where you place both call and put positions, with strike prices that overlap. The thinking is that at least one of them will pay out. You can make more than if you just select one option, and if you lose then it will still be a lot less than the straight loss you would suffer from just one option. It’s a useful tool to add to your trading bag of tricks.
6. Fundamental Analysis
Binary options strategies almost always require that you have knowledge of the underlying assets that you are effectively gambling on. The theory with fundamental analysis is that you really go to town on understanding the business whose share movements you are interested in understanding. To do this you need to get to grips with things like their earnings reports and financial statements.
As a trader, this review helps you to understand how the company has been performing and how its stock reacts to particular market news. If you know well enough what kind of shape the company is in and what kind of events have caused its share price to fluctuate, then you’ll be much better placed to predict and therefore profit from future changes.
We hope that this guide has been useful in preparing you to take your first steps with creating your own binary options strategies.
Binary Options: Concepts and Trading
Binary options – a popular financial tool for profit. Types of binary options, strategies and indicators for BO. How to choose the right time for the expiration of a binary option and not make the most common mistakes.
The attention of traders trading in the Forex market or on stock exchanges, recently began to attract binary options. If with traditional option contracts Since everything is pretty clear, the prefix “binary” is not completely clear to everyone. Let’s try to understand this tool and get a basic idea of it.
“Binary” – what is it?
So, binary options is an option that has only two options for profitability: either a fixed percentage of profit or a loss. It is this dualism that is characterized by the name “binary”, i.e. consisting of two elements. Various instruments can act as a trading asset for a binary option: currencies, stocks, raw materials and others. The execution time of such a contract varies from a minute to several months, profitability reaches 70-95 %%. If in a nutshell to describe the principle of operation of any type of binary options, then the expression “deal-bet” is best.
Types of Binary Options
Trading binary options operates with five main types:
View 1. Binary option “Cash or nothing” / “All or nothing”
This type of binary options is the most popular among traders. At the time of purchase, he has a certain percentage of profit and price. This amount is the volume of the transaction, and it is to her that the trader risks it. Prior to the purchase of “Сash or nothing” binar, it is required to make a prediction in advance whether the selected asset will rise or fall, a Put / Put or Call / Call option is purchased (see the previous article), respectively.
If in the end, at the time of execution, the trader is right, then he receives a predetermined amount of profit, usually 70-85 %% plus the initial cost of the contract. If the forecast did not materialize, then he loses the invested amount in full. Sometimes companies make a refund when they lose in the amount of 10-15%, but this cannot be considered the rule, rather, it is just a bonus to cheer up.
View 2. Binary option “Asset or nothing” / “Asset or nothing”
The binary option “Asset or nothing” is practically no different from the above “All or nothing”. It can also be bought and sold by setting a certain level, above or below which there will be a price at the time of execution, also receive declared profits or lose the value of the contract. The difference is only in determining the profit, which is expressed in the value of the selected asset.
Which binary options are better?
Choosing binary options for trading
In fact, because profit calculation is automatic, many traders do not even see the difference between the binary options Cash or nothing and Asset or nothing.
View 3. Binary options “One touch” / “One touch”
One touch in execution and trading strategies differs significantly from the previous ones. Having all the same value and profitability, the contract also implies the existence of a certain level of asset price. Knowing him, the trader must predict whether the price reaches this mark in the allotted time period. At the same time, it does not matter at what price the contract closes, the main thing is that the asset touches a fixed level.
View 4. Binary options “No touch” / “Inviolable”
The opposite in name and meaning for the “One touch” binary option is “No touch”. The only difference is the trader’s forecast of whether the price reaches the level specified in the contract. If he believes that he will not achieve, then you should buy the “No touch” option. If at the time of closing the asset did not touch the level, the trader receives the agreed profit. Otherwise, he loses the value of the contract.
View 5. Binary options “Double one touch” and “Double no touch” / “Double one touch” and “Double touch”
These are the most complex, and therefore the least popular types of binary options. In fact, this is a modification of the “One touch” and “No touch” options – the strategy and execution are identical. However, in order to achieve profit, two fixed levels are set, to reach or not to touch which the asset must until the expiration of the exercise time of the option.
Based on your own preferences, offers from binary options brokers., as well as market conditions, it is more profitable to trade different types of binary options. Nevertheless, most traders prefer “Cash or nothing” as the most affordable and easy to understand.
