Opportunities to invest online, binary option trading is the most viable option which can help them earn high returns with least amount of risk. All you will need as a trader would be good knowledge of various strategies and mix them up to get the best rewards for your investment.
The good thing about binary option trading is that it is quite simple to work with as compared to other forms of online trading since you need to only predict whether price of any particular asset will be moving up or going down in any particular time period.
In the following sections we will look at some of the most popular binary options trading strategies to plan your investments and earn more profits.
Table Of Contents
- What are the Binary Options Strategies?
- Why Need Binary Options trading Strategies?
- What is a good trading strategies?
- Why Should trade multiple strategies?
- General Binary Options Strategy
What are the Binary Options Strategies?
Binary option strategies can help traders exactly predict whether the prices will move up or down and reduce the amount of risk they need to take. Normally binary options strategies are divided into 2 main categories, which are:
- Betting Models
- Predicting Market Direction
Betting Models: Some of the strategies rely on betting models and work on the presumption that by monitoring certain investment patterns and selecting the right time to invest can help you make profit even if you are not skilled in predicting the market.
These strategies deduce that in some particular situations the trader can create his own buying strategy and increase chances of winning. Some of the strategies which fall in this category are the Grinding strategy and the News based strategy.
Predicting Market Direction: These strategies rely on use of statistical as well as technical evidence which states that in few circumstances there is higher probability of market moving in any particular direction in comparison to other direction.
Why Need Binary Options trading Strategies?
We would like to mention here that every strategy is not good and those which are good many not be useful for everyone since a lot depends upon the expertise a trader has in understanding any particular strategy. Many of these strategies are quite easy to implement and are suitable for beginners while many other strategies exist which are used by more experienced traders.
The benefit of using a strategy is that it can significantly improve your ability to make profits. These strategies help to judge the behavioral patterns present in the market and assist traders take the right decisions, reduce risks and earn more profits.
What is a good trading strategy?
Good binary options trading strategy will at first need to focus on tracing the right signals which will help you transform the trading plan into a reality.
The next step after finding the right signals is to check whether price actions equal any obvious levels. It would also be necessary for you to plot the support as well as resistance levels on the chart and follow them properly.
It will be important for you to know if market is trending or consolidating as well as check the present trading range. In case the signals are strong but you find that conditions in the market are not suitable for implementing the trading plan you have created it would be better not to act upon your signals.
Why should trade multiple strategies?
For trading in binary options it is necessary for any trader to remain adaptable as well as dynamic. As the markets keep on changing, it is important for you as a trader to use multiple strategies to have better adaptability when the market situations are difficult.
By having proper knowledge of most of the common as well as useful strategies you will be able to use them as needed and correctly judge the market conditions before making any kind of investment decision.
Any single strategy cannot always work perfectly in different market condition thus it is important to make use of different strategies at different times depending upon the condition of the market.
General Binary Options Trading Strategies
Let us now look at some of the common binary option strategies which can greatly help you in improving your chances of earning good returns on your investment and most traders, be it beginners or more experienced ones make use of:
- 60 Second Strategies
- 5 Minute Strategies
- 10 Minute Strategies
- 15 Minute Strategies
- 30 Minute Strategies
- 1 Hour Strategies
- End Of Day Strategies
- News Based Strategies
60 Second Strategies
Here the timeframe of any trade is just 60 seconds, giving you the opportunity to take part in multiple trades throughout the day. In this type of trading the strategy is to use indicators such as volume spread analysis (VSA) indicator and engulfing candlestick pattern to get the best result from your trading activity. Let us briefly look at these two constituent of a 60 second strategy.
Volume Spread Analysis
- Here the red indicates high volume meaning other investors are selling in bearish candle.
- In case of green it means there is a heavy buying trend in a bullish candle.
- Buying climax at tops would indicate a probable downward trend in the market.
- Selling climax at bottoms refers to upward movement in the market.
- Bullish pattern shows that in case of reversal the bullish candle tends to engulf the earlier bearish candle.
- A bearish pattern refers to a reversal with new bearish candle engulfing earlier bullish candle.
Another 60 second strategy that is used by many trades is of utilizing only one indicator which is the MACD indicator. This indicator measures any particular trend’s momentum and the signaling process involves just two steps.
The first step of the signaling process involves crossing of white MACD line by the blue MACD line. In case the blue MACD line move over the white line then you need to place a call trade and put trade if the opposite is true.
5 Minute Strategies
It is a very good introductory strategy to begin trading and use technical analysis. This strategy helps beginner traders gain knowledge of techniques for using different technical indicators and start making profits. In this strategy basic analysis is performed on 1 minute charts while the trades are executed in five minutes.
The benefit for the trader is that it allows the person to make greater number of trades within one trading session.
The fundamental concept used in this strategy is to enter any position on resistance levels in which it is expected that short term reversals will take place. After the basic concept is clear the trader can easily move onto trading with high time frames, as for example, five minute chart with ten minute expiry time.
10 Minute Strategies
10 minute binary options provide you an exciting and fast paced trading option where it is possible to earn good profits. Benefits of 10 minute trading is that it allows you to have better control over the money and lets you manage your financial resources in a much better way.
The other good thing about them is that many 10 minute trades can be fitted into every hour as compared to what is possible when you are trading with one hour option and provides you with as much as 75% returns on your investment.
