Trading Tools

Pick the Right Trading Tools for the Job!

In the world of binary options trading, you have access to a wide range of trading tools. These resources are designed to help you analyse market conditions, minimise losses, maximize gains, anticipate future price movements and make the right trades at the right time. There are different trading tools for different types of financial assets, and all of them are designed to make your trading activity easier and more profitable. However, a caveat is in order: trading tools are not guarantees of success – they are designed to diminish your potential losses and maximise your potential gains. The vast majority of trading tools are provided as a value-added service by the binary options platform. Many different types of trading tools are available, including rollover features, early closures, hedging and so forth. You will do well to read up about each of these available trading tools since they are packed with feature-rich material.

Using Hedging as a Trading Tool

You have probably heard the expression: ‘Hedging your bets’. Hedging is a tool that is tremendously useful to you as a binary options trader. When you hedge your bets you’re effectively opening up an additional position to protect against the position that you currently have. Put differently, you are taking out insurance on an existing trade in the event that it doesn’t go the way you want it to. By opening up multiple positions simultaneously, you are minimising the likelihood that you will lose all of your money on any given trade. The reasoning behind this technique is to minimise your risks while you have assumed a high probability trade. In the event that your existing trade does not go the way you want, the hedged position will work in your favour. By using hedging as an effective trading tool, the trades that are most likely to be profitable will be bolstered with hedged trades that can cover for those that may reverse.

When you hedge your positions, you are taking out long and short options on the same underlying asset at the same time. In other words you are saying that the asset price will decrease and increase. The trick with hedging is to buy in at the right price. This is an ideal way to preserve your capital and increase your profits. Naturally only one outcome will result when you use hedging as part of your trading strategy – the trade will finish in the money or out of the money, and the difference between the two positions will determine your profit or your loss. Hedging reduces your losses, but cannot always eliminate them entirely. You must remember that you must buy in as close to the strike price as you can to avoid losing on both positions.

Trading Tools

Using Rollover as a Trading Tool

As a binary options trader, you will find that timing is everything. And in this regard, rollover is one of the most effective tools that you can use to help you to become a more profitable trader. This is especially true if you have prior knowledge of trading. When you use rollover, you are allowing your trade to extend into an additional trading session. In other words you are pushing the expiry time back. It should be borne in mind that the rollover tool is not free, and you must make an additional investment over and above the original one. What happens when you do this is that your potential losses will be greater than they would have been had you maintained the original trade. You may notice that your trade will finish out of the money if you do not extend it for another trading session. Things like an important economic announcement may cause a reversal in the price of your underlying asset, and in such an instance rollover would be the right decision. Rollovers are likely to turn losses into potential profits by extending the timeframe (expiry time) of your asset. Naturally, you should have a clear understanding of how the market functions, and how an extension will likely benefit you in this way.

Using Early Closure as a Trading Tool

Believe it or not, the majority of binary options trading sites offer you many unique tools to help you improve your profitability. One such tool that is often overlooked is the early closure tool. Sometimes you will need to close out the trade because you anticipate that it will end out of the money if you don’t do so. When you close your trades out early, there are several features that you can use to help you. It should be remembered that there are costs involved in closing out the position before its preset expiry time. Typically, your percentage return will be lower. The closer your trade is to expiring, the greater the loss will be. Another factor that will be taken into account is the strike price relative to the current price. There are many reasons why you would want to utilize early closure in your trades, not least of which is preventing the complete loss of the capital you have invested in a trade that appears to be headed for a loss. If you see that your existing trade is unsalvageable, your best bet is to divest from a trade – cut your losses – and invest your money in a different trade.

Using Charts as a Trading Tool

Technical analysis cannot be performed without charts. When you study charts, you have an in-depth understanding of multiple aspects of an asset’s behaviour. The accuracy of your predictions in binary options trading is dependent on how well you use charting to read into the technical aspects of each asset. Charts can show you everything you need to see about an asset’s price over time. By looking at the history of an asset’s performance, trends become apparent. You can utilize this information to make forecasts about the asset’s price movements. By using charts you will see if the price of an asset is moving horizontally, up or down. This will give you a good indication of how you should trade that particular asset.

Using Technical Indicators as a Trading Tool

Charts are an important resource, but when you add in technical indicators, your likelihood of finishing in the money is greatly enhanced. Technical indicators come in many different forms including the Moving Average Convergence Divergence, also known as the MACD technical indicator. These types of indicators make it easier for you to understand where price breakouts are likely to take place, crossovers from negative to positive/positive to negative and so forth. By correctly focusing on charting and technical indicators simultaneously, you will be more likely to win more consistently on your trades. Analysts always advise traders to understand the theory and practicality of using charting in technical indicators when trading for real money. It is always in your best interests to practice your understanding of charting and technical indicators on a demo trading platform at your chosen binary options broker. That way you can get comfortable with your price action predictive abilities and how to use them in real-world applications.