Trading Strategies

Trading Binary Options Does not require a Lot of Practical Experience

There is a pervasive opinion that only experienced traders can dabble in the binary options trading arena. Nothing could be further from the truth. In fact, traders are not required to have any prior experience in financial trading to get started with binary options trading. With just a little skill, education and time, anyone can grasp the basics of binary options trading. What you are required to do is simply to forecast the price direction of an asset by the time of expiry. There are only 2 possible outcomes in this regard: The price will either increase at expiry time (call option) or the price will decrease at expiry time (put option). The most successful binary options traders make use of the most user-friendly trading methodologies, strategies and resources.

Objective #1: Risk Minimization

Ideally you want to maximize your profits and minimize your risks. Risk is the chance you take in order to pursue profits. The riskier your trade, the greater your payoff should be. TopTenBinaryBrokers.com is all about identifying effective trading strategies to help you maximize your return on equity. Of course, these techniques are simple because they are designed for casual traders. The goal is to identify market signals so that you are best positioned to capitalize on what transpires in the market.

A caveat is in order: Binary options trading is inherently risky, but you can mitigate your risks by following sound advice:

  • Only trade with capital that you can afford to lose
  • Minimize the size of your individual trades so as not to lose your entire capital investment at once
  • Understand the fundamentals of your chosen financial assets before you start trading for real money
  • Practice as much as possible with a demo trading platform before you trade for real money
  • Limit the size of your individual trades to a maximum of 10% of your capital, but ideally your individual trades should be no more than 5% of your capital amount

What Strategies Should You Employ?

When you trade binary options, you have access to multiple types of assets. These include currency pairs, commodities (crude oil, gold, silver, copper, wheat, natural gas), stocks (Microsoft, Yahoo, Alibaba, Facebook, Twitter, BHP Billiton etc.) and indices (Dow Jones Industrial Average, NASDAQ, FTSE 100, Johannesburg Stock Exchange). Within each of these broad asset categories are perhaps hundreds of sub-components. The best strategy to employ when you’re trading binary options is to narrow your focus to a specific component, or tradable asset. You may wish to focus on an individual currency pair such as the EUR/USD. By honing in on specific assets, you can learn everything there is to know about that particular tradable asset. Things like interest-rate announcements, employment rates, consumer confidence, PMI data and the like will all impact on this currency pair. The more you trade an individual asset, the more likely you are to understand what makes that asset’s price move up and down. This will make your prediction powers so much sharper. TopTenBinaryBrokers.com will introduce you to 2 unique strategies that you can use while you’re trading binary options online: Call and Put Options.

Trading Strategies

Binary Options Trading Strategies

Introducing the Trend Strategy

There is an expression that many traders use: The trend is your friend. Believe it or not, the vast majority of experienced traders and casual traders use the trend strategy. Another name for it is the Bull/Bear strategy. The trend strategy follows long-term patterns in assets. Either the asset’s price will be rising or declining. There is also a flat line trend for the tradable asset. In the event that you anticipate a flat line trend, you may forecast that the price of that asset will increase or decrease, and as a binary options trader you would elect the No Touch Option.

There are two important points for you to remember:

  1. If you are confident that the trend line shows the asset price will decrease, you would place a Put Option
  2. If you are confident that the trend line shows that the asset price will increase, you would place a Call Option

The Put Option requires a little more understanding. It works in much the same way as the Call/Put Option, with an important distinction: The price of the asset must not reach the put option price prior to the expiry of the asset. If you have a No Touch Binary Option on Facebook stock, and the current price of Facebook is $93.87, and the no touch option price is $100 for an 82% return, you would not want the price to exceed or equal $100 before expiry in order to collect.

The Pinocchio Trading Strategy

You would use this strategy when you’re expecting the price of an asset to fall or rise very quickly in the opposite direction. If you expect the price to drop you would choose a put option and if you expect the price to rise, you would select a call option. TopTenBinaryBrokers.com encourages you to try the strategy with a demo trading account before you employ it with real money trading.

The Straddle Trading Strategy

When the markets are highly volatile, and just prior to the release of important economic data which is related to specific stocks, the straddle strategy is best to use. It is one of the most highly regarded trading strategies on the market among professional traders. Instead of choosing either a call option or a put option for any underlying asset, the trader can effectively straddle between both call options and put options. When the asset price is increasing, you would place a put option on the asset, and when the asset price is decreasing, you would place a call option on the asset so what you are effectively doing is straddling between call and put options in the opposite direction. You are increasing the likelihood of being in the money when one of the trades goes your way. This is especially useful to you as a binary options trader when any asset is volatile in nature.

The Risk Reversal Trading Strategy

This is a highly reputable trading strategy with professional binary options traders. It is all about reducing the element of risk when you’re trading, and increasing the likelihood of a profitable trade, with strong gains. The way the strategy unfolds is by placing Call and Put Options at the same time on a particular tradable asset. When assets have wildly fluctuating prices, this is one of the best strategies to employ. Since binary options provide for one of two possible outcomes, you can rest assured that at least one of the trades in a Risk Reversal Strategy will come good.

The Hedging Strategy

The Hedging Strategy is otherwise known as a Paring Strategy. Those who use this popular trading strategy include binary options traders from the corporate sector, and investors in typical stock exchange transactions. This methodology is used to minimize risks and to protect investments. When you’re hedging, you’re protecting against a specific outcome. So you would essentially place a call option as well as a put option on the same underlying asset. Hedging allows you to guarantee an in the money outcome, regardless of the market movement. So if you were hedging on gold, you would place a call option on gold increasing in value as was a put option on gold decreasing value. This protects you against any eventuality in the trading arena. In order to generate money with hedging, one of the options must generate a larger profit for you than the losing option.

Using Fundamental Analysis as a Strategy

Fundamental analysis is all about detailed reviews of the financial components of the company. As such it is best used for specific assets such as stock trading. By studying the fundamentals of the company, it becomes easier to understand the future price movements of that company’s stock. Things to look out for include financial statements, earnings reports and the company’s market share. By knowing these details, you will be able to ascertain with a greater degree of accuracy the future price movements of the stock. You can even use binary options trading bots to help you to generate profit without having to worry about the finer details.