Strategies and indicators for binary options trading
Binary Options Trading Strategies, if you do not go into details, are based on determining the estimated direction of movement of the asset in the terms specified by the contract, as well as the likely time to reach the specified price level. So, to get a fixed profit, you will need to indicate either the level below or above which the price will be after the time you specified, or indicate the mark near which the value of the asset will be in the near future. Your forecast options and trading strategies are closely related to the types of binary options.
Trading robots for binary options
All the pros and cons of using forex experts in binary options trading
In order to correctly predict the direction of the asset price movement and buy a binary option, most traders use forex indicators.
In fact, no special indicators for binary options not being developed. For the most part, traders use signal and arrow Forex indicators, which are adapted for trading binary options. Popular are both built-in terminal and user indicators that allow for a qualitative analysis of the asset – the direction and strength of the trend, possible pivot points, etc.
In addition, in trading binary options, trading robots have been successfully used.
How to trade binary options?
Trading binary options and trading in the Forex currency market are based on the same principles:
- market price moves the same way;
- with binary options the same rules of fundamental and technical analysis work;
- money management rules are also relevant for binary options trading – it is important to determine acceptable risks and manage your capital;
- trading strategies and forex indicators successfully work on binary options.
However, there are a number of differences that stem from the nature of binary options:
- Unlike classical trading, Sell transactions and Buy purchases do not open. When trading binary options, only Call options (price growth is forecasted) and Put options (price reduction is forecasted) are purchased;
- The “lifetime” of a transaction when trading binary options does not depend on the price reaching stop-loss or take-profit levels, as in Forex trading. In BO trading, a fixed option expiration time is determined, at the end of which the transaction is closed with a profit or loss;
- accordingly, take profit and stop loss orders are not used in strategies for binary options trading.
More on binary options trading
Binary options trading – an intelligent casino for gambling traders
The minimum contract is usually $ 100. At the same time, profit reaches an average of 80%. This, of course, is not comparable with a loss in the event of an erroneous forecast, but the trader can accurately calculate the level of his losses and not exceed them if he does not want to. In addition, some brokers provide the ability to trade binary options without investments.
Quite convenient and easy to use are platforms provided by companies. Most often it is a web platform that has the required set of tools and simple forecast indicators. To some extent, this simplifies the work and it may seem that there is no need to analyze something deeply, trading binary options. In fact, this is not so. Any profitable trading requires knowledge of fundamental and technical analysis, as well as its application. Otherwise, such work turns into a casino, which is unacceptable. Therefore, for a competent approach to trading and evaluating an asset, we recommend that you analyze on your usual platform, transferring transactions to the terminal of the options broker. So, to work with binary options on currency pairs, you can use the full set of available tools of the cTrader or MetaTrader platforms, including indicators, created specifically for these contracts.
Most traders are of the opinion that trading binary options somewhat simpler than classic forex trading. Nevertheless, in trading binary options there are a number of difficulties that are associated with the choice of the expiration dates for the option, because the mistake made during the selection often leads to losses even with the analysis and correctly planned work of the trader.
Dependence of the expiration period of a binary option on the trading style
- With long-term binary options trading (from a month or more), the process of determining the expiration date does not represent any difficulty. It is determined based on the timing of events expected in the future. It could be an expiration date. foreign exchange intervention, change in monetary policy by the Central Bank and more.
- In medium-term trading (from a week to a month), emphasis should not be placed on fundamental economic events, but on the results of technical analysis. In this case, the best choice would be a period of two or three weeks, that is, the average life of a medium-term transaction.
- In short-term trading (up to 1 week) it would be logical to determine the expiration period within a few days. There is one significant point – it is recommended that binary options trading be completed before Friday evening, as over the weekend some events can occur that seriously affect the market picture.
- For intraday binary options trading, the best choice for the expiration date is the end of the trading day, since all fundamental factors have already been won back today, the market is entering a stagnation phase. When trading faster options, the guideline for the expiration dates should be the end of the trading hour.
The choice of the period for trading binary options
So what period should a novice trader choose for profitable binary options trading? Taking into account the fact that short-term options trading, as a rule, is accompanied by a lack of significant trading information, as well as a significant share of excitement, binary options are the best choice, the expiration period of which is no earlier than the end of the trading day.