The main strategy here is to work with charts for short term asset prices such as 1 and 5 minute price charts and correctly interpret the data available in these charts. In addition to it, you should also be able to understand the longer charts to know the general trends any particular asset is going through.
15 Minute Strategies
As the name suggests, the 15 minute binary option trading has a time frame of 15 minutes and is a rapid paced trading option that provides good earning opportunity. The strategy used here is beneficial in predicting market movement direction and provides you with very high percentage of finishing with positive returns.
This strategy works on the concept that each and every market tends to correct itself after moving in any one direction and the prices normally move up or down. According to this strategy in case the prices went down in earlier time frame then it is likely that they would be moving up in the next time period.
This is certainly not a rule and exception will always occur, particularly in conditions when the market is moving on a trend. However, in calm conditions when there are lesser fluctuations the upward and downward movements will be quite constant.
In 15 minute binary option trading most of the trading platforms will provide you with last 45 minute charts so that it becomes easier for you to check the fluctuations in the market and take decisions accordingly.
30 Minute Strategies
These binary options are of 30 minute timeframe and most common strategy used for them involves use of candlestick charts. The benefit of using candlesticks is that they help to easily view the market data, help you easily comprehend the different price actions as well as are relatively easy to be included in any automated trading system.
These candlestick charts are created using data consisting of details about high, open, low and close prices and provide useful details to work with for any trader.
In this candlestick strategy the rule involves long trades where three consecutive low bars are present where in short trades there are three consecutive high bars. Here the aim is to enter at close of any bar while exit at the closing of the following bar.
In this strategy various trading tools are used such as:
- Chart Time Frames: There are 2 chart time frames used one of longer duration and the other of shorter duration. The shorter time frame is used to pin point the entry while the other one is used to determine trends as well as set trade directions.
- Moving Averages: The present is determined with the help of 3 moving averages such as the 21 bar, 50 bar and the 5 bar.
- Support and Resistance: These support and resistance lines are drawn to figure out the potential areas and can be used in conjunction with Fibonacci Retracements.
- Relative Strength Index: RSI helps to pin-point entry consisting of four bars and is useful for producing signals which follow all underlying trends that are fixed in any 30 minute chart.
- Stochastic: Here the stochastic functions like coincident indicator and is used for confirming entries as well as exits and for determining all the underlying trends.
1 Hour Strategies
The main focus here is on the 1 hour charts and moving averages, relative strength index as well as candlesticks are used as part of the strategy. The best option is to set RSI to 20,80 and make use of 2 moving averages. In this strategy it is normally seen that the best signals tend to occur at the time RSI moves out from the oversold or overbought situation.
As part of the strategy it is advisable to go for call option when MACD is in the oversold phase with growing trend in RSI. At this juncture the price is seen to be somewhere between the upper and middle Bollinger tape, allowing you to further increase your prices.
Similarly, the put option is to be applied when overbought phase is crossed by MACD and RSI trends at lower position. It is also seen that the price reaches the lower Bollinger bands at this position.
The advantage of this strategy is that it utilizes a mix of indicators which help to filter out market fluctuations and reveal the underlying trends. The good thing about using MACD, RSI and Bollinger bands together is that it helps to selectively pick trades which adhere to the trend.
The other good thing is that MACD helps to correctly predict any reversal in trend. Similarly, the Bollinger bands help you do comparison of volatility as well as check price levels and are good means of targeting short term movements.
End of Day Strategies
As part of this strategy you should avoid trading in case a couple of hours are left before day ends. The entry rule for this type of strategy is to use day time price and chart TF for the one hour duration.
The benefit of end of day trading strategy is that it allows to cut-off market noise, intra-day fluctuations and disturbances in assets thereby allowing you to trade in a lot efficient manner.
Here the main idea is to concentrate on trading activities during the time period between close of New York market and the beginning of trading in the European market. It is ideal for traders who want to get involved in trading activities after finishing their normal work schedules.
The other advantage is that the signals obtained in this time period have higher probability in comparison to those obtained at the time of intra-day trading.
News Based Strategies
In news based strategy the common trend is to follow the news from the forex economic calendar. It is also worth mentioning here that this strategy remains valid for very short time after the economic news is published and time duration is a maximum of five minutes for which the news remains useful.
The next step is to check the news which can result in increased volatility in the market and work accordingly.
The news selected is judged on the basis of degree of volatility for any particular currency as well as the date and hour of publication of the news.
The benefit of using this strategy is that any new items generally imparts its effect on the price right at the time it is published, so if a trader can act swiftly then making good profits is quite possible.
As for example, if any statement is released by FOMC, then even if you do not know in which direction the price will move, you will however know for sure that it will be strong movement, therefore here your strategy will be to purchase a Range Outside option prior to release of the news since the price will definitely move below or above the present range due to release of the said news.
We can look at another example where the Fed Reserve makes an interest rate decision. Here the rate for the currency would definitely rise in case the interest rate is left unchanged or raised while currency rate will move down if interest rate is cut.
In this context if the forecast is that the rate will increase then you need to purchase a Standard Up option to get a guaranteed win.
To conclude we will say that binary options strategies can be quite useful in helping you earn higher returns on your investment and the main thing here is to select the right strategy.
By acquiring good knowledge of the different strategies and mixing them in the right manner you will be able to minimize your risks and earn higher rewards for your efforts.
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