To achieve more profitable and stable results when trading binary options, it makes sense for a novice trader to try medium-term and long-term trading. The use of super-short terms in binary options trading is not recommended for beginner traders, as they can lead to the formation of a gaming attitude and financial losses. The use of tick options by beginners will generally look like a game in a casino.
Dependence of signal processing time on trading tactics
Along with all of the above, it can be noted that traders often calculate how many bars an open transaction will start to work out, which also allows you to choose the expiration dates of the option. Roughly speaking, for this you need to figure out how many bars will be needed to implement the plan, multiply it by the one used timeframe and then buy the option for the resulting time.
It should be remembered that a certain trading tactic provides for different times necessary for working out a trading signal:
- The fastest for working out a trading signal is trading by candlestick patterns – 2-3 candles.
- Trading on the rebound from the level also implies a quick expiration time – 3-4 candles.
- Trading binary options using breakdown certain levels require a little more time to work out the signal – up to 10 candles.
- The longest period is trend trading, since you have to take into account a possible correction. In this case, the expiration period of the options should be chosen within 20-30 candles.
- When trading using fundamental factors, the range of options expiration periods is very wide. For example, when trading on news, it can be several minutes, when trading on goals that the Central Bank has determined – up to a year.
The most common binary options trading errors
Any financial trading needs to be learned, one way or another, working out its strategy. We will consider the main errors and mistakes of novice traders who trade binary options. It is possible that if you take our advice more carefully, they will help you avoid some bad deals.
1. Trading binary options does not require knowledge
We have already touched upon the consideration of this error at the beginning of the article, but it will not be superfluous to repeat it. Many newcomers to trading, when dealing with binary options, find that they do not need any special knowledge in working with them – I figured out where the price would go, clicked on the button and wait. I would like to note that even the simplest initial knowledge about pricing the asset for which the option is presented will significantly reduce your losses. Not to mention the fact that, ideally, for trading binaries for currency pairs, it’s worthwhile to have a proven strategy and trading experience on Forex. One way or another, any forecasting skills should increase the profitability of your investment, reducing losses.
Bonuses for trading binary options
Binary Options: 9 bonuses to your trading account
2. Binary options – it’s almost a casino
Many players come to binary options trading like in a casino, focusing on the fact that the instrument is actually a “bet” transaction. We will not say that this is completely wrong – there is still a degree of similarity, however, some practice and knowledge in the field of analysis of exchange instruments, and luck rates turn into a well-thought-out strategy that increases the probability of winning from 50/50 to a more attractive number .
If you came into binary options trading for adrenaline and fun, then understanding the process will not reduce your pleasant emotions, but only increase it, because you will start opening deals wisely. Do you agree? Then read the first paragraph again.
3. Short-term binary options are more profitable
Yes, of course, to buy an option contract of 60 seconds and earn 75% of profit in a minute is very tempting. However, it is important to understand that making money on such short (minute, hour) intervals is not so easy, because the noise in the market can turn a profitable contract into a minus in one second. Trends over long periods are much more predictable, and therefore it is better to start with them, not to chase quick and risky profits and learn to see the market.
4. Quick transition to high rates
Quick and easy profits often give rise to euphoria among beginners of binary options trading. Having made 2-3-5-10 profitable trades in small amounts, the trader begins to think: “Why am I trifling if I can buy a contract more expensive and get more money?”. Remember, 11 trades can become unprofitable. Of course, we do not claim that this must happen, but you need to increase the contract value gradually, using about 2-5% of your total deposit. Only in this case, the profit will settle in your pockets stably.
5. Trading only one type of binary options
There are quite a lot of binary options, each of them can be used in different market situations, so you should not focus on one thing when you can use all the features of the market and binary options. It is not necessary to actively get involved in different options, but we recommend you try different options and choose the most suitable for yourself.
In general, binary options trading is characterized as more simple and understandable for beginners trading, including because it does not support the principles of margin requirements and does not require knowledge of money management. Any interested speculator can already evaluate his strength on a demo account with numerous brokers that provide this service.
Other binary options articles
FORTRADER magazine experts
FORTRADER Magazine is a large team of experts in trading in financial markets. Traders, managers, investors, programmers, testers, technical administrators – we all work for you every day for many years. Sometimes we write articles together, then the whole journal becomes the author.